Outsourcing Profits
Are you outsourcing your F&I process? Recently, I have noted the number of small to medium size dealerships utilizing such services. Using an outside company to complete the F&I process with your customers after they have agreed to purchase a vehicle may take you off-course for profit potential. Turning your profit center over to an outside source can cost you 50% of the profits-plus a fee of up to $250 per deal!
Why would a dealership enter into an arrangement that surrenders profits, but retain liability? With sales so competitive, F&I profits are critical to every dealership, and a convenience to every customer. The key is for the dealer and general manager to invest the time to learn how painless it is to bring the F&I process in-house.
Although an F&I position may appear to be clerical, it is in fact sales driven. In today’s market, computers handle routine F&I tasks. The screens are easy to navigate, and the systems keep improving every year.
The sales part of F&I resides in a wide array of products that give the F&I producer much more than service contracts to present to your customers. Aftermarket protective coating is not only an income center for parts and service, it is a product instrumental to presenting great looking used vehicles when today’s sales become tomorrows trade-ins. Prepaid maintenance and service agreements can drive future business to the service department. The service department is essential to customer retention and will drive sales tomorrow.
Recently, a F&I manager told me that his dealer did not want to offer GAP protection, because doing so would signal that he was overcharging the customer for the vehicle. But consider this: Most states have a sales tax imposed, not by the business, but charged by the government and collected by the business. Moreover, vehicles seem to depreciate every year — somewhere between 17-20% in the first year alone. Depreciation plus sales tax can equal more than 25% of the sales price. How many of your store’s deals have 25% cash down? A GAP policy does not reflect an overcharge; rather, a GAP policy protects the client who does not have the down payment to cover the sales tax and the first year’s depreciation. The need for GAP is based on a lack of funds for cash investment, not the selling price of the vehicle.
A successful in-house F&I function requires (1) products you have confidence in, offered by companies you are comfortable with; (2) a good computer system; and (3) F&I training that teaches a straightforward, ethical presentation process with full disclosure about all terms and conditions of the transaction.
The key to success is to secure the sale, maximize profits, and minimize dealership liability. Keeping the F&I process at home will help you get there.
Dealer Marketing Magazine, December 2004, p.10