Is F&I your most profitable department?
Your F&I department should be a producer and should stand out as your most profitable but also one of your most critical processes. How well you place loans and optimize rate markup will define how many units you sell. The point here is that doing F&I does not make it profitable and exceptional, doing it well is what makes it exceptionally profitable.
What does "doing it well" mean and how will you know? Optimizing the rate and the lenders you utilize, selling protections, maintaining compliance, and moving every unit possible while excelling at each area. If one of these is neglected, it will be expensive and you will not know unless you routinely evaluate the key variables of how to impose effective F&I performance. The word impose is relevant as the person or staff handling F&I may not be drawn to selling a rate and selling protections. Many times there are other factors like term, down payment, loan amount etc. that may be just as important to a customer as the interest rate. If they are not professionally explained, your customer may leave over a fraction of a percent.
Additionally, if product protections are not offered, you are missing significant benefits to your customers and substantial profit to your dealership. Many dealers of all sizes neglect this area and see protections as not valuable and a waste of time. That would be like saying options and add-ons to a Boat or RV are immaterial. They clearly are not as profitable as the base unit, but I have never heard of a dealer that did not believe in selling options. What' missing here is a clear understanding of what the available products are, what they mean to your customers, and what kind of profit can be made on them. These products have clear and undeniable benefits and your customers will pay for them. The only way they are not worth the effort is if you justify not offering them or don't have the sales appetite on staff to present the benefits in a professional way.
Also, a true F&I department will issue loan approvals to customers that are not good at other dealerships. Meaning, if your customer leaves to buy from another dealer, they have to start the loan application process from scratch. This takes cooperation from lenders and will not happen automatically. If you let your customers go to a local bank or credit union, you are rolling the dice that they buy from you as those lenders are indifferent to who your customer buys from.
Optimizing profitability means getting the most out of F&I while preserving the sale. This requires skill and knowledge of what a competitive rate looks like. Go too low and you give profit away which could turn into a bad habit, go too high and you may lose the sale. Similar to when a Boat or RV are sold, they are not put on the lot with minimal markup. There's give and take and the F&I should be optimized based on what the market will bear. Virtually anything sells on clearance or deep discount, which takes no skill. Selling a unit a few points over cost is neglecting your sale. Similarly putting a deal out with minimal rate markup and protections is also squandering a significant profit opportunity.
How do you know if your F&I is doing well? Look at the department as its own unique revenue source and make sure not to lump it in with other totals. Take the total revenue that is being produced and understand what is coming from rate markup and what is from product protections. Also understand what you make on average when you finance a deal. Then deduct payroll and processing fees and compare this net number with service companies, 20 groups, or other relevant dealers. Make sure the dealers you compare with have similar product lines, multiple lenders that pay reserve, and offer a full suite of protections. Otherwise, you will be comparing with a non-optimal setup and you may find satisfaction when you shouldn't.
F&I is a sales position that should rely on skill and performance. The differences can be drastic from person to person. Consider a dealership with multiple sales people; their performance over time will be significantly different from one person to the next. Sales takes education, appetite, skill, and experience to name a few and the top 20% usually make 80% of the money. F&I is every bit as critical to your dealership as the people selling your units. Take the time to size up what should be your most profitable department and don't settle for just having a department. Make it the best it can be!
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