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Why F&I drives your dealership's profitability:



Presented by
Hector Bosotti
National Trainer & Consultant, Wye Management
President, f-iresource.com
 
The late Ted Rogers had a word that he would not tolerate to be spoken in his boardroom. That word was...”CAN’T.”

“The ‘one-on-one’ training I that I've started has allowed me to increase my average gross profit per unit from $1,200 to almost $2,000 and my warranty penetration has soared from 38% to over 75% in just 3 weeks!”

"I've done 20 TO's so far and averaging $1400 per copy. I couldn't have realized this without your help.”

"My numbers have more than doubled since the course and I still have many ideas to implement.”

"I started using a MENU and my average has gone up $400 per unit. What was I waiting for?"

"I used to sell just 3 or 4 insurance policies per month. I sold 14 in June and 19 in July closing at 60%."

These Business Managers didn’t accept the word “can’t” and prevailed — so can you!
Our mission here today is to provide you as a Dealer or General Manager with foresight and inspiration to improve your Business Office profitability and how to begin.
Who is overseeing your Business Office?
Your Business Manager?
Your Sales Manager?
Your Creditor Insurance supplier?
Are you as interested and involved with your F&I Department as you are with your New and Used Vehicle Sales Departments?
If I told you that you could double your new vehicle gross, but it would require some changes to your current processes, would you consider it?
If I told you that you could double your F&I gross, but it would require some changes to your current processes, some involvement on your part and some marketing, would you consider it
Which of the 3 departments represents the greatest opportunity for growth?
Let’s find out together.
 
Let’s examine the current lay of the land:
The Internet has profoundly impacted the automotive industry - it’s made used vehicle pricing transparent today.

Factor #1:
With new inventory management tools like V-Auto and AAX, pricing used vehicles more aggressively has become a reality placing downward pressure on front end gross profits.
There are 5 Used Vehicle Business models that are easily identifiable:
1 — Independent Superstores:
·         SAVVY VEHICLE BUYING PRACTICES
·         LARGE 300+ UNIT VEHICLE INVENTORIES
·         SUPERIOR ON-LINE PRESENCE AND MARKETING STRATEGIES
·         DIRECT MAIL ADVERTISING
·         MARKETING CONSULTANTS
·         REGULAR SALES AND BUSINESS OFFICE TRAINING
·         LOW PRICES
·         NO HAGGLE PRICING
·         MINIMAL ADDED VALUE FEATURES & BENEFITS
·         MINIMAL RECONDITIONING
·         30 DAY INVENTORY TURNS
·         LOW FRONT END GROSS
·         SUPERIOR F&I GROSS
 
2 — Large Independents:
·         SAVVY VEHICLE BUYING PRACTICES
·         100 to 200 + UNIT VEHICLE INVENTORIES
·         STRONG ON-LINE PRESENCE AND MARKETING STRATEGIES
·         DIRECT MAIL ADVERTISING
·         SOME MARKETING CONSULTANTS
·         SOME REGULAR SALES AND BUSINESS OFFICE TRAINING
·         AVERAGE TO LOW PRICES
·         NO HAGGLE PRICING
·         SOME ADDED VALUE FEATURES AND BENEFITS
·         COMPLETE RECONDITIONING
·         30 DAY INVENTORY TURNS
·         AVERAGE FRONT END GROSS
·         HIGH F&I GROSS
 
3 — Franchised CPO Dealers:
·         REACTIVE VEHICLE BUYING PRACTICES
·         UP TO 100 UNIT VEHICLE INVENTORIES
·         MINIMAL ON-LINE PRESENCE AND MARKETING STRATEGIES
·         MINIMAL DIRECT MAIL ADVERTISING
·         MINIMAL USE OF MARKETING CONSULTANTS
·         MINIMAL REGULAR SALES AND BUSINESS OFFICE TRAINING
·         AVERAGE TO HIGH PRICES
·         ADDED VALUE FEATURES AND BENEFITS
·         SUPERIOR RECONDITIONING
·         60 — 90  DAY INVENTORY TURNS
·         AVERAGE FRONT END GROSS
·         AVERAGE F&I GROSS
 
4 — Franchised Non-CPO Dealers:
·         REACTIVE VEHICLE BUYING PRACTICES
·         UP TO 100 UNIT VEHICLE INVENTORIES
·         MINIMAL ON-LINE PRESENCE AND MARKETING STRATEGIES
·         MINIMAL DIRECT MAIL ADVERTISING
·         MINIMAL USE OF MARKETING CONSULTANTS
·         MINIMAL REGULAR SALES AND BUSINESS OFFICE TRAINING
·         LOW TO AVERAGE PRICES
·         MINIMAL ADDED VALUE FEATURES AND BENEFITS
·         MINIMAL RECONDITIONING
·         60 — 90  DAY INVENTORY TURNS
·         BELOW AVERAGE FRONT END GROSS
·         BELOW AVERAGE F&I GROSS
 
