Make More Money And Keep It – Use The Right Measurement Metrics, Maximize F&I Profit And Protect The Profit With Compliance

 

By Myril Shaw, Chief Operating Officer, Dealer Profit Services 

Today, more than any time in the last 12+ years, it is vital to maximize F&I Profits.  F&I Profits come without the carrying cost of inventory and the profit percentage is not reduced by declining margins.  F&I Profit can certainly cushion the profitability declines seen elsewhere in the store. 

F&I Success, as measured by F&I Profit Maximization, requires that leadership declare a clear Mission, clear targets, and clear processes – all with a focus on continual improvement.  That said, the metrics used to measure results are a critical, and often misunderstood element in the overall evaluation of both predictors and results. 

Starting with the metrics, there are several areas to consider.  Some stores like to keep track of, and base advertising and expectations on the “quality” of the customers they are seeing.  Often they will track trends in the credit scores of the customers.  This is a weak measurement for two reasons.  First, stores have both finance and cash customers – there needs to be clear measurement of the balance between these two and to the extent that finance customers are reflecting less that 45% of total buyers, the finance buyer impact becomes minimal.  It is also true that 80% of “cash” buyers are not using liquid cash (meaning that these “cash” buyers are convertible to finance) – so failure to keep at least 45% of customers as finance (and really over 50%), it a critical measurement. 

For Finance buyers, the Credit Score is almost immaterial in terms of the quality of the buyer – especially in today’s economy.  The only thing that is truly useful about the credit score is as an indicator of which lenders will look at the finance buyer.  The quality of the buyer is indicated by “debt-to-income”, and then Available Credit, and Length of Credit History.  These are the factors that determine the actual ability of, and ultimately willingness to buy, of the buyer. It is common today to see high, or at least solid, credit scores for people who have high and potentially increasing debt, and who are managing to keep up with the payments.  High debt-to-income results in declines, or, at least, unacceptable interest offers from lenders.  Don’t look at the Credit Score – look at DTI. 

Another measure often tracked is Amount Financed.  This is or can be misleading at best.  First, Amount Financed does not include the amount of Protective Products sold on Cash deals.  Secondly, it can be grossly misleading if Protective Products are being sold and financed at cost with no profit.  The preliminary measure here MUST be F&I Profit on Amount Financed.  The real metric is F&I Profit on Unit Sales where F&I Profit includes profit on Protective Products for both Finance and Cash buyers – which should always being sold exclusively by the Finance/Business Manager. 

The rest of the metrics are pretty clear and straightforward: 

·        % of Total Customers Seen by the Finance/Business Manager
·        % of Total Customers offered full Protective Product package and signing a “Sign To Decline’
·        Penetration rates on Protective Products (percent of Finance and/or Cash buyers purchasing one or more Protective Products
·        Margins on Protective Products
·        F&I Profit on Amount Financed/Unit Sales 

Once the metrics are understood, it is critical to use them to deliver maximum (with continual improvement) F&I Profit.  This starts with the leadership laying clear (and evolving) policies. 

The first part of this is to declare the Mission.  This language can obviously change.  An example is: 

·        Our Mission Is To Fully Maximize F&I Profit And To Continually Improve On That Profit While Ensuring That Our Customers Are Being Comfortably Enabled To Fully Enjoy Their Lifestyle Choices
    o   This is a lifestyle purchase and not an automotive purchase 

The second part is to clearly state the targets.  The starting (and not the finishing) place for these targets can be: 

·        100% of Customers See the Finance/Business Manager 100% of the Time on conclusion of the shopping process regardless of stated Cash/Finance Preference
·        70%+ of Finance Buyers are sold one or more Protective Products
·        35%+ of Finance Buyers are sold one or more Protective Products
·        Margins on Protective Products range from 120%+ on Engine Warranties to over 300% on other products
·        8%+ F&I Profit on Amount Financed
·        5%+ F&I Profit on Unit Sales 

Finally, there needs to be a clear process to beginning to achieve the Mission and Targets (again, this a start and not an end): 

