Changing the Landscape of F&I
Once again the mighty winds of change are rearranging the F&I landscape. Media focus on the worst practices of a few F&I managers directly impacts the general publicís perception of the F&I function.
With this kind of spotlight is F&I still a viable department for the dealership? My response is yes and there are still more changes coming. With the GMAC and Nissan settlements as a backdrop, the court system will continue to take more lenders to task. The settlements will affect lenders and the F&I process.
At some point, the reserve will be a stated fee on the installment contract, and I predict that dealerships will begin to write contracts at buy rate and settle for a flat fee from the lender. Many are doing just that right now with the new automobile and special financing. This change will have the largest impact on the used vehicle business.
What can dealers do to prepare for the loss in revenue? One answer lies in rediscovering a neglected product: credit insurance. It will require that every F&I manager obtain an insurance license and allocate time for continuing education in order to maintain the license.
To dealers who insist they would rather invest in aftermarket items, consider this: The deal may not be structured in a way to allow for the funding of the aftermarket item. In general, dealerships do not secure enough in down payments to provide the room for aftermarket items.
Conversely, credit insurance is a fundable (plus, plus) policy when the customer can budget for the payment. Credit insurance is a triple play winner. The lender wins because the payment will not go into default due to customer illness, injury, or death. The customer wins when a payment does not strain a budget during a time of reduced income from illness, injury, or untimely death. The dealership wins with a positive financial experience during vehicle ownership that builds customer retention and brings an additional income source for licensed personnel.
Credit insurance is not a product that will make a huge difference in the bottom line on just one policy. It is the collective total that will make a positive impact.
For example: Letís consider only single life protection. If the average payments are $400.00 per month for a 60-month period, the protection will be a face amount of $24,000. The premium is regulated by each state. A California commission would be 27.5% of the premium. The premium would be $480.00 for the 60-month policy.
Policy Premium = $480.00
Dealership Commission = $132.00
Total deals in one month = 50
70% Finance penetration = 35
50% credit life penetration = 17 policies per month (Focus upon single decreasing life policies)
$132.00 dealership commission x 17 policies = $2,244.00
$2,244.00 x 12 months = $26,928
$26,928 x 14 F&I managers = $376,992.00 annual profits.
Now time yourself as you read the following statement:
The next part of your protection has to do with equity protection. During a period of illness or injury exceeding 14 days we will make your vehicle payments during the period of illness or injury. Should you pass away, a loved one would inherit a lien free title instead of an additional obligation. Who is the person you want to receive a lien free title? (Wait for a response.) I am sure you agree that no debt should live longer than its creator, should it?
You should have spent about 20 seconds reading the statement. Now review the annual income this statement provides. Not a bad return for the time invested! So do your own F&I landscaping. Give yourself the license to create income alternatives that will insure that your customers and your F&I function get the credit they deserve.
World of Special Finance Magazine, May 2004, p. 8