As dealer profit margins tighten up, finance and insurance operations become even more critical, say dealership executives.
But there are many modern challenges to running a successful F&I operation.
Dealers are increasingly operating in a more regulatory environment. That means keeping an eagle eye on customer F&I deals. And although such regulations can slow the F&I process down, customers want it sped up, according to satisfaction surveys.
It's also important to present all F&I options to all customers, say dealers who run strong F&I operations. But with the customer-satisfaction clock running, such sweeping presentations must not waste time.
“Customers like having options and expect a streamlined, smooth F&I transaction,” says David Lo, senior research manager-finance at J.D. Power and Associates.
Savvy dealers are adding electronic menu presentations of products, such as increasingly popular gap insurance, extended warranty, credit life, accident health insurance protection, and new lease protection offerings that cover lease-end issues. Menus show payments with and without optional purchases.
Bill Hayden, general manager at Carl Fischer Buick, Pontiac, GMC, says the electronic menu is standard procedure now at the Stuart, FL, store, about 30 miles north of West Palm Beach.
It has taken the store nearly two years to rebound from damage from a series of hurricanes in 2004. A new facility is almost complete. Since September of 2004, employees have worked out of double-wide trailers, affecting business. In July, new-car sales were down 24% from last year, but Hayden hopes to make that up by year end at the new facility.
Lights, Cameras, ActionDespite the commotion, Hayden says the top issue on his radar is an internal one: whether to video record every F&I transaction. He says the dealership is likely to start doing that.
Tougher state laws and market conditions are forcing dealers to make sure F&I operations are totally legitimate, he says. Florida, for example, with high levels of retired and younger residents, has stiff consumer protection laws.
Video recording F&I transactions would help in a couple of ways, he says.
“It's more for performance to make sure we're not leaving any money on the table and selling all the products we possibly can,” he says. “It also will protect customers and make sure each one is aware of all their options.”
The secret of F&I success, he says, is to offer “100% of products 100% of time with 100% of the right attitude.”
He also hopes it's the secret to high customer satisfaction ratings from happy customers. Stores that have adopted the recording technology have seen upswings in those, he notes.
The biggest mistake F&I managers can make is to pre-qualify buyers and not discuss all the products available and how they apply, Hayden says.
To be in compliance legally, every buyer must receive the same presentation. F&I should never assume a customer doesn't want a specific product or service. “You do the same pitch time and time again. That's our obligation,” he says.
Hayden recalls losing a truck deal because a customer wanted lease-end protection, which competitor Ford Credit was offering. Later, it was on General Motors Acceptance Corp.'s menu offerings.
Drowning in PaperworkSome dealers complain about paperwork required by new laws and regulations that can slow down the F&I process, even though customers want it sped up.
For instance, a California law protecting new- and used-car buyers took effect July 1. The “Car Buyer's Bill of Rights” applies to all retail sales and provides extra buyer protection, including a contract cancellation option and certain disclosure rights.
For every accessory a customer purchases, dealers must give payment and price breakouts. Optional products and services also are presented to customers who need to know those offerings can be purchased individually.
Brian Allan, general manager at Galpin Jaguar and Lincoln Mercury, Van Nuys, CA, says the new compliancy regulations add at least 15 minutes per customer to the F&I process. The sales back-end process now takes 30-to-40 minutes he says.
F&I averages 17% of the time a customer spends in a dealership, according to recent studies. Dealers are concerned about getting that time down.
The new regulations have specific formatted pages which delays printing other forms until the disclosure forms are printed, Allan notes.
“It's not unlike real estate where every fee and charge is itemized. It's good for everybody, but like a new pair of shoes, it's stiff until you get used to it.”
Allan says F&I sales are going well, but market share remains a thorny issue for many.
“There is no question market share is shrinking for the domestics, yet the overall size of the pie is stable for the entire industry,” he says. “Galpin is maintaining or increasing its share in a declining domestic market.”
Leasing's ComebackA popular leasing F&I option is a wear-and-tear insurance policy that protects for up to $2,500 in excess wear-and-tear costs assessed by lenders. The insurance lessens the chance for unexpected lease charges at lease end. Many leasing institutions are offering it so customers don't have surprises (and legal claims) at lease-end.