5 - Small Independents:
·         REACTIVE VEHICLE BUYING PRACTICES
·         CONSERVATIVE AND RESTRICTIVE VEHICLE BUYING PRACTICES
·         UP TO 50 UNIT VEHICLE INVENTORIES
·         VIRTUALLY NO ON-LINE PRESENCE AND MARKETING STRATEGIES
·         VIRTUALLY NO DIRECT MAIL ADVERTISING
·         NO USE OF MARKETING CONSULTANTS
·         NO SALES AND BUSINESS OFFICE TRAINING
·         LOW PRICES
·         NO ADDED VALUE FEATURES AND BENEFITS
·         NEXT TO NO RECONDITIONING
·         60 — 90  DAY INVENTORY TURNS
·         BELOW AVERAGE FRONT END GROSS
·         INFERIOR F&I GROSS

Factor #2: Competition
Large independent used vehicle operators with massive inventories and minimal reconditioning have placed pressure on dealers who have a different business model to more aggressively price their vehicles to remain competitive thus minimizing front-end gross profits
 
Factor #3: Price Adjustments
Many manufacturers have made significant pricing adjustments over the past few years minimizing the available front-end gross profits.
 
Factor #4: Access to Inventory
With many manufacturers having curbed lease incentives and with production cuts from most manufacturers over the past few years, the shortfall of available inventory has forced dealers to pay premium dollars for what they can get. This has reduced the available margins as well.
 
Factor #5: Trends /Circumstances
  • High percentage of cash deals (i.e L.O.C.)
  • High percentage of lease transactions
  • Longer factory comprehensive or powertrain warranties
  • Factory CPO programs
  • Limited or no finance reserves
  • Restrictive pricing on manufacturer aftermarket protection plans
Summary - 5 factors driving the need to improve Business Office profitability:
1.      Internet & technology
2.      Large Used Independent Operators or Superstores
3.      Reduced margins on new vehicle pricing
4.      Access to Inventory
5.      Trends / Circumstances
These factors and perhaps more have placed a negative impact on front-end gross profits forcing dealers to more heavily rely on Business Office profits to make up the difference. If you have fallen victim to these factors or simply wish to improve your F&I profits, why not develop an action plan to implement upon returning to your dealership?
Improving the profitability of your Business Office is the single most cost-effective initiative that you can undertake that will yield you the most rewarding and immediate results.
What should a dealer aim for in terms of average gross profit per used vehicle? $1500 +
 
SUCCESS STRATEGIES
All of the successful dealerships that we work with today have a documented sales process that their sales teams follow to ensure high closing ratios and gross profits. When it comes to most Business Offices however, we often find no process whatsoever. Other common observations for poor performance:
> limited product knowledge
> poor presentations that do not create a need for loan or vehicle protection
> Lack of dealing with common objections
> Not presenting 100% of the products 100% of the time to 100% of the customers (just to name a few)
This is a result of a lack of formal training or no support or maintenance training during their career.
The following are some examples of some proven success strategies that you can take back to your dealerships to improve F&I performance:
 
1 - Setting up the customer:
The first step to improving performance is to change how the
Business Office / Financial Services Office / the Customer Delivery Center is perceived by customers. Here is an example:
“Mr. and Mrs. Johnston, now that we have our agreement in place, I will be introducing you to our Business Manager Jane Whiting. Jane will take some personal information from you to set up your account with one of our lenders, review the remaining factory warranties on your new vehicle, provide you with the documentation that you will require for your insurance company and set up a delivery date and time. It should only take 10 to 15 minutes.”

2 - How customers perceive Business Managers and their roles:
Business Managers don’t sell warranties, they register them… Here is an example:
“In a few minutes, I’ll be submitting your application to the lenders for approval and they’ll want to know what level of vehicle and loan protection you will be securing on your loan today.
There are four elements with vehicle financing that lenders are concerned with today:
1. Protecting clients from unforeseen and uncontrollable circumstances
2. Maintaining the resale value of the vehicle when it’s time to trade or sell privately
3. Minimizing the costs of repairs and
4. Protecting your valuable credit
I’ll review what you’re eligible for so you can make an informed decision. Let’s start by reviewing the remaining manufacturer’s warranty…”

