The Times, They Are A'Changin' - F&I Profit, No Matter What

By: Myril Shaw

First Approval Source


Rates are going up – how do you protect your F&I profit?


Employment rates go down – what happens to F&I?


FCRA/CFPB or other regulations change – how does your F&I team respond?


You change your market targets – what is the correct F&I response?


Life changes…markets change…rules change…the economy changes…your team needs to respond calmly, efficiently and effectively.


How do you control and continue to grow, or at least sustain, F&I profits in the face of changing market forces?  It may not be easy, but it is certainly possible.


Let’s start with this obvious (or at least what I hope is obvious), you need to be doing everything right to maximize all the things that are needed to ensure that your team will bring in the highest possible profits at any point is time given the status quo.


Hopefully you are enforcing the following:


  1. Every customer sees the Delivery Coordinator

  2. Every Delivery Coordinator understands how to work with Cash Buyers

  3. You have a complete set of Backend Products

  4. The target of your entire team is full customer satisfaction


Given that you are focused on the rules above, here are some tips to keep help your F&I profits  sustainable in the face of changing market conditions.


First, control your F&I fixed costs. Notwithstanding your total variable F&I cost, you have to keep your fixed costs low. The obvious is salary…and that can be tricky, but entirely possible and reasonable.  Get your F&I team paid on results and not base.


Your F&I team should be well compensated and highly rewarded when they are generating the kind of results that you expect – when they are selling backend effectively and when they maximize reserve.  They should not be a fixed cost burden when they are not being effective.  Making this kind of plan work can be a little tricky in the face of seasonal considerations, but it can be do in a way that is fair and equitable.


Second, control variable costs unrelated to sales. Your biggest cost is going to be bureau pulls and associated fees, like lender submissions. Look for soft bureau pulls – they cost you a fraction of the cost and provide all the details you need.


Keep in mind that there are generally only two reasons for you to do a hard credit pull: 1) To determine which lenders should receive a credit application (the lenders are always going to pull credit again); 2) In the event that you have, or believe that you have a Bank of the West VIB customer.  Hold down your bureau pull costs.


Third, focus all compensation plans and all bonuses on backend rather than frontend. Backend value is unrelated to interest rate and to amount financed.  Backend sales and profit are related, 100% of the time, without regard to any other market condition, to the customer’s perceived value.  Targeting backend sales must be the most important element in your F%I team’s conversations.


Reserves will come and go, backend is rate is insensitive due to its true value. 


That said, reserve is still vital to your profit profile.  Regardless of the market, your team needs to be targeted on maximizing reserve.  Never go for less than the maximum – and be ready to be graceful in walking back from the “big ask”.  You will never get more than the first thing you ask for and you should never lose a customer based on the first call.


Even though rates are up, there should never be fear in asking for the maximum reserve.  There should always be great sensitivity to any information about the customer’s current information and an already communicated willingness  to work with a known rate.


It is a delicate dance and your team has to have the training and tools required to respond effectively to ever-changing conditions.


The market may change…your F&I profit does not have to…


  • Do the right things overall at your store

  • Limit your fixed F&I costs

  • Control your variable costs

  • Focus F&I compensation on backend


If you do these things, you will deliver profits that you will be happy with no matter what is happening in the market.


Go forth and profit!

Editor’s Note: The Marine Dealer Conference & Expo will take place on December 10-13, 2017
in Orlando, FL. If you find value in this blog post, just think of the value you could receive at MDCE.

Get registered here.

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