F&I can be the most profitable square footage in a dealership, if you get out of your own way

When we first started Dealership University in 2004, before the creation of Powersports Marketing, we focused exclusively on training dealers in all aspects of operations. One of the most popular areas dealers wanted to improve was the finance and insurance department, labeled “the most profitable square footage in the dealership.”

I worked with many dealers who averaged less than $100 per unit sold in backend profit. This was a sore spot for them, and it was also a passion for me. Dealers can’t afford to be indifferent about this profit center.

In 2006 a Midwest dealer requested onsite training for its sales staff. While there, the dealership’s F&I manager was averaging $76 per unit sold, including a doc fee of $58. The F&I manager bumped into an extended service contract every once in a while, but his attention was clearly more on doing the paperwork than on selling. The dealer principal told me he’d been fighting to increase backend profit for months and was extremely frustrated. He then told me if I could get his backend number up to an average of $300 per unit, he’d sing Dealership University’s praises and shout his success with us from the rooftops.

I ended up changing my flight, hotel and rental car so I could stay an extra day to work one-on-one with the finance manager. He knew which products were legal to sell in his state (I had double-checked this as well), so we worked on a menu selling system to offer 100 percent of the products to 100 percent of the people 100 percent of the time. If you don’t offer it, they won’t buy it, and the protection your F&I products provide should not be the best-kept secret in your dealership.

I was working with the finance manager on product knowledge and handling objections when a large problem stopped us in our tracks. They weren’t signed up with a vendor to sell any of the backend F&I products, except the OEM extended service contracts. Seriously.

So we spent the rest of our time getting everything they needed to sell the products. The following day, back in my office, I verified that all the paperwork to sign up with a vendor had been received. They said they would fill it out and fax it back that day, but they didn’t. Over the next few weeks I made multiple phone calls and sent emails to the finance manager and the dealer principal. I even shipped the printed agreements directly to them with arrows where he needed to sign. Nothing happened and I moved on. You can lead a horse to water, but you can’t make him drink. Fortunately, this dealer has been the exception and not the rule, but take a look in the mirror: Are you in your own way of being more profitable?

Improving your F&I profit center is one way to become more profitable overall. One of the foundations of increasing backend sales is believing in the products. You can’t sell them if you don’t truly believe in them, so below is a list of some of the more popular backend products:

  • Extended service agreement. This is a common backend product that provides an extension of the manufacturer’s warranty. An extended service agreement protects the buyer from having to pay to repair mechanical breakdowns for a specified amount of time. It often includes towing, battery boost, fuel delivery and lost key assistance, and can actually increase the resale value of the machine.
  • Priority maintenance. This prepaid maintenance package generally covers all parts and labor on the factory-recommended maintenance outlined in a the owner’s manual. It may include priority scheduling, and it also protects the customer from future parts and labor rate increases. There are many different variations to this program.
  • Guaranteed asset protection. This product covers the deficiency between the amount financed and the market value of a unit in the event of a total loss.
  • Theft protection. This is an insurance policy that provides financial benefits to a customer if the unit is stolen and not recovered within a certain timeframe.
  • Tire and wheel. As the name indicates, this provides wheel and tire replacement if damaged by road debris, metal, nails, screws, potholes, glass or blowouts.
  • Finance reserve. This is profit that can be made from marking up the interest rate of each loan your F&I department generates.
  • Credit life insurance. This covers the full balance of a loan in the event of the death of a signer or co-signer.
  • Disability insurance. This protects credit history by paying benefits if the policyholder becomes incapable of working.

There are other products that are available to sell as well; just be sure to check your state laws first to determine what’s legal.

At the end of my last Dealernews article I offered a training plan for sales associates, and dozens of dealers responded. I’d like to offer the same thing here for F&I. If you’d like a job description, two-week training checklist and performance evaluation for an F&I manager, shoot me an email.