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.
Contributing Author: Steve Roennau Vice President Compliance EFG Companies
It’s been eight months since NADA released their Fair Credit Compliance Guidelines to help the retail auto industry navigate today’s increased focus on regulatory compliance. As the Consumer Financial Protection Bureau (CFPB) continues to aggressively seek out discriminatory practices, more dealers and lenders are implementing flat fee programs to help alleviate these concerns, including disparate impact (practices that seem neutral but result in negative impact to customers in a protected class).
While NADA has provided this guidance to dealers and lenders as they scramble to navigate a more stringent compliance operating environment, it also means that the opportunity to make finance reserve is slimming or coming to an end. For dealers, this means they now need to focus more on selling F&I products to enhance bottom line productivity. For lenders applying a flat fee, this means re-evaluating how to remain competitive against lenders who still operate under a traditional fee structure.
How are you positioning your institution to capitalize on evolving dealer demands and remain competitive?
Are you paying a competitive flat rate?
Are you either allowing room to sell consumer protection products or providing competitive products built into your financing options?
Are your field representatives actively supporting the dealerships with which you work?
Are your field representatives familiar with the dealers’ operations and the markets in which they conduct business?
Today’s indirect lenders have to compete on so much more than they are used to. Now, instead of just competing on APR, they contend with a flat fee markup and leaving room for the sale of F&I products. With all these considerations in play, it can be extremely difficult to determine how to structure your loan.
Consumers want low APR and the dealership wants to make money – that will remain constant. And, until everyone adopts a flat fee, dealers have a variety of options to choose from to achieve their goals. If you are a lender operating under a flat-fee markup, one of the best ways to differentiate yourself is to provide complimentary consumer protection products on your loans. With this option, dealerships still make money on the flat, as well as have the ability to maximize their profit potential by selling upgrades to the products on your loan. In addition, those same products protect your loan from unforeseen circumstances that could affect the consumer’s ability to make their monthly loan payments.
It’s also important to remember the value of good customer service. Making your field representatives available during dealership hours, providing swift loan approvals, and providing sufficient underwriting guidelines will go a long way to securing your business with the dealership.
Cultivating a strong working relationship with F&I managers has always separated good lenders from their competition. A lending institution may have the best rate or fee structure available, but if their representatives aren’t available and attentive, that lender will fail to see sustained loan volume from their dealership partners.
Finally, understanding demographics for the surrounding areas can help your field team better position your loan for any particular dealership. Demographics have changed significantly since 2008, and statistics like the type of employers in your area, home value trends and income levels can help paint a more comprehensive picture of their current and potential customers. With this information in hand, you have a better ability to provide lending services that support the dealership goals of selling more vehicles, and in turn increase loan volume for your institution.
With more than three decades of developing and delivering consumer protection solutions and go-to-market strategies, EFG Companies gives clients the edge in the market place. Put our agile product innovation and unmatched partner engagement in your court today.
Contributing Author: Steve Roennau Vice President Compliance EFG Companies
The answer is, a lot! From lender reps, to the OEM’s field team, to consultants, to the “latest thing” rep, today’s auto dealer is highly sought after. The dealership’s decision maker is in demand. So much so that if the Dealer granted time to every rep that requested it, he would spend no time tending to his retail automotive operations!
So, the better question is this:
How Do You Ensure that You are the Rep that the Dealer WANTS to see?
The bottom line is you need to add value to his operation when you do get in front of him. When you leave, it should have been time well invested. Here are three points of consideration for meeting with a Dealer.
Do Your Homework– It is imperative that you know the Dealer’s business, his business, and demonstrate to him that you understand it. Everything you communicate should be filtered through this lens. Don’t just show up with your numbers, loan volume, look-to-book metrics, and portfolio performance. Present your numbers within the context of hisorganization. Position your numbers to the dealer’s business. Present your loan volume as a share of his total business. What revenue hit his operating statement generated by doing business with you? Explain why and how the metrics benefited his business. Understand the dealer’s F&I operations including penetration levels for financing as well as all ancillary products sold and include these points in your discussion with the Dealer.
Quantify Your Points – Don’t just present from the standpoint that doing business with you will help improve efficiencies and sell more cars. Always quantify these statements. For example, if you put three deals together for the dealership last month, don’t just leave it at three additional deals. It should be 5 additional deals, at that dealers average front end gross, over a 12-month period, applying his VSC/GAP/Other Product penetration levels and his associated gross profit for each. Sum these numbers for a month and annualize it for him. Remind the dealer that you appreciate his business and are pleased to know that you are working together with his team to drive profitability in his dealership.
Respect the Dealer’s Time – Building and maintaining rapport is always an integral part of our business. That just can’t be the main reason for your meeting with the Dealer. Have a plan, communicate it, stick to it, and follow up. Specifically, set an appointment with the Dealer whenever possible; let him know what you’d like to cover and how long you anticipate it will take. Then, deliver! Be on time. Cover the communicated items within the contracted period of time. Validate the importance of the visit by following up on the discussion and following through on any commitments made.
It’s time to ask yourself:
When you walk into a dealership, do you present a canned pitch or are you delivering value geared to that dealer’s business?
Do you find yourself making general statements about your business or quantifying your points with data, financial impact and results that are specific to that dealer’s operation?
Are you finding yourself just dropping in on your dealers to see how business is going, or are you setting and executing meaningful appointments?
At EFG Companies, we understand retail automotive. When we partner with our lenders, we help you fortify your relationships with your dealers and increase your loan volume. Our tailored F&I products are designed to increase both your bottom line and dealership profit. Our expert training equips you, the lender representative, with the skills to meet performance goals by working effectively with your dealer partners.
Find out how EFG’s 36-plus years of experience in auto retail and financing can help grow your business. Contact us today.
