Category: Dealership Training

When I’m in a dealership talking about conversion rates, the team members often focus on the process of transitioning a potential customer to a confirmed sale. I hear about engagement rates and digital touch points. But often, the biggest struggle isn’t with closing a sale, but rather with effectively managing lender look-to-book metrics. This critical component can often make or break a sale. What are your lenders’ look-to-book requirements and how can F&I departments optimize their conversion rates?

Some F&I managers still feel tempted to use the “free-for-all” approach – offering all deals to every lender on their list. This approach relies heavily on automated approvals, but fails to factor in specific lender criteria. This often results in several denials, especially if a percentage of your business happens to fall in the subprime space. In the prime space, this approach can jeopardize lender relationships if your team sends several lenders applications that they all approve. Your team can only select one lender, which alienates the rest.

A more prudent approach is adopting a preferred lender process, wherein your F&I managers select a group of lenders to send the majority of your contracts. This requires that your team has good working knowledge of each lenders’ requirements to ensure that every deal submitted is approved. Dealers should approach preferred lender candidates based on the needs of their operations, as well as the types of lenders available including those who offer wholesale financing, retail financing, automated vs. manual credit decisions, etc.

Making the Cut

These days, lenders set volume targets and keep a close eye on losses. A lender using a look-to-book ratio considers it an indicator of efficiency, as well as the percentage of approved deals that are booked as loans. Lenders are also segmented into the type of loans they approve – ranging from super-prime to non-prime. It makes no sense to offer an application with a FICO score below 640 to a lender that is only interested in super-prime credit.

Are your sales and F&I teams at odds with each other?

Do you often hear sales team members complain of getting their front-end margin slashed when customers go to finance?

Or, do you hear finance managers’ despair over having limited back-end flexibility for F&I products?

When sales people go through our F&I training, their feedback is often that all sales people should go through this training, as it would completely change the way they approach sales. Many sales professionals have no idea what goes on in the finance office, or how their efforts at securing a sale impact F&I.

So, what does go on in the finance office?

Any F&I manager will tell you that their job consists of securing financing that will cover both the cost of the vehicle and the sale of F&I products. They take customer information, submit loan applications, review lender bids, select a lender that meets the needs of both the dealership and the customer, and present the financing options and available F&I products to the consumer. While much of their time is spent on paperwork, the majority of their effort is spent on selling F&I products to increase the dealer’s back-end profit.

What effect does the sales process have on F&I?

The answer to this question is everything. Think about it like this. A sales person lands a customer on a $35,000 vehicle. When the finance manager pulls the customer’s credit and runs the numbers, they see that they will not be able to get a loan for more than $35,000. This makes it almost impossible to sell F&I products, which significantly reduces the dealership’s overall ability to maximize profit on the sale.