How important is the finance and insurance department to dealers?
They wouldn't be in business without it, says Mark F. O'Neil, CEO of DealerTrack Inc., who gets out his crystal ball and looks at the future of this crucial profit center.
His firm operates an online platform that connects auto dealers to a network of banks and captive financing sources. DealerTrack automates and accelerates auto financing, a process that otherwise can try a customer's patience.
As new-vehicle margins get smaller, F&I has become a major source of dealership income. It accounts for the largest slice (43%) of an average store's gross profits, O'Neil tells an F&I Management and Technology conference.
Driving modern F&I are technology, training and ‘touch,' or human interaction with customers seeking anything from vehicle financing to extended warranties to credit life insurance.
Explaining those three drivers, O'Neil says:
- Technology increases productivity and decreases customer time in the F&I office “if consistently used.”
- Training boosts margins and enhances customer satisfaction.
- “Touch is the human element that won't go away,” no matter how automated and paperless F&I may get. Ironically, technology fosters touch because “the focus shifts from paper to building relationships.” The human element is especially important to customers over age 50.
An example of increased technology is the expanding use of electronic credit applications, he says. Less than 10% of credit applications were electronic in 2000 compared with 65%-75% in 2005, and a projected 95% in three years.
Consumers have become smarter, better-informed car buyers in recent years, largely because they use the Internet to research vehicles and comparison shop.
The same customers are less savvy when it comes to F&I, but that will change, predicts O'Neil, who previously served as president of a Pennsylvania dealer group and co-founded the used-car retail chain, CarMax.
“The same research by consumers that you see for vehicles, you'll see for financing, given time,” he says. “Customers will be more informed.”
He envisions website software that will allow dealership customers to begin purchase negotiations online.
“I can foresee the day of putting a tool like ‘desking' on a consumer website so the consumer creates the first ‘pencil' of a deal,” he says. “Dealership people may say, ‘Why give them that?' Because they'll ultimately take it anyway.”
Other changes he sees up the road:
- Adjusting the F&I process to accommodate more vehicle accessory purchases “so that the consumer finances $2,000 in accessories with the dealer, rather than putting it on a credit card at a detail shop.” Showroom sales people and F&I managers must work together on this one, he says.
- By 2010, compliance with F&I ethical standards and government regulations will be “a given,” compared with five to six years ago “when it wasn't a frequent topic of discussion.” Compliance with data security regulations is a particularly high priority at dealerships.
Meanwhile, in a DealerTrack survey of dealership people, 97% say F&I affects a store's overall customer satisfaction.