F&I Light Keeps Burning

Some industry news is bad enough to make many dealers want to switch off the store lights and go home. NADA's average dealership profile indicates that total dealership expenses as a percent of total sales increased from 11.2% to 11.4% in 2002. Net profit before taxes as a percent of total sales declined from 2% to 1.9% in 2002. Sales are expected to soften (Ward's forecasts 2003 U.S. vehicle sales

Some industry news is bad enough to make many dealers want to switch off the store lights and go home.

NADA's average dealership profile indicates that total dealership expenses as a percent of total sales increased from 11.2% to 11.4% in 2002. Net profit before taxes as a percent of total sales declined from 2% to 1.9% in 2002.

Sales are expected to soften (Ward's forecasts 2003 U.S. vehicle sales at 16.3 million units, a 500,000 drop from 2002).

And, your return on investment is suffering. So what can a dealer do?

One light burns brightly in dealerships across America today. All the current research indicates professionally managed F&I departments contribute the highest profit return of any dealership department.

Over the last decade, the F&I department has increased its contribution to total dealership profits from 27% to 41%. Research shows that, after all charge backs and costs have been accounted for, the efficient dealer should except to keep 70-80 cents on the dollar as profit. What other department offers that?

However, simply having an F&I department is not enough to guarantee high profits and low expenses as the standard. There are some practical and necessary steps towards that:

  1. Ensure that your F&I manager has been trained in the last 12 months.

    a. A study shows an F&I manager, after attending a formal F&I class, could expect to gain on average an extra $83,000 in product sales in the ensuing 12 months.

    b. Research indicates that the average increase in dollars per retail unit increased by $135 over a six-month period following formal training.

  2. Mandate that all vehicle buyers are professionally turned over to your F&I manager.

    a. Insist that 100% of your customers are given the opportunity to meet with your F&I manager at point of sale — not point of delivery.

    b. The turnover needs to be straightforward, with the client understanding what the process will involve.

  3. Consider using a menu system of selling.

    a. Menus ensure that 100% of your customers are presented 100% of products 100% of the time.

    b. Menus help reduce chargebacks, as your clients will clearly understand what they have purchased.

  4. Treat F&I managers as part of your senior management team.

    a. Insist that they meet with your sales managers daily to discuss all deals not yet approved. Ask that the management work together to get all deals bought.

    b. Encourage your F&I managers to be involved in training your sales force, so they fully understand F&I's importance to the dealership.

  5. Make sure that the products you offer have actual value for your customers.

    a. Extended service contracts bring value to both you and your customer. If a dealership selling 150 vehicles a month gets a 10% improvement in extended service contract penetration and increases gross profit by $100 per unit, annual profit increases by $18,000.

    b. Don't let your F&I manager present only the “easy sells.” If you want to create repeat customers, sell them products that actually protect their credit and their investment.

  6. Insist on excellence.

    a. Insist that your F&I managers operate ethically and behave as ambassadors for your dealership at all times.

It may be impossible to predict what will occur in the market place over the next few years. But by adhering to the aforementioned steps, your most profitable department will continue to boost revenues and light the way.

Andrew J. Blazsanyik (847-953-6057) Andrew_Blazsanyik is senior vice president of Resource Training, an Aon Co. subsidiary.

TAGS: Dealers Retail
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