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.