·        Advertise “Competitive Financing Available” everywhere, early, often, and loudly
·        Introduce the Business/Finance Manager at the beginning of the shopping process – “Once we have found the unit you are in love with, you will be meeting this person to ensure that your delivery experience is delightful”
·        On the Sales floor, plant Protective Product seeds with stories – no hard selling and NO PRICES
·        Every customer is offered a full set of Protective Product options and executes a “Sign to Decline”
·        Follow the F&I Principles:
    o   First Do No Harm – Never cost a sales in Finance
    o   Aggressive and graceful in retreat – You never get more than what you ask for the first time 

At the end, F&I Profit protection is critical, and a big part of that is doing Compliance right.  The CFPB and the FTC have become much more aggressive about enforcement, and penalties.  The CFPB has said that any prosecution with look at “good faith” efforts.  It is critical to be able to demonstrate and document “good faith”. 

Have all five Compliance Documents printed, executed by your Compliance Officer, and displayed.  Be able to demonstrate that the team has been trained on Compliance and understands the requirements.  Show that there are regular efforts to enforce Compliance best practices throughout the store.  All of these together can go a long way in demonstrating “good faith”. 

If any or all this seems overwhelming, it does not need to be.  This is where Dealer Profit excels.
Contact us today at info@dealerprofit.com.  We will help! 

About Dealer Profit Services
As a premier F&I Services Provider, Trainer, Consultant, and Comprehensive Compliance Program supplier, Dealer Profit Services, a member of the Brunswick family, 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.  Learn how to use Dealer Profit Services F&I Delivery Services – Click here.  Get your Comprehensive Compliance Program here - just click. Learn more by visiting dealerprofit.com, email info@dealerprofit.com, or call (470) 326-0966. 

How To Maximize F&I Profit – Mission, Targets, Processes

 

By Myril Shaw, Chief Operating Officer, Dealer Profit Services

In today’s economic and industry conditions, it has never more important to maximize F&I gross and net profit.  With increasing unit prices, decreasing margins, slowing sales, and increasing inventory (and so, inventory carrying costs), dealership profitability is declining.  The only real way to help offset the loss is to ensure F&I profit is the maximum it can be for now – given that there is always room for continual improvement.

A key role for and duty of dealership leadership is to set/define and communicate the Mission – the Targets – the core Processes for achieving the Targets.  These must be defined for the Dealership as a whole, as well as the key divisions – Sales, Service, Finance, etc.  This not to say that these cannot be adjusted and results and learning occur, nor is it to say, that these define the top of the mountain – there is always room for improvement.

The techniques for achieving the Mission, Targets, and Processes can and should be taught as a separate matter.  These are team matters and individual behaviors and constitutions may influence the techniques.

What follows are suggested Mission, Targets, and Processes for F&I Profit Maximization.  The specific language does not matter – it is the thought that counts – personalization is expected.

Mission

Deliver the maximum F&I Net Profit today while providing a delightful customer experience that enables a ensures a fantastic and protected lifestyle while always focusing on continuous improvement in all areas.

Targets

In order to achieve the defined message, the following Targets must be achieved:

·        Deliver F&I Net Profit of 5%+ on Unit Sales by delivering 6.67% F&I Gross Profit on F&I Sales

·        Deliver 7.5%+ F&I Gross Profit on Amount Financed

·        Deliver the sale of one or more Protective Products on 70%+ Finance Deals

·        Deliver the sale of one or more Protective Products on 35%+ Cash Deals

·        Cap the “all-in” cost of F&I at no more than 25% of F&I Gross Profit – “all-in” means: all salary and burden; cost of bureau pulls and application processing, space allocation cost, equipment/cabinet cost and depreciation, etc.

Processes

In order to achieve the defined Targets, the following Processes must be executed:

·        The message, “Competitive Financing Available”, must be presented with high visibility with every customer touchpoint: ads; website, signage; etc.

