Published in Automotive News June 9, 2014
Finance and insurance managers typically earn a living based on profits generated in the F&I office, or the back end of a dealership's business. They rarely get a portion of the gross profits from vehicle sales, or the front end.
So when Jay Rivchin's general sales manager suggested that Rivchin start paying his F&I managers a commission off the profits generated on both ends of his store's retail business, he was surprised.
"I've been in the business 30 years now. I have never thought of paying any finance manager a percentage of what we call the sales gross profit," says Rivchin, owner of Dadeland Dodge-Chrysler-Jeep in Miami. "I was very skeptical about it."
But he agreed to revamp his process with the goal of speeding up the average customer's transaction time and improving profits. He implemented the changes about seven months ago.
F&I managers are now responsible for the gross profits from both vehicle sales and F&I and handle vehicle purchase negotiations with customers as well as financing. They also get a cut of both to motivate them.
Rivchin saw positive results almost immediately, he says. Profits on both ends of the business rose as did customer satisfaction scores. And the total time a customer spends buying a car was slashed in half.
Salespeople, who already were paid a percentage of gross profits from vehicle sales and F&I, made more, too, as profits on both grew by double digits. And they no longer had to bear the burden of the negotiation process.
"It's so much easier for them than hiking back and forth to the sales manager's desk," says Lemay Martin, Dadeland's general sales manager. "Also, a lot of dealerships today are getting a lot of salespeople who aren't trained and aren't ready to go into the field. By doing this, it gets a customer in front of a person who is ready for them."
|Dadeland reaped big benefits when F&I managers began handling vehicle negotiations with customers as well as financing.|
|Avg. customer transaction time||4 hours||2 hours|
|Avg. F&I revenue per unit retailed||$800||Up to $1,200|
|Avg. satisfaction scores (percentile)||Low 80s||High 80s|
Ground up, shuffled
Dadeland sells about 1,800 new and used cars a year. Under the old sales process, a customer would spend at least four hours in the dealership from start to finish when buying a car, says Greg Travaline, the store's general manager.
That's because the salesperson went back and forth with the sales manager to structure a deal, Travaline says. Customers would be offered four options using various down payment amounts. Once the exhausted customer was within $20 of the desired monthly payment, he or she was shuffled into the F&I office, Travaline says.
owner, Dadeland Dodge-Chrysler-Jeep
"They got ground up and beat up for a while. Sometimes it took 30 to 45 minutes going back and forth before we came to an agreement," Travaline says. "And different people would come and talk to the customer. We had to speed this up."
That's when Dadeland's Martin, who has a finance background, had an idea: Let the F&I manager do all the negotiating and make the salesperson a product specialist and the one who handles the delivery. "I said: Let's give it a shot. We can always go back to the old way," Travaline says.
He adds: "It's our sharpest closer in front of them, ready to make a decision."
Now the average customer is in and out of Dadeland in two hours or less, Travaline says. But making the process a success meant tweaking the sales culture.
First, the F&I team grew to six members from three with the addition of two finance managers and a finance director, Martin says.
Then the pay plan was changed. "We started paying the finance manager on the front end, which they didn't get paid on before," Martin says.
F&I managers now earn 30 percent of their compensation off front-end profits and 70 percent off back-end profits. Salespeople get 92 to 95 percent of their pay from the front end and 5 to 8 percent from the back end.
"Because [F&I managers] are paid on the front end, they will negotiate the price well," Martin says. But he adds: "It's still up to the sales manager to take the final price or not, and he could try to get the price higher. But the customers are still dealing with the finance manager."
Since the dealership started the new process, gross profit is up 10 percent on the front end and 18 percent on the back end, Martin says.
The positive results make it worth paying F&I managers more, Rivchin says.
"We were averaging $800 a unit on F&I per vehicle revenue, and now they're raising it to $1,200. So I don't mind paying out more," Rivchin says. "Everybody's got the same objective, to sell cars. Nothing happens until we sell cars; no one makes money."
Martin says sales of F&I products have increased because a customer bonds with and trusts the F&I manager who negotiated the deal and sold him or her the car.
"Before, you'd hear customers say, 'Oh no, now we gotta go into that box and everything changes.' They were worried even before going into F&I," Martin says. "Now, there's less chance of things getting lost in translation."
Customer satisfaction scores have risen in percentile from the low 80s to the high 80s since the new sales process was established, Martin says. One survey question asks customers about their overall satisfaction with the financial arrangement made at the dealership, Martin says. On that question, the dealership's score rose by 50 percent, he says, adding: "It's a huge plus."
Martin says he will hire more F&I managers as sales grow. He says the store needs to sell 30 to 40 vehicles a month to support one F&I manager.
And the sales process itself evolves as the store strives for continual improvement, Martin says.
"All we can do is improve it more," he says. "Maybe it gets to a point where a customer is unhappy in some area. We'll see what they say, and where we can improve it."