Contributing Author: Stephen Roennau, Vice President, Specialty Channels, EFG Companies
Over the last couple of years, dealerships and F&I managers across the nation have taken a close look at their F&I menu, penetration rates and Per Retail Unit in relation to overall profitability. With the CFPB trying to force a flat fee system, proactive dealerships have focused on their product sales processes.
According to recent data from NADA, on average, F&I accounted for 39.6 percent of 2014 gross profit, and 38.8 percent of 2013 gross profit for both new and used vehicle departments. The F&I portion of gross profit has produced year-over-year increases since the depths of the Great Recession in 2009. NADA further broke down F&I profit to finance reserve and product sales. They found that F&I products made up 16.3 percent of gross profits in 2014, which was marginally up from 16 percent in 2013.
F&I managers everywhere are under significantly more pressure to reduce their reliance on finance reserve and make 2015 a year when F&I product sales and penetration increase more significantly than in the past. By increasing F&I product sales, dealerships may be able to transition more easily their overall profitability from the possibility of a flat fee lending environment, increase current income levels, and generate repeat customers and referrals through products that encourage customers to return to their service centers.
To remain competitive as a lender, it’s time to re-evaluate your processes with regards to F&I products. F&I products have the potential to be beneficial to more than just the consumer and the dealership, but also to lenders. By protecting consumers from potential costly expenses of mechanical breakdowns, or even the cost of losing their job, they also protect those auto loans from default, making your paper more secure. In addition, most products are cancellable on a pro rata basis.
For these reasons, lenders are taking into account the cost savings of reducing defaults when it comes to deciding how much money to advance. Some lenders are even adding complimentary products to their loans to further protect their loan portfolio, while also making their loans more marketable to both dealerships and consumers. After all, if an F&I manager submits for a loan approval and your loan provides the same rate and dealer markup as another lender, but also includes complimentary products with padding to sell upgrades, which loan do you think the F&I manager will choose to present to their customers?
The loan that allows the F&I manager the most leeway to make money always wins.
With almost 40 years of experience in administrating consumer protection products, EFG Companies knows what it takes to provide products that benefit lenders, dealers and consumers alike. Contact us today to find out how.