·        The customer is introduced to the Finance/Business Manger at the very outset of the inventory/unit shopping/search with the fact that they will meet the Business Manager every time at the conclusion of their search “to ensure a delightful delivery”

·        100% of Customers, Cash or Finance, meet the Finance/Business Manager 100% of the time

·        100% of Customers are offered a full set of Protective Products – with their lifestyle value – 100% of the time

·        Depending on the Dealer Cost of the Protective Products, customers will be offered selling prices at 120% to 400%+ mark-up/profit (except in Florida, where retail prices are enforced)

This Mission, with these Targets and Processes will guide the path to maximizing F&I Profit.  The next step, and the topic of the next post, is identifying and guiding the techniques needed/used to execute these Proceses.

If this seems overwhelming, it does not need to be.  This is where Dealer Profit excels.

Contact us today at info@dealerprofit.com.  We will help!

About Dealer Profit Services

As a premier F&I Services Provider, Trainer, Consultant, and Comprehensive Compliance Program supplier, Dealer Profit Services, a member of the Brunswick family, 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.  Learn how to use Dealer Profit Services F&I Delivery Services – Click here.  Get your Comprehensive Compliance Program here - just click. Learn more by visiting dealerprofit.com, email info@dealerprofit.com, or call (470) 326-0966. 

Three Industry Organizations Plus 20 Groups – Giving Dealers The Best

By Myril Shaw, Chief Operating Officer, Dealer Profit Services

The National Marine Manufacturers Association (NMMA), the Marine Retail Association of the Americas (MRAA), and the National Marine Lenders Association (NMLA) are all critical resources for and to dealers.  On top of these, there is no excuse for a dealer that wants to be the best not to be involved in a 20 Group.

According to the NMMA: “The National Marine Manufacturers Association (NMMA) is the nation’s leading trade association representing boat, marine engine and accessory manufacturers. Collectively, NMMA members manufacture an estimated 80 percent of marine products used in North America.

NMMA is a unifying force and powerful voice for the recreational boating industry, working to strengthen and grow boating and protect the interests of its member companies.”  In addition,” NMMA programs and services are designed to serve the best interests of its members and the recreational boating industry. To that end, the NMMA:

• Represents the industry on public policy issues, advocating at state and federal levels to protect the interests of the marine industry and the users of products 
• Collects, analyzes and distributes industry, economic and market data; NMMA is the industry’s primary source of recreational boating research, statistics and technical data. 
• Promotes recreational boating through consumer outreach 
• Provide information/represent the industry’s interests to the media and other public entities.
• Produces boat and sport shows in key North American markets to provide quality sales venues for exhibitors and consumers
• Co-owns/produces the trade event IBEX (International BoatBuilders’ Exhibition and Conference) to generate business opportunities for marine companies
• Works to create opportunities overseas; offers information and services to help members expand into the global marketplace 
• Maintains boat, trailer and oil certification programs to promote safety and help manufacturers produce quality products
• Assists the industry in continuously improving customer satisfaction with the purchase, delivery, product, use and after-sale experiences through CSI (Consumer Satisfaction Index)”

Why do dealers care?  The NMMA enables the best boats and engines for dealers and customers.  This means better boats and better profits.

The MRAA is all about the dealer in every way possible.  It has incredible dealer education resources.  Every year they host the MRAA Dealer Wee which is the greatest dealer education and networking resource available anywhere and which applies to every aspect of dealership operations, management and service.  They have incredible resources available on-line. The MRAA is about helping dealers to be the best that they can be.  Any dealer who is not active with the MRAA does not care about being the best that they can be.

The NMLA deals with the financial side of the marine industry – an area critical to to successful financing and lending practices.  The NMLA is the dealers friend and advocate with the lenders and the government.

“The National Marine Lenders Association (NMLA) was incorporated in 1979 and its members are banks, loan origination companies (service companies), finance companies, credit unions and other industry professionals. The association was created to educate current and prospective lenders in marine financing procedures, promote the extension of credit to consumer and trade borrowers, maintain alliances with industry partners, measure and report on the vitality of the marine lending market, and actively maintain networking and communication benefits for its members. “

Finally, for dealers who want to be the best, there are the 20 Groups, such as those facilitated by people like David Parker.  These 20 Groups are more intimate settings where dealers share what they are doing, what is working and not working, and what they have found to be best practices.  These groups share financial and practice information and learn from each other about daily practices.  The dealers who truly want to be the best are always 20 Group members.

