How to do Finance and Insurance (F&I) Right in a Dealership
Auto Dealers are a unique breed of entrepreneur.
They are successful, creative, generous, and a vital part of their communities.
To the general public, Dealers sell and service vehicles. To the Dealer community, the sale and service of vehicles is only a part of the operation. For successful Dealers, a substantial portion of their income comes from the F & I office. This includes revenue from the sale of products and financing.
For many Dealers, F & I income is the Sacred Cow, the Golden Egg, the Pot of Gold. It is an area where risk appears low and profits soar. So much so that Dealers create Reinsurance companies to channel their F & I income.
But beware! Lurking behind every transaction is the potential for litigation…class action litigation. With all due respect to noble F & I professionals, in the Risk Management arena, we call the F & I office The Beast!
Here are the facts:
Weary customers are led into the “Business Office’’ after hours of lot time, test drives with salespersons, and “back and forth’’ on pricing scenarios with Desk Managers.
The joy of the new vehicle purchase is tainted with exhaustion and frustration. Now, they face 30 – 45 minutes (or longer) of paperwork and several last product sale attempts. For the Dealer, this is their last opportunity to maximize profits.
To be fair, this is also the area where some very valuable products are presented. Anyone who has ever experienced a Total Loss with a vehicle that was “upside down,’’ from a financing perspective, fully understands and appreciates GAP coverage. And, those of us who have faced issues with AC, Power Controls, or computerized mechanisms are glad we purchased a comprehensive service contract. All good products, indeed.
The “issues,’’ from an Insurance and Risk Management perspective, come from disclosure. F & I mangers are paid on the “back end,” so their motivations are: Sell as many products for as much profit as possible. Capitalism at its best…right?
The problems arise with the laws regarding disclosure of financial transactions.
Remember the weary, “bleary eyed” customer just wanting to go home (in his/her new car). Sometimes the deals are so “loaded” with “you gotta have it” back end products that the monthly payment is now a stress factor to our “happy customer.”
In the days following the transaction, with the monthly expenditure now fully established as a part of the family budget, buyer’s remorse may set in. When it does, the glow of the new purchase may vanish and a sense of ire begin to boil. In the extremes, it can result in a return visit to the Dealership with a demand to “take it (the car) back!” Rarely, does the Dealer cancel the deal. The used car/trade in is gone, commissions to salespeople booked – the Deal stands.
When this occurs, we face potential litigation…a strong Customer Complaint issue at the very least. If it expands with a visit to a Plaintiff’s counsel to “review the paperwork,” the Dealer could have the beginning of serious problems.
From a Risk Management standpoint, the keys are in the establishment of F & I procedures and audits. Ensure all Finance Managers are “up to date’’ with laws regarding disclosure and discrimination. Set realistic timelines to get people through the process in a suitable fashion. Use technology to expedite the presentation of products and ensure that all laws regarding disclosure are met. Finally, set Audit procedures to ensure all files are complete and that profit margins are consistent, fair, and non-discriminatory.
Remember, the Sacred Cow can have spoiled milk…if you’re doing it wrong in the F & I office you’re doing it wrong a hundred or more times a month…with every transaction!
Make the final “touch’’ with your customer a pleasant one.
Watch for our next info blast…A Property Insurance Review!
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