Why the F&I office still matters

Jim Henry is a special correspondent for Automotive News.

There's good news for the future of the F&I office.

A recent McKinsey & Co. study says one of the main reasons consumers still come to a brick-and-mortar dealership instead of buying cars online is to get questions answered about finance and insurance that can't be addressed, or can't be answered "conclusively," online.

"You can shop for home mortgages online and find out from a lot of sites what the rates are," said Hans-Werner Kaas, a senior partner in McKinsey's Detroit office.

"But with an automotive transaction, there are so many more elements to the finance [element] -- the residual value on a lease, the APR, what the down payment should be, the net money out of pocket. Not every consumer is well-versed in how auto finance works, or trusts the online information," Kaas told Automotive News Tuesday.

Himanshu Singh, an associate principal in McKinsey's New York office, also noted the "uniqueness" of auto finance. "There's not a standard product," he said. "There's not a 15-year or 30-year, couple of standard options like a mortgage."

The "Innovating Automotive Retail" study also confirms what we've long known: New car and truck profit margins are thin and getting thinner, which makes F&I all the more important for overall dealership profitability.

"New-car sales account for less than 20 percent of dealer margin in the U.S. and often even have negative returns," the study said. "But financing and warranties are becoming ever more important as sources of income," it said, using a common term for extended-service contracts.

You can reach Jim Henry at autonews@crain.com

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