Price Or Payment – Only One Makes "Cents" (Or "Dollars")

Myril Shaw – Dealer Profit Services

"So how much is it?"

This sounds like such a simple question and yet it is so fraught with peril that it is almost impossible to imagine.

Let's start with this basic premise.  There is never a reason to talk about price!

What is the last car commercial you saw talking about the "low, low price of $29,500"?  You did not!  You saw a commercial talking about a low payment of $199 per month.

There are many dimensions to the price/payment conversation.

1)    Price will always sound expensive;

2)    Payment will always promote financing;

3)    Contrary to popular belief, there is no legal requirement to show or promote price;

4)    Quoted payments need to be based on commonly available terms and conditions, and must be consistent for everyone – as long as that is true, you can just quote the payment with no other detail.

Keeping in mind that over 80% of the people coming in who say that they are paying cash are NOT paying with liquid cash – they are paying with a Home Equity line, or the sale of stocks and bonds, or they are trying to organize their own financing around you – the price is just an expensive target number.  It gives away the information that a customer needs to "do it themselves" or it scares them away and in either case, it does you no good.  Why would you ever show the price?  (This is not to suggest that you don't tell the price if asked, just first be asked.)

Even if a customer has been looking at alternative financing sources, when you lead with payment, they will always rethink what they have been doing.  Your payment will always sound attractive.  At the very least, it offers the customer a "one-stop-shop" experience.  At best, it may be better than what they have been looking at.  In any case, it opens the door to profitable financing conversations and will help you engage customers with your F&I options.

There is a misguided belief that you have to display the price.  That is simply false.  You have to accurately disclose price if/when asked.  There is a huge difference between those two positions.  To be clear, when someone finances, they will be told the price that they are financing.  This issue is that disclosing the price on a payment that the customer finds attractive is hugely different than selling a payment on a price that the customer may be uncomfortable with.  Which would you rather be doing?

To be sure, there are laws and guidelines about how you disclose the price.  You have to be clear and consistent on how you arrived at the price.  What term is the price based on?  You have to clearly state that the price is based on "qualifying credit".  "Qualifying Credit" has to have specific criteria that do not change if you are asked to disclose it.  It cannot be based on any criteria other than what is available on the printed credit application and the credit report.

When you advertise payment you let people know that you can handle the financing and you make every unit far more attractive.

Stop with prices, start with payments and watch your sales and your F&I Profit reach exciting new levels!

Dealer Profit Services, LLC can help.  Whether you want someone to take over your F&I and just drive profit to your store, help you some of the time, need some quick advice or just provide F&I Training/Consulting, we are here to help you.  Contact us anytime at info@dealerprofit.com or give us a call at (470) 326-0966.

Why F&I Underperforms – The Assumptions You Make - "Everyone Knows That We Finance"

By Myril Shaw, Dealer Profit Services

Last week we started a series about the profit delivery potential of F&I in every store.  It should be delivery 3.5% profit on unit sales.  It should be delivering 7.5% profit on the amount financed.

Dealers make a series of assumptions that serve to inhibit F&I success.

This week we look at the first of those assumptions – "Everyone knows that we offer financing."

Well, sorry, no they don't know that.

People buying boats and RVs don't bring the same set of assumptions that they bring to buying cars.  When someone is thinking about buying a car, they just know that car buying is a "one-stop-shop" experience.  They expect to finance the car where they buy it.

Lifestyle purchasers do not bring that same assumption along.  They frequently decide to shop financing, or figure out how to pay for their new purchase before you even see them.

Yet, we know that 80% of the "cash" buyers are not paying with "liquid" cash.  They found financing elsewhere, they used a home equity line, they sold stocks or bonds, but they did not have the money in their check or savings account and they liquidated assets or taken on debt – why did they do that through you?

THEY DID NOT KNOW THAT THEY COULD!  THEY WERE TAKEN BY SURPRISE WHEN THEY FOUND OUT ABOUT YOUR FINANCE CAPABILITY – AND THEY WERE EITHER COMMITTED OR EMBARRASSED.

From the very first point of contact, you have to be advertising, you need to be screaming from the rafters that you have Competitive Financing Available.  Outside your store, you need road visible signs and banners that say "Competitive Financing Available."

Your advertising – print, radio, TV, web, social media, direct mail, etc. – all need to announce your financing capability.