Dealer Profit Services actively promotes all of the above and always wants to to dealers who want to be the best, be the best - either through training or by taking it over for you (which will be cheaper than in house!)

Contact us today at info@dealerprofit.com.  We will help!

About Dealer Profit Services

As a premier F&I Services Provider, Trainer, Consultant, and Comprehensive Compliance Program supplier, Dealer Profit Services, a member of the Brunswick family, 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.  Learn how to use Dealer Profit Services F&I Delivery Services – Click here.  Get your Comprehensive Compliance Program here - just click. Learn more by visiting dealerprofit.com, email info@dealerprofit.com, or call (470) 326-0966. 

National Marine Lenders Association Conference Outcomes - F&I Profit Becomes Increasingly Important

 

By Myril Shaw, Chief Operating Officer, Dealer Profit Services

The National Marine Lenders Association (NMLA) Conference wrapped up last week.  So much fantastic and important information from and with an amazing group of people – every dealer needs to thank this organization for everything that they do for dealers and the industry.  I feel blessed and honored to be part of it.

There were several presentations on economic trends and conditions.  To say that everyone agreed on everything relative to the economy and where it is going would be a gross overstatement.  There are a lot of shattered crystal balls out there.

That said, there was complete agreement on one set of issues that will clearly and directly impact dealers, and which makes one often overlooked area in the dealership critically important.

The things everyone agrees on are:

·        Unit prices are going up – in some cases rather dramatically

·        Higher unit prices make it much more difficult to hold margin – meaning less profit per unit

·        Higher prices also mean that the rate and absolute number of sales is going down

·        Manufacturing is normalizing and so manufacturers are shipping inventory to the stores at the old rates

·        With higher inventory and higher prices, inventory carrying costs are going up

·        With less profit per unit and higher carrying costs, dealership profitability is being driven down – sometimes significantly

With standard operational profit down, what can dealers do?

There is one source of “free” profit – meaning that, except for personnel and standard transaction costs which are unchanged, this is a source that help protect dealer profitability.

This magic source is F&I profit.

Done right, F&I profit can represent 5% + of unit sales – and with practice and discipline, it can improve from there.

There are few key steps to achieve this level of F&I Profit – and they start with leadership and a declaration that F&I profit is critical and the steps needed to achieve it will be followed.

The key elements to achieving excellent F&I Profit are:

·        Advertise “Competitive Financing Available” early, often, and loudly including on the website, in any ads that are being run, as well as in-store signage

·        As soon as the customer arrives to look at inventory, the first thing they hear, before they even declare “cash” or “finance” is “Once we have found unit you fall in love with, you will see our Business Manager” to make sure that Delivery is a delightful as it should be”

·        100% of customers, cash or finance, talk to the Business Manager 100% of time

·        For cash buyers, the first thing that the Business Manager offers is “If you are paying cash, you must have great credit, wouldn’t you at least like to see what your options are and maybe save that cash for some extra fun in your lifestyle?” – note that 80% of “cash buyers are not paying with “liquid” cash, so they are actually prepared to finance in some form

·        100% of buyers are presented with a full set of relevant protective product options with initial profits on those products ranging from 120% to 350% of dealer cost – penetration rates on protective products (the number of deals on which one or more protective products are sold should be 65% + on finance deals and 35% + on cash deals

When dealership leadership declares the importance of F&I profit, lays out the goals, and targets, and ensures that the team is properly trained on the techniques, F&I Profit with exceed 5% on unit sales.

We can help you do that – either through training or by taking it over for you (which will be cheaper than in house!)

Contact us today at info@dealerprofit.com.  We will help!

About Dealer Profit Services

As a premier F&I Services Provider, Trainer, Consultant, and Comprehensive Compliance Program supplier, Dealer Profit Services, a member of the Brunswick family, 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.  Learn how to use Dealer Profit Services F&I Delivery Services – Click here.  Get your Comprehensive Compliance Program here - just click. Learn more by visiting dealerprofit.com, email info@dealerprofit.com, or call (470) 326-0966.