Fresh Start F&I Production
Historically, fresh start deals have limited F&I production. Recognizing that fresh start customers generally have a poor record of repayment, lenders typically focus on the amount of the advance in order to keep payments in line with a customer’s budget. Sales managers work the deals from the finance approval. When lenders limit the advance, the profit opportunity for the dealership is in the sale of the vehicle rather than from ancillary F&I products.
Now, for you readers who would like to remind me that customers can always pay cash for the ancillary policies, I will agree that yes, they can, if they have the available funds. If . . . the tiny word that thunders! Most fresh start customers do not have the cash to pay for ancillary products. This limits F&I production to either the amount the lenders will advance, or to certain periodic discounts that a dealership elects to offer without straying too far from a consistent pricing policy for all F&I products.
Buy-here, pay-here operations frequently add a security system to the vehicle to assist with debt collection. Security systems are generally considered hard adds. Most lenders will advance for various systems, since the systems can help them recover collateral.
Lenders will usually make allowances for GAP and a service contract; however, they may limit the amount of the advance for each of these products. When the rates go up and the lender’s advance doesn’t, the F&I department’s due diligence to complete the deal is sacrificed. When your dealership receives an increase in rates, send a copy of the rate card to the lender and ask to have the amount of advance increased to accommodate the new rate.
Customers with advance limits certainly challenge the 300 percent rule to complete 100 percent product presentation, 100 percent of the time to 100 percent of customers. How do you present F&I products to a customer that has advance limits? Conversely, how do you protect the dealership from legal action when something occurs which would have been covered by a policy available to mainstream customers without advance limitations?
Perhaps the best course of action is for F&I to make a complete presentation to every customer, while taking care to explain that a customer’s particular circumstances could restrict the opportunity to own the protection to a cash sale only.
Fresh start situations require extra effort to make deals that work for customers, lenders and dealers. You will be wise to consult with the dealership’s legal counsel to stay in line while you seek to advance the sale without retreating on F&I production.
World of Special Finance – Canada, July/August 2006