3 - Modernize your sales process:
There are 5 popular sales processes being used by Business Managers today and changing your Business manager’s sales process or modernizing it may produce the immediate results you are seeking. They are:
1        — Step Selling:
  • many Business Managers like how they can focus on one product at a time
  • allows a payment to be built up slowly
a
X   Not all protection plans & products are always presented
     X   Tendency is to not stop and offer rebuttals as it is confrontational
     X   Customers get the “What else?” attitude
     X   Turn overs are longer
     X   Not customer friendly
2        — Menu  Selling: (Menu Tables or Software)
  • Turn overs are shortened
  • 100% of the protection plans and products are presented appealing
  • 1 round of closing and/or objections
  • Customer friendly
  • Improves profitability
X   Most BM’s never get around to develop one
3        — Sandwich Selling:
Step-sell 1 product (i.e. disability) and then menu the other protection plans / products wrapping up by step-selling 1 other product at the end. (i.e. life insurance)
4        — Staggered Turn Overs:
Involves selling tangible products at the time of sale and sell intangibles at the time of delivery.
  • Terrific for busy periods (2/3 sales consummated at the same time)
  • Sale events
  • Minimizes held offerings
  • Customer & dealership friendly
X  2 turn overs are required
X  coverage issues unless you pool commissions
5        — Load, lock & fire: (SHOCK & RELIEF)
The customer is given an option to customize the payment to suit their budget and needs or they can submit their application fully secured to see what the lenders will say.
  • Promotes ‘home-runs’
  • Allows to ‘peel & strip’ the payment to suit
  • 1 round of closing and/or objections
X   BM’s are fearful to disclose a significantly higher payment
A modern approach might be to combine 2 or more of these strategies to suit the turn over or circumstance. In either way, utilizing a more customer friendly strategy is advisable. (i.e. menu insurance options and then step-sell an extended warranty and vehicle protection products)
A Business Manager needs to adopt a sales process to ensure that they keep their oath:
I will present ...
                        100% of my products to
                        100% of my customers
                        100% of the time,
                        with 100% enthusiasm.
4        — Don’t rush turn overs:
How long is your average vehicle sale? How many Business Office products are you offering? How long is your average turnover? If doing the “complete job” to sell a vehicle for $1,500 gross profit takes 2 - 3 hours, how is a Business Manager supposed to take to generate the same in just 20 minutes? Does your sales process match your Business Office financial goals?
5 — Business Managers’ presentation may need to be tuned-up.
Each presentation should accomplish the following objectives:
  1. Create a need or curiosity
  2. Provide a solution
  3. Detail features and benefits
  4. Close with options
Most Business Managers use minimal P.O.S. materials which only include the suppliers’ brochures or literature. Adopting more graphical tools and P.O.S. materials will create a more engaging presentation and will better stimulate a need.
6 — Start pulling credit reports:
>It positions the Business Manager as a CREDIT MANAGER (an expert), as opposed to a high pressure salesperson.
>It tames the “wild customer”.
>It builds more rapport and trust.
>It creates customer curiosity.
>It prepares a customer for other product sales.
>It manages a customer’s expectations.
For credit challenged customers:
>It promotes not to fuel false expectations.
>It allows the Business Manager to paint a vision of a brighter future for the customer.
>It further obligates the customer.
>It often prevents the customer from shopping.
>It increases approval rates. It increases Business Office profits.
On that note, let’s not forget about the gross profits that the Business office sends to the Fixed Operations. As a dealer or General Manager, we must not forget the gross profit contribution from Business Office products. While vehicle protection products may represent a small percentage of gross profits to the fixed operations, gross profits generated from extended warranty claims are substantial. The sale of extended warranties is also far more reaching…
NADA reports on Dealer Service Retention that service drops to 1—15% after the factory warranty expires and only 14% of customers will return to purchase another vehicle. A whopping 76% return if they do their service at the dealership. This is also evidence that a dealer loyalty or rewards program should be implemented.
7 — Secure ‘buy-in’ from the staff:
How many of your dealership staff would register protection plans or have vehicle protection products applied to their personal vehicles?
If you sell them on the need and value of them, they’ll be the best supporters of the Business Office.
>Conduct a half-day workshop for your entire dealership staff!
8 — Inhibiting factors:
  • High percentage of cash deals (i.e. L.O.C)
  • High percentage of lease transactions
  • A longer factory comprehensive or powertrain warranty
  • A factory CPO program
  • Limited or no financing reserves
  • Restrictive pricing on manufacturer aftermarket protection plans
Cash deals hurt everyone — create an action plan for this challenge.
1        Your BM needs to learn modern and effective strategies for converting ‘cash’ from savings, ‘cash’ from investments and ‘cash’ from a line of credit to dealer plan financing.
2        Educate the sales staff
3        Address ‘cash’ buyers on your website (“why paying cash from savings or your line of credit might not be your best option”)
4        P.O.S. materials planting a seed for financing
5        Incentivize customers to finance: (WalkAway™ programs, navigation systems & other ideas)
6        Quoting payments to cash buyers 100% of the time when making a proposal
7        On-Line mortgage savings comparison tools
April 2007: Money Sense Magazine
“Canadians are far better savers than our US counterparts; we only spend 120% of our disposable income.”
April 2012:
“Canadians are now spending 152% of their disposable income up from 120% just 5 years ago out-spending our neighbours south of the border. The main two reasons: low interest rates and lines of credit.”
CONSUMER ALERT BULLETIN: Disadvantages of using lines of credit
·         UP TO 3% PRINCIPAL REPAYMENT RESPONSIBILITIES
·         USAGE CHARGES
·         TENDENCY TO PAY INTEREST ONLY
·         REVOLVING CREDIT
·         ANNUAL REVIEWS 
·         POOR UTILIZATION OF A CREDIT LINE
Once you have identified any of these challenges, it is likely that you will be unable to overcome them or you would have done so already.
An investment in training to acquire the most effective strategies to overcome these hurdles is what is prescribed here. 

