In recent months, industry chatter about a retail automotive market plateau is on the rise. Lending is starting to tighten, and the focus on compliance is causing uneasiness.
This environment is leading dealers to wonder what they can do to augment income potential in the months ahead.
Today’s dealers should turn their attention to F&I and fixed operations. Understanding the connection between F&I and the service drive can boost dealership profitability exponentially, despite today’s market pressures.
As consumers secure longer loan terms and own their vehicles longer, they also have come to expect more value from the brands they purchase. As a result, service models have evolved to include offerings and build relationships that cater to the consumer’s needs.
Today’s car buyers also know what it takes to maintain older vehicles. They are aware of the challenges when they are sitting in the F&I office. Imagine talking to a consumer who has dealt with three or more costly vehicle repairs within a single year. While they are concerned with current-model dependability, the expectation is they still plan to keep their vehicles longer than what was considered normal in the past.
For these reasons, the sale of consumer-protection products has the potential to directly correlate with service-drive traffic. Products such as vehicle service contracts, prepaid maintenance and tire and wheel protection continue to bring people back to the service department for ongoing maintenance and repairs.
Each of these products has the potential to increase service-drive traffic, and provide protection and services to both lease and finance customers. Their benefits must be presented adequately to customers so they understand exactly what they are purchasing.
Prepaid maintenance, for example, provides the largest opportunity for the service drive. It allows customers to avoid the increasing costs of an oil change or routine maintenance, because the customer pays for these services in advance and at a lower cost. Prepaid maintenance helps customers more easily track vehicle maintenance through automatic record-keeping. Because they are meeting the manufacturer’s requirements automatically, customers have more opportunity to negotiate a better trade-in on the vehicle when they are ready for their next car.
Offering F&I products to meet your customer’s current needs helps enhance your dealership’s brand and generate lasting consumer relationships. But before you determine what products to offer, you must conduct research to understand your customer base:
- Take a look at demographics in the area where the dealership is located.
- Evaluate the top-selling vehicle models and price points at which they are sold.
- Compare those top-selling models to their service drive history. Is there a function that needs addressing sooner or more often? Do customers who purchase these vehicles tend to be concerned with trade-in value?
- Consult with the service department to better determine which products will have a higher claims rate.
This type of research can provide a general picture of a typical customer and where their needs lie. Understanding this will help you select from the broad menu of F&I items available and build a tailored list of offerings to meet them.
When customers have been educated thoroughly about the benefits of F&I products, they are more likely to return to the dealership to use it. Regular service customers are 17 times more likely to buy their next vehicle from their servicing dealership, according to the National Automobile Dealers Assn. In addition, an increase in customer retention rates of just 5% improves dealership profits 35%.
By evaluating how their F&I department can better serve the service drive with relevant products, dealers have the opportunity to cultivate long-term repeat business and referrals – and increase the potential for growth.
Regardless of market conditions or lending trends, dealers that invest in their F&I and service operations today will be better equipped to meet their profitability goals in the future.
John Stephens is senior vice president of Dealer Services at EFG Companies. He can be reached at 972-445-8910 and [email protected]