The Rates Are Rising – Stay Aggressive, Proceed With Caution

 

By Myril Shaw, Chief Operating Officer, Dealer Profit Services

Interest rates are rising quickly.  While this should not affect your F&I success, it should affect your F&I behavior.

Many stores encourage or allow all salespeople to provide rate guidance to customers, either by providing a range or suggesting what they think the high rate could be.  This is a practice that needs to change/stop.  With the rapid change in rates, sales have no idea what these rates could be, and suggesting something to customers that simply turns out to be false will sabotage the F&I results and create angry customers.

When customers ask sales about interest rates the answer should be, “They are changing pretty quickly right now, so I just don’t know.  Our Business Manager will go over the market and these rates with you.  Rest assured, we want to do the best we can by you.”

A particularly insidious effect of these rate increases is on ordered boats – and given the inventory situation and history, this is a big piece of the customer market.  The challenge here is that when a customer wants to finance and gets qualified on order, they may have to requalify when the boat arrives (most approvals are good for 60 days.)  In this financial market, the requalification issue is not that the customers don’t remain qualified, it is that the rate they qualified for initially is no longer available and may have increased by one-half a point or more. 

The effect of this rate increase is that Finance has an ugly choice – try and raise the rate initially quoted to the customer and risk the sale, or sacrifice F&I profit.  Generally, as long as a good job has been done on Protective Product sales with good profit there, giving up some reserve to protect the overall sale and the Protective Product Profit is the better idea.

This just reinforces the value of aggressive Protective Product sales.  The profit on these products can help maintain a baseline 5% F&I profit on unit sales even when the reserve has to be sacrificed – and there is no risk to the sale on a rate increase.

It is likely that rate increases will continue for the foreseeable future.  Prepare your team and your strategy.  Keep your customers satisfied by delivering the correct message at every step.  Make sure that Finance is focusing not just on Reserve (although that still remains important) but also on Protective Product profit, to protect against rate changes.  Nothing comes easily – profit still can.

About Dealer Profit Services

As a premier F&I Services Provider, Trainer, Consultant, and Comprehensive Compliance Program supplier, Dealer Profit Services is about improving a dealer’s F&I profit and then providing the tools to ensure that profit is protected.  As a Service Provider, Dealer Profit Services provides complete F&I services and delivers industry-leading F&I Profit Results.  As Trainers and Consultants, we help dealers improve their in-house F&I departments.  Through the Comprehensive Compliance Program, Dealer Profit Services provides an online, on-demand, Compliance Program with documents, training, and tools to make F&I Compliance a process that helps protect the dealer against potential risks from compliance issues.  Get your Comprehensive Compliance Program here - just click. Learn more by visiting dealerprofit.com, email info@dealerprofit.com, or call (470) 326-0966.  Dealer Profit Services is proud to be a member of the Brunswick family.