9 — Product offerings:
  • Partial payment protection for illness or loss of employment
  • G.A.P.
  • Nitrogen programs
  • Tire & Rim warranties  
To research what products are available and the benefits for your customers, visit f-iresource.com.

10 — f-iresource.com: provides information, resources and tools for dealership Business managers to improve Business Office performance. It’s free to use and requires no log-ins or passwords.

11 — Start using slide shows and video:
  • Consistency
  • Professional
  • Engaging
  • ‘Dummy-Proof’
  • Increases profitability 
12 — Market your F&I department:
It is estimated that more than 80% of consumers today will use the Internet to research their next vehicle purchase. Most dealers do a great job of addressing these basic questions:
Who should buy our products
What to buy
Where to buy
When to buy
Why they should buy
But forget to answer this question… how to buy?
Here are the areas where dealers need to start to do a better job:
In the showroom
Service department
Customer lounges
On the Internet   
13 — Is your Business Manager a Manager or an Administrator?
>Start conducting Business Manager meetings with an agenda that include individual performance reviews of each BM and your salespeople.
>There should be a training component in each meeting addressing areas of opportunity or weakness.
>You can’t manage what you don’t measure. Use statistics to assist you.
Does your Business Manager have the required skills?
>Most Business Managers know very few rebuttals to common objections.
>We have over 130 catalogued rebuttals and recommend that Business Managers learn at least 2 or more effective cost and value rebuttals for each of their product offerings.
>See how effective your Business Manager is at fielding objections when you get back to your store.   
>Is your Business Manager treated as a ‘manager’ or as an ‘administrator that also sells’?
>Do they attend manager meetings?
Start treating them like managers and they will start acting like managers. 
Priorities of a Business Manager:
1.      ENSURE THAT SOLD VEHICLES ARE DELIVERED BY SECURING FINANCING FOR CUSTOMERS 
2.      ASSERTIVELY SELL BUSINESS OFFICE PRODUCTS/SERVICE
3.      MAINTAIN EFFICIENT, ACCURATE AND LEGAL  PAPERWORK
4.      EDUCATE THE STAFF
5.      RESEARCH NEW PRODUCTS THAT WILL BENEFIT CUSTOMERS AND LEARN NEW IDEAS AND STRATEGIES TO IMPROVE BUSINESS OFFICE PROFITABILITY
14 — Tap into the Special Finance market:
>Up to 30% of consumers will not qualify for a prime loan
>Less than 10% of franchised dealers market to credit challenged individuals
>70% used to 30% new mix
>Any franchised dealership can deliver 15 non-prime deals per month
>Can you afford to move forward marketing to only 70% of your potential market?
Let’s put some numbers together:
Average gross profit per non-prime transaction is 3,850 x 15 units = $57,750 x 12 months = $673,000 gross profit infusion

15 — Run the numbers to see what impact a $500 gross profit per unit increase will do for your bottom line.
16 — Health Check:
As humans, we regularly have health checks with our doctor, dentist or optometrist - when was the last time you had any type of a health check on your Business Office department?
17 — Using this template, create an ‘ACTION PLAN’ upon returning to your dealership.
Your Business Office produces the highest gross profit per square foot in your dealership. Customers are spending time in this office and you are entertaining them here. In many dealerships it is the smallest; most cramped and cluttered space in the entire dealership. Should this not be a showcase for the dealership and a pleasurable environment?
Take care of this prime piece of real estate and it will reward you!
 
Get behind the wheel and start driving your F&I profits!
www.wyemanagement.com
Toll Free: 1.888 .993 .6468
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