When profit margins on new-vehicle sales began to slip, dealers always had the back shop and the finance and insurance department on which to fall back.
Now the F&I profit center is under attack - not necessarily by the factory, but by the market.
The industry's obsession with customer satisfaction is leading F&I staffers to act more like consultants than salespeople.
Government regulations, born of customers who felt they were mislead, are making "full disclosure" a new industry buzz phrase. And the improving quality and the popularity of leasing of new vehicles is leading customers to give second thoughts to products such as service contracts, credit life and credit disability.
And the Internet is adding to the equation.
"The shopper is more aware," says Doug Fresard, president of Jim Fresard Pontiac-Buick in Royal Oak, MI, explaining why F&I departments are changing. "Everyone knows more about what's happening in the sale of a car. It's definitely a more sophisticated buyer."
API Vice President George Anderson says there's nothing wrong with the F&I side of the business that a return to the basics can't cure.
Those basics include delivering the vehicle, improving cash flow, protecting the dealer's assets, making a profit and boosting customer satisfaction.
"The F&I industry has gotten away from what Pat Ryan focused on in 1966 when he began going from dealer door to dealer door with extended service contracts in his trunk," says Mr. Anderson. "He launched the concept of establishing F&I as a front-line profits builder rather than sideline."
Mr. Anderson says dealers who followed Mr. Ryan's advice saw F&I income and profits grow as a strong separate department.
"A lot of what's driving F&I today is customer satisfaction," says Bob Pence, a dealer process consultant at Ford Credit. "Customers are very payment and interest rate conscious. We need to deal with these needs."
Louis Carrio, GMAC's director of educational services, says the answer is moving to more of a consultant-like approach to F&I sales.
"It's explaining as opposed to selling," says Mr. Carrio. "It's informing as opposed to concealing information. It's making sure the customers have all the facts. The change is substantially attitudinal and change is difficult. We tend to lean toward what is comfortable."
Mr. Pence explains that F&I salespeople should be trying to offer customers the F&I products that best fit their needs, rather than just selling as many products as possible.
"It means taking the time to get to know the customer - their driving habits and family situations," he says. "When you recommend something that suits their needs, they're more likely to buy. It's always worth a few minutes of time to discuss what an extended warranty can do for the customer, or credit life or credit disability."
Most of those involved in selling F&I products or training people to sell F&I say a presentation with a full explanation of features and benefits is the most effective technique.
In addition to customers wanting friendlier financial dealings, the federal and state governments are getting into the act.
"Regulations are more of an issue for dealers," says Mr. Carrio. "They need to pay attention to the letter and the spirit of these regulations, especially the ones about full disclosure and leasing."
In addition to the legal ramifications, mislead customers "plant the seeds for dissatisfaction two years down the line," says Mr. Carrio.
However he understands it's sometimes easy for details to fall through the cracks during a sale.
"Things are happening pretty fast at the close of a deal," he explains. "Things need to be spelled out clearly about what the customer is responsible for in terms of wear and tear, over mileage and early termination. It's become increasingly important that customers get good explanations - ones that will stand the test of time."
Mr. Fresard says he's streamlined his F&I department a bit due to the changes in the marketplace with respect to demand for service contracts, credit life and credit disability products.
Yet the department's sales and profit remain "consistent" over the past few years, he says.
"Selling service contracts is still a challenge because of vehicle quality and broad manufacturer warranties," says GMAC's Mr. Carrio. He maintains they're still viable products, but require training to sell effectively.
MS Diversified's United Service Protection Corp. (USPC) also is looking at an official shift in the way its products are presented.
"We're enjoying good feedback in all the 50 states by showing our dealers that showing customers everything on the menu works far better than stressing costs," says Mike Anderson, a USPC senior vice president. "Sell them non-confrontationally on what they need and want. Cost is secondary.
Mr. Fresard says many manufacturers have shortened warranties and narrowed coverage in recent years, opening the door to customers who may want the added security and the addition of rental car coverage.
"The loss of extended warranty business is related to a dealerships using the old-style F&I sales process and not the features-benefits presentations," says Robert Pence, dealer processing consultant for Ford Credit Co.
Although the popularity of leasing and improving vehicle quality may be hampering sales of extended service contracts, Mr. Pence says the sale of maintenance program products are on the rise, particularly with lease customers.
Other F&I offerings aren't doing as well.
"Credit life is still breathing," says Mr. Carrio. "It's developed a bad rap and adds considerably to the monthly payment. More leasing and multiple-car families has led to its decline."
Mr. Pence adds, "Credit life hasn't been as popular. Customers seem to be finding more value today with other products."
Competition always is good for consumers, and they're benefiting from competition in the F&I department, some of which is coming from independent banks. "On the retail side, the rate spread has come down because of competition," says Mr. Carrio.
While banks set their sights on dealer F&I profits, they say they'll leave some scraps for the retailers.
"As new on-line retailers appear, dealers will reap two benefits," says Donald A. Winkler, chairman and CEO of Bank One's Finance One subsidiary. "These are supplying vehicles purchased and incremental sales and profits from add-ons as service contracts, maintenance insurance and the like.
"Dealerships, like banks, will need to change the way they have traditionally done business in order to succeed in this new paradigm," says Mr. Winkler. "Smart dealers who do so can reduce front-end costs - including inventory carrying costs - and focus on the back end of their operation to provide good service and retain customers."
While independent banks are a threat to loan business, they seem to be vacating the leasing business.
"In a lot of markets, we see the bank competition slowing," says Steve Luyckx, manager of financial technologies at DaimlerChrysler Financial Services. "They're getting out of leasing because of residual losses. Our market penetration is strong over the last two years."
The subprime segment continues to grow, which many dealers and lenders view as an opportunity rather than a challenge.
"The sub-prime segment is rapidly growing," says Mr. Carrio. "We have a four- or five-tier rate structure. More often than not, there's a place for everyone."
In recent years, there has been a movement afoot in automotive retail to have vehicle salespeople include F&I sales in their presentation. The idea is to keep customers from being handed off from one dealer staff person to the next.
"That's a concept for some customers and some dealerships and not others," says Mr. Carrio.
Ford Credit's Mr. Pence says the idea of showroom personnel selling finance and insurance programs "has merit at some point in the future, but many customers appreciate the expertise that a well-trained financial services representative offers."
He says he expects the concept to evolve to a point where the showroom and F&I people develop better working relationships. "When they need them, they call in the financial consultants."
DaimlerChrysler Financial's Mr. Luyckx says he agrees with the attempt to streamline the sales process for customers, but much more training will be needed to make it work.
Maynard M. Gordon contributed to this report.