In today’s constantly evolving automotive industry, dealerships face the challenge of maximizing revenue amid fluctuating market conditions and consumer preferences. Particularly in today’s times of economic uncertainty, it becomes paramount for auto retailers to explore revenue channels that can bolster their financial bottom line. That’s why leading dealers have embraced opportunities to expand their F&I and wealth-building program options as a strategic investment for their business.
Auto retail executives recently polled by Automotive News expressed ongoing apprehension regarding the potential impact of interest rates and affordability on their operations. Following recent years of record profitability, many anticipate a decline in annual margins for new-car sales, prompting them to allocate increased funds toward advertising both vehicle sales and services. This heightened concern stems from increased expenses due to inflation, consumer anxiety surrounding elevated purchase prices and borrowing expenses.
Navigating a Difficult Climate in 2024
A little more than one-third of dealers surveyed said they expect their dealership’s overall performance to worsen in 2024. About 39% believe performance will be better or much better than it was in 2023. Twenty-five percent said they anticipate a performance similar to 2023.
The outlook on overall dealership profit is just as uncertain, as 37% said they expect overall profit to worsen, while 32% said they expect it to stay about the same. Thirty-one percent said they expect profit to be better or much better in 2024.
The automotive industry is no stranger to volatility, with economic downturns, shifts in consumer behavior and regulatory changes frequently reshaping the competitive landscape. In such a dynamic environment, auto dealers must exhibit agility and adaptability. F&I products and wealth-building programs present a valuable opportunity for dealerships to diversify revenue streams and mitigate the impact of market fluctuations.
How F&I Programs Can Help the Bottom Line
At its core, the automotive retail business operates on thin profit margins, with vehicle sales alone often failing to yield substantial returns. However, F&I can offer considerably higher profit margins, thereby augmenting the dealership’s bottom line. By effectively integrating F&I products into their sales strategy, dealerships can significantly enhance profitability and offset any potential downturns in vehicle sales.
Beyond its financial benefits, prioritizing F&I product sales fosters stronger relationships with consumers. By offering comprehensive protection plans and tailored financial solutions, dealerships demonstrate a commitment to consumer satisfaction and long-term support. This not only enhances brand loyalty but also increases the likelihood of repeat business and positive referrals. This is especially true today, as consumers struggle with affordability on new-vehicle purchases along with rising repair costs and opt to drive their cars longer.
Tailored, Compliant and Transparent Wealth Building
A popular way dealers are further contributing to their overall profitability is by structuring a wealth-building program, whereby dealers own, market, sell and retain underwriting and investment income through their own branded F&I program. These are known as Protective Dealer-Owned Warranty Companies. Besides greater profit potential, the big benefits of a Protective Dealer-Owned Warranty Company to the dealer are the ability to tailor their own F&I offerings & pricing, deposit claim reserves directly into an investment account of their choosing without passing through an administrator, consult personally with their trusted financial advisor to maximize returns and access capital through disbursements and loans. The F&I products associated with this leading wealth-building opportunity can range from service contracts and limited warranties to ancillary products such as road hazard, appearance protection and a host of others allowing the dealer to establish their own pricing, enabling stronger profit levels compared with OEM-driven warranty programs.
In addition to a Protective Dealer-Owned Warranty Company, there are other very attractive wealth-building programs that can drive considerable profits for a dealer’s long-term investment and legacy strategies. Reinsurance programs like controlled foreign corporations and non-controlled foreign corporations allow dealers to earn F&I-generated claim reserves, taking advantage of investment income and a favorable tax environment.
In an era marked by heightened regulatory scrutiny and consumer empowerment, partnering with a company that insists on maintaining compliance and transparency is non-negotiable. F&I products and dealer wealth-building strategies, when presented ethically and transparently, serve as valuable tools for meeting regulatory requirements and build trust with customers while creating a legacy wealth opportunity for the dealer.
Realizing the full potential of F&I product sales and wealth-building structures requires more than mere lip service; it demands investment in staff training and technology. Equipping sales teams with comprehensive product knowledge and effective selling techniques empowers them to engage customers confidently and ethically. Moreover, leveraging technology solutions, such as digital F&I menus and CRM integration, help streamline the sales process and enhance operational efficiency.
The automotive industry’s resilience in challenging times hinges upon its ability to innovate and adapt. Auto dealers must recognize the untapped potential of F&I products and wealth-building structures as cornerstones of revenue maximization and consumer satisfaction. By prioritizing F&I product sales and legacy wealth building, dealerships can fortify their financial position, strengthen consumer relationships, ensure regulatory compliance and drive sustainable growth even in the most demanding business climates.
As the industry continues to evolve, embracing F&I and wealth building as strategic imperatives isn't just prudent. It’s essential for long-term success.
Tim Blochowiak (pictured, upper left) is vice president of Client Wealth for Protective Asset Protection.
