Trading 50% of the profit for 100% of the Liabilty
Handling the F&I process in a small to medium-size dealership is a difficult question. For several years, many small dealerships have given up 50% of their F&I profit to outside companies. These firms complete the F&I process via telephone, prepare the loan documents, and send them to the dealership. At the time of delivery, someone at the dealership must then disclose all the terms and conditions before obtaining customer signatures on the documents.
Regardless of who prepares the loan documents or how the credit information is obtained, the dealer and dealership are 100% responsible for legal disclosures, credit information, collateral representation, and the integrity of the loan structure. Needless to say, the best business practice in this circumstance is to read both the front and back of the dealer-lender agreement to clearly understand the dealership’s liability.
I am often asked what level of production it takes to justify a full-time F&I manager. My reply never varies. The F&I function requires a full-time core staff position. If the dealership is selling any vehicles, a trained professional should be employed to handle all the legal documentation and follow through on all the funding issues of each and every deal.
Some dealers may think it is not possible to have their own F&I department. I contend that not only is it possible, it only makes sense for dealerships to reap 100% of the profit potential from this critical function. Let’s review what it will take to control the dealership’s increased revenue.
1)Staffing. Hire a professional individual who can ethically operate the F&I function. Where do you find candidates? Advertise in a local paper, using a box number at the newspaper. State that no experience is necessary for the right person. Each dealership has its own culture, and it is important to find a professional who will fit in well.
2)Equipment. Every dealership has at least one computer for accounting purposes. Now that computers abound at a cost of hundreds vs. thousands of dollars, buying hardware is as easy as clicking on line & receiving shipment within days of the order. Very little training is required to run basic F&I software and you can purchase a no-frills, windows-based F&I software package at minimum expense.
3)Internet Access. Since many lenders prefer on line credit applications, the computer will need to be set up for Internet access. In the current marketplace, business is done at the speed of your connection, and faster approvals mean more deliveries. When the dealer can communicate directly with the lender and build a strong working relationship, more deals are approved. Conversely, when a dealership elects to use an intermediary F&I service, they also elect to sacrifice the ability to create a long-term relationship with a credit underwriter. Lenders are dealers’ partners in the future.
4)Office space may be a challenge in some dealerships. Just be creative. Your customers need to sign the loan documents somewhere. Where do they sign them now? Could you use a stationary office space for the closings?
5)Team up your F&I person with office personnel to help with paperwork during the slow season. Cross train with the sales manager. Just think how beneficial it could be to have two people who are capable of structuring a deal, closing a deal, and getting a deal approved by a lender. How many additional sales could be realized for the store?
6)Securing training for F&I personnel is easy. Search the web for F&I training opportunities. You will find public seminars as well as on-site training to fit the special needs of your dealership. CD’s, audio- and videotapes, and books are also available. Let the training professionals help you learn how to retain 100% of your profits.
7)What products to sell in F&I? No matter what type of dealership you have, you can offer service agreements. Since our vehicles are made here on earth and not in heaven, service agreements present the best opportunity for customers to have peace of mind and confidence in the vehicles they choose.
Dealerships have the very first opportunity to secure the financing on every major purchase. Is your staff talking about the benefits of dealer-facilitated financing, or are they simply letting the deal glide out the door into another funding realm? The old saying still applies: They who control the financing control the customer’s future purchases. Who is controlling your future business?
Doesn’t it make sense to take an active role in capturing 100% of the profits since you already possess 100% of the liability? As Bill Cosby once told Oprah, nobody can take better care of your money than you can. I recommend that you heed the same counsel. There will be no better time to regain control of your products, your lender relationships, your customer satisfaction and your profitability.
Stop by Booth #1540 N. at NADA to learn more about how you can prepare for the future.
Dealer Marketing Magazine, December 2002, pp.14 & 22.