John Stephens
Executive Vice President
EFG Companies
It’s official. Auto sales have plateaued. Dealerships across the U.S. are reporting low sales numbers in comparison to last year. Manufacturers have increased incentives, but no one’s taking the bait. These headlines give reason for pause and contemplation on the future of the retail auto market. But, let’s take a step back for a second.
According to Automotive News, the auto industry sold 17.5 million vehicles last year, representing a seventh straight year of growth. When put in that perspective, a plateau at 17.5 million vehicles doesn’t seem too bad.
Yes, vehicle sales aren’t hitting manufacturer projections, but seriously, how long did they really think sustained growth was going to continue? We’ve been in one of the longest economic expansions in U.S. history; the economy was bound to slow down at one point.
With that perspective in mind, economic indicators continue to be strong. National unemployment has hit its lowest level since May 2007. We’ve seen strong jobs gains in recent months. According to CNN, wages rose 2.5 percent in the past 12 months, and the median price of a home has risen to $236,400. Lastly, consumers are still taking on debt. According to the Federal Reserve, consumer credit rose 4.8% annually in February.
Clearly, there is still plenty of business available. This is the perfect time for dealers to catch a breath, regroup and re-address their go-forward plans. For the immediate concerns of razor-thin front end margins, we’re seeing more dealers rely more heavily on back-end profit. But remember, there is a right and a wrong way to increase your margins in F&I. The right way is to ensure your F&I products match your inventory and customer demographic, and focus on penetration rates. The wrong way is to focus on increasing product pricing as much as possible. Think about it this way: you have two F&I managers:
One manager has consistent product sales at low to medium markups. This manager’s customers leave happy, and his chargebacks due to refinance or product cancellations are minimal.
The other manager has inconsistent product sales, but the products he does sell are at high markups. This manager’s customers leave contemplating how to reduce their monthly loan payment amount, and his chargebacks are high due to refinancing and product cancellations.
Which do you think is better for your overall dealership profitability?
This plateau gives you the time you need to increase F&I training, re-tool pay plans to take into account product penetration, and experiment with online consumer education for your long-haul goals.
That’s right, I’m talking about providing your F&I product information online. I know it seems scary and unknown, but remember that at one point in time providing inventory information online was scary and unknown. Now, you can’t operate profitably without online inventory.
But, here’s the secret that the dealerships who do provide product information online don’t want you to know. Providing product information online can increase your penetration rates and PRU. Here’s why:
In the traditional finance process where consumers know nothing about F&I products until they reach the finance office, the fact that they have no control and no knowledge of your products makes them feel somewhat defensive. It doesn’t matter how good the products are, or how well your team is trained, the general consumer sentiment about dealers’ customer service levels are below what the industry would like it to be. We all know this. It’s not news to anyone. One of the reasons why consumers feel this way is because of the F&I process. That’s why many times their guards immediately go up when they enter the F&I office.
Instead, dealers that offer F&I product information online are giving consumers back a measure of control. They are also generating greater interest in the products and benefits by letting consumers take in that information on their own time, at home with no one there to pressure them into buying anything. Under this model, consumers are entering dealerships with questions and interest in the available F&I products. Their guards are down. They want to buy. And, we all know, it’s much easier to close someone who is interested than someone who isn’t.
In addition to simply generating interest in F&I products, by being more transparent, dealers are also better able to increase their brand presence and loyalty in the market. This creates more opportunity for future sales growth, customer retention and referrals.