Once the buyer has taken a look at cars, completed their test drives, and finally made a decision, they’re off to the F&I department. But the Finance & Insurance department is hardly just a formality; it’s actually a critical part of the profit process. Many auto dealerships make the majority of their money in Finance & Insurance.
The Basics of F&I
F&I departments have an interesting role. By the time the buyer gets to the F&I department, they generally already have a price for the vehicle set. They also may have their own financing lined up or may even be trying to pay in cash. F&I departments usually make money in a few ways:
- Upselling on products that are attached to the vehicle, including additional warranties, coverage, insurance, and features.
- Convincing buyers who are financing through another entity to move financing over to them.
- Finding financing for under-qualified or traditionally non-qualified buyers.
So, the F&I department does a lot of heavy lifting for the auto dealership. If a buyer walks in, negotiates, then decides to pay in cash, the dealership could make almost no money at all, depending on how aggressively priced the vehicles are.
But that also means that a lot of the financial incentive for the auto dealership is locked beyond negotiations and inside of the F&I department — making it a necessity for the F&I department to optimize and improve its strategies.
Knowing Where to Look
Realistically, the F&I department only has a certain amount of time and energy. This is where the Pareto principle is followed; 80 percent of all results come from 20 percent. In F&I, a fraction of sales are going to be “whales” and the rest of the sales are going to be fairly meager. More and more, customers are well-versed in their options and walk in the door knowing what they want — and they won’t be upsold, even if the products you’re selling are beneficial to them.
This applies to products, too; 80 percent of your sales will come from 20 percent of your products. When possible, your F&I department should be learning more about the products, options, bonuses, and other offers that are open to your customer base.
Bigger, flashier vehicles with higher tags on them tend to represent the most opportunity when it comes to the F&I department. Often, the F&I department will want to focus on bigger sales. But the inverse is also true; under-qualified and non-traditionally qualified borrowers may also be able to net the F&I department significant profits simply through margins. While there is substantial risk, there are under-served borrowers who may not have traditional income or may have unique credit situations.
At the same time…
Follow the 300% Rule
While you do need to focus your energy, you should still follow the 300 percent rule. That means you show 100 percent of your products to 100 percent of your customers 100 percent of the time. You never know when someone will buy. The 300 percent rule is a proven one; it greatly improves on the customer buy-in.
Customers get a lot of information before they ever hit the dealership. They can get information such as “always upgrade the warranty on your vehicle, but never get the care package” or “always get the care package, but never bother with the warranty.” You never know where your customers are coming from or what will be a harder sell, so it’s important to meet them where they are.
But that’s a lot to track. With dozens of products and packages to sell for every vehicle, customers can find it difficult to process. That’s where technology comes in.
Using Technology to Your Advantage
Today, there are comprehensive auto dealership sales platforms that can take a sale and quickly run down through the products that the customer is most likely to want and to buy. These platforms can be used on tablets and computers to show the customer their options and their price points. When the customer can easily see how much their car payments will go down, for instance, with a longer term, they are more likely to buy in.
Most customers have a fairly clear picture of what they want their financing to look like, but in terms that they understand. They don’t know what $20,000 or $30,000 could mean in the course of years upon years, but they do know that they can only afford $450 a month. By using technology, you can get closer to what your customers want without having to calculate and re-calculate things on-the-fly.
Follow Up Later On
Customers frequently have regrets after a major purchase. But sometimes that regret works in a dealerships favor. What many F&I departments don’t do is follow up with customers later. A dealership is going to hear from a customer who is regretting their car or financing choice and has decided to try to turn the car back in. But a dealership may not hear from a customer who wants to extend their warranty.
If you call customers back after a few days or weeks and make them an offer, it’s very possible that more than a few will bite. Many people find that they underestimated their spending out of fear or that they would really feel more comfortable or have more assurances if they added something on to the vehicle. You can even follow up with those who left to pursue other avenues of financing, by offering them financing once again.
The F&I department is really the heart and soul of auto dealership revenue. There’s only so much negotiating that can be done today in the era of the internet. Most vehicles today really have an objective pricing that people can look up online, and dealerships who pride themselves on their reputation don’t want people feeling pressed to pay more.
The F&I department offers the ability to increase income while providing a laundry list of services, products, and options that the customer may truly need. But to really capture that income, departments need to be setup to funnel customers through as effectively as possible. Often, that requires the right technology.
ADI and F&I
The Automotive Dealership Institute has been training F&I managers for over 32 years. We provide classes in person as well as online. Our online courses make it easy to learn at your own schedule without needing to attend a school. If you are looking to take the next step in your career, learn more by filling out our online contact form or giving us a call at 877-998-7200.