Your website needs to have finance banners all over it.  You need to be using "soft-pull" credit technology to allow someone to "Get Pre-Qualified" on your site.  Every piece of inventory on your site needs to have a "Get Pre-Qualified" button associated.

When someone walks into your store, they need to see signs and banners inside that talk about your Competitive Financing.

When you are advertising inventory, you NEVER want to show a price, you always want to show a payment.

Financing available and payment is what every one of your customers sees and hears from the first time they dream about their lifestyle purchase.

Finally, once they do come in and they meet their salesperson, before they even start shopping, they need to be introduced to their "Delivery Coordinator/Business Manager/ Finance Manager" with the message from the salesperson that, "Once you have fallen in love, Bob here will go over the delivery details and logistics with you."  In this way, you have ensured that you get one final bite of the F&I apple and even if they can't be convinced to finance, you now have a quality opportunity to sell optional protective products.

Don't fall into the assumption trap.  Be loud about and proud of your F&I capability and drive up your F&I profit!

Dealer Profit Services, LLC can help.  Whether you want someone to take over your F&I and just drive profit to your store, help you some of the time, need some quick advice or just provide F&I Training/Consulting, we are here to help you.  Contact us anytime at info@dealerprofit.com or give us a call at (470) 326-0966.

How Important Is F&I? It Could Be "Change Your Life" Important!

By: Myril Shaw, Dealer Profit Services

(Note: This is the first in a series about why F&I is important and how to improve it at your store.)

For many of you, Finance and Insurance (not to be seen as, but often is, Frustrating and Irritating) is somewhere between non-existent and an afterthought.  You don't want to worry about the legal and compliance issues.  You don't want the expense burden associated.  Your customers tend to pay cash.  Why even worry or think about F&I for your store?

Well – what if F&I could double your Net Profit?  Would that make it interesting?  What if F&I represented Fantastic and Inspiring revenue?  Might that change your view of F&I?

Your response is likely, "If F&I could double my Net Profit, I would be interested – but it can't."

IT CAN!!!  Read on.

Let's begin with the most fundamental issue – how well should F&I perform?

The target for F&I profit, on average across all deals, should be 7.5% of the amount financed.  This means that your team should be averaging at least 5% reserve across all deals, from non-prime through super-prime.  Beyond that, they should be selling optional protective products that deliver a profit of 2.5% of the amount financed on average per deal.  (In fairness, these numbers apply to deals where the amount financed is $100,000 or less – once you get above that, the F&I Profit Percentage will decrease, however the dollar value becomes so significant that you still will not want to leave it on the table.)

So, with F&I profit of 7.5% on the amount financed as the baseline, if your units financed represent 50% of your units sold (which means that your total unit sales will be double the amount financed plus 15% added back to the amount financed to account for the down payments) your F&I profit will add 3.5% to your unit sales net profit. 

F&I Profit on Amount Financed		Amt Financed		F&I Profit		% of Total Sales Financed		Total Sales	F&I Profit On Sales
7.50%		$ 250,000.00		$ 18,750.00		50%		$ 537,500.00	3.49%
7.50%		$ 250,000.00		$ 18,750.00		70%		$ 394,642.86	4.75%
7.50%		$ 250,000.00		$ 18,750.00		30%		$ 870,833.33	2.15%
7.50%		$ 250,000.00		$ 18,750.00		50%		$ 537,500.00	3.49%
7.50%		$ 350,000.00		$ 26,250.00		70%		$ 552,500.00	4.75%
7.50%		$ 150,000.00		$ 11,250.00		30%		$ 522,500.00	2.15%

Let's recap, 7.5% F&I profit on the amount financed will add 3.5% to your unit sales profit if you are financing 50% of your units sales.  3.5% is a big number.

If you are financing more, that profit number will go up…if you are financing less, that number will go down and that is completely under your control!

What about the cost of F&I?  It should NEVER be greater than 30% of the profit.  At 30%, your Net F&I profit will contribute 2.45% to your store's Net Profit – to the extent that you can control that F&I cost, your net profit goes up.

You really should never be spending more than 25% of your F&I profit its cost and there are ways to control that further.

According to the 20 Groups, both Spader and Parker, the best stores are adding 2.1% through F&I profit before cost – imagine what your net profit would look like if you could add 2.45%+ to your net profit bottom line.

Stay tuned – this is the first in a series of blogs about how to increase financing at your store.

Once you do F&I will, indeed, represent Fantastic and Inspiring Profit!