The Finance and Insurance department is an integral part of any dealership operation. The average Ward’s 500 Dealer brought in about $3.3 million in F&I revenue in 2000. Considering overhead is pretty low for F&I departments, that’s a pretty good chunk of change.
Ron Martin, F&I columnist for Ward’s Dealer Business, and owner of The Vision of F&I, Inc. notes that industry data shows had it not been for F&I revenue, new car dealers would have lost $140 per vehicle in 1999 – down from $168 in 1998.
B.J. McCombs, whose Red McCombs Superior Pontiac store is on the Ward’s Top 20 in F&I with $8.5 in revenue, says his F&I department is now “kind of a nerve center for the dealership, rather than just an aspect.”
Mr. Martin thinks this should the case for every F&I department. He calls the finance office the “hub of the organization.” The department has to interact with all of the other dealership departments. Consider the sales department – 75% of all customers finance their vehicles with the dealership. The F&I people have to work with the salesperson and customer to provide financing that meets the customer’s budgetary constraints.
“An aggressive finance department can help the sales department sell 10% more vehicles through their ability to network the lenders for the best financing arrangements,” Mr. Martin estimates.
The department also has to assist the office people in making sure the paperwork is correct. Incorrect paperwork can affect whether or not funding on various contracts can be obtained. Mr. Martin explains,“If the funding on several contracts falls through, a dealer can be put in a negative cash flow position very quickly.”
A close working relationship is needed also with the service department because the F&I department sells the service contracts, which can be the second biggest profit center for a dealership.
Because of the importance of the F&I department, Mr. Martin advises dealers that the F&I manager should one of the best people in the organization.
Mr. McCombs thinks the growing importance of the F&I department has made it easier to attract talented people. California dealer Dave Conant agrees. “We do have a great working environment and that makes it easy to attract top talent.” Mr. Conant’s Norm Reeves Honda dealerships, in Huntington Beach and Cerritos, CA both are on the Top 20 in F&I on the Ward’s list.
When asked what makes his store so successful in F&I, Mr. McCombs responds, “I don’t think we’re doing anything different than other dealerships. We do have some continuity though. Our people are becoming comfortable in their jobs.”
He credits some of the success to the industry as a whole learning about the business. And the increase in marketing of F&I products goes “beyond anything I would’ve thought possible several years ago.”
For Mr. Conant, in-store processes drive the success of his F&I departments. “First, we don’t allow anyone to cut the finance department out of any deal,” he notes. Also, Mr. Conant is very careful about what products his stores sell. He explains, “We’ve carefully thought through each product. We’re confident we’re providing the customers with what they need.” Selling what the customer needs ensures the stores have very low charge-back rates.
The financing rate for each product is capped at 2%. This way, the F&I people need to sell each of the products in order to make money. Training is constant – every week, says Mr. Conant. An outside vendor, Southwest Dealer Services conducts much of the training. “If the product is presented properly, it will usually sell,” Mr. Conant believes.
“It’s about having great ethics,” says Mr. Conant. “We try to be fair to the customer in the products we sell and making sure the transaction stays fair throughout the entire process.” Because of this philosophy and his reputation, Mr. Conant has avoided much of the recent and intense scrutiny dealerships in California have been encountering.