Leasing also is on an upswing as overall interest rates rise. “Our overall combined lease penetration for the brands we represent exceeds 35% on average,” Allan says. “Leasing is definitely the way the luxury market is going.”
The dealership leases out more than 80% of its new Jaguars, 60% of its Lincolns.
Allan says a public misconception is that dealers are making loads of money. “The average dealer is lucky to make 2% on an investment,” he says. “That means for every $100 spent, you earn $2 in return. Dealers can make money only if they have a lot of equity in their real estate.”
Charlie Park, general sales manager at Longo Lexus, El Monte, Calif., agrees the paperwork crush is cumbersome.
“The F&I department has too much paperwork — with so many additional documents to complete. They need to look for ways to consolidate and make it simpler. We need to make the experience better for customers,” he says Still, five F&I writers and a director get the dealership's customers through F&I in 30-to-40 minutes.
Ideal: Pure Profit from SalesIn an ideal dealership world, service and parts (fixed operations) should cover 100% overhead, so the sales department is pure overhead, Park says.
Longo Lexus is fairly profitable as part of the Penske Automotive Group, he says. But some dealers are struggling. In the western U.S. region particularly and an import stronghold, Lexus sales are down, he says. Lease penetration is 35%, considered low for luxury makes, and residuals are not as good as before.
At Roseville (CA) Toyota Inc., extended leases of 60-72 months are becoming more popular options because they allow customers to get loan costs down, says Matt Phelan, finance director.
The dealership is open seven days a week until 10 p.m. Good staffing patterns alleviate potential employee burnout problems, says Phelan. When employees are taken care of, customer satisfaction in F&I and sales is a no-brainer, he says.
Despite heavy volume, it takes 25-40 minutes to complete the F&I process, considered fairly low in the industry. “Hopefully the process is seamless to the customer,” Phelan says.
Phelan knows of cases where customers could have had better service and loan contracts but were not made aware of their F&I options. That has a chain-reaction result when something goes wrong, he notes, lending credence to the new consumer protection law.
“The state requires a special formatting method. But it was an easy transition for our dealership to make,” he says. “We already had policies (and procedures) dealing with compliance issues in place.”
They're Closing the Gap Between Vehicle Sales and F&I
The transition from sales to the dealership finance and insurance department is sometimes the point where customers get cold feet, or feel thrown over the wall.
At Jerry Seiner dealerships, staffers try to make the closing experience in the F&I office as painless as possible. Seiner operates three multi-line General Motors sites in metro Salt Lake City.
Seiner, for one, has meshed F&I into vehicle sales. The group of 10 F&I managers is located upfront in the center of the showroom. The new customer center is equipped with PCs, printer and a lounge, all for customer use. In some cases, children play in the child-friendly center while parents review required forms and documents.
“We're the only ones I know of that do it this way,” says Chris Hemmersmeier, general manager of Seiner's Salt Lake City store. “We want a customer friendly transition to do the necessary part of paperwork.”
The whole process takes 30-to-45 minutes, he says. Some dealerships take several hours to get customers through the paper-intensive process.
Seiner has invested about $20 million into renovating or rebuilding his five facilities since 2000. He thinks customer satisfaction is so important he invested heavily in training employees to implement an automated menu of F&I offerings.
The integrated F&I sales concept was born because Seiner believes the dealership trust experience begins with customer perception of the dealership — and it should all be positive, staffers say.
The dealer group has won GM's Mark of Excellence Award for 5 straight years.
“F&I is a key component to overall profits of dealerships,” says Hemmersmeier. “But we all need to see more and more focus on tangible products (and customer service), and less focus on reserve (a dealership percentage surcharge on loans).”
Dealer Wes Lutz has gone one step further at his Extreme Dodge-Hyundai, store in Jackson, MI, about 75 miles west of Detroit.
There is no handover from sales to F&I managers, because there is no F&I department. Sales consultants are fully trained in F&I processes and procedures.
“We really work as a team,” says Lutz. I'm not saying my way is better. But there's no turnover to another department. It's just not relevant.”
The system works for him. Eight sales staffers sell 90% of extended warranties, protection packages and all the add-ons.
Doing repeat business in a stable community makes a big difference. “We're in a non-transient, stable community,” says Lutz. “Everyone in this town knows everyone else.”