F&I bright spots: Dent removal, tire repair

At Ferman BMW in Palm Harbor, Fla., customers have little need for service contracts. A new Bimmer has a factory warranty of up to four years or 50,000 miles.

But drivers will open their wallets to insure against dings from runaway shopping carts. Up to 30 percent of the customers buy paintless dent removal coverage from the dealership. They are also big fans of tire and wheel hazard coverage.

Customers see these policies as a worthwhile investment, says Ferman business director Russell Schon. "People hear a lot about the return on their money," Schon notes.

With growing numbers of customers saying no to service contracts, less expensive F&I products such as tire hazard coverage and windshield repair are becoming serious moneymakers.

About half a dozen products are sold in a typical F&I office these days. Most appeared in the last 10 years, says Dave Duncan, senior vice president of sales at Safe-Guard Products International LLC, a company based in Atlanta.

As a group, they have a higher penetration rate than service contracts. "Without these ancillary products, you're dead in the water," Duncan says.

Among them the most popular is guaranteed automotive protection, or GAP, insurance, which covers the difference between what insurance companies will pay on a totaled vehicle and what the buyer owes on it. Duncan estimates that 35 percent of buyers choose GAP.

Tire and wheel coverage and VIN-etch theft protection are hot sellers, as well as paintless dent removal, key replacement coverage, biweekly pay-ment plans and environmental products such as paint sealant and fabric care.

Such products give dealers a way to boost revenues in a down market. These days, dealers are making less money on loan reserves — that is, the interest rate markups on customer loans. And cautious lenders are less willing to roll the cost of F&I products into the car loan.

In the past, lenders approved car loans for amounts ranging from the dealer invoice up to — and sometimes well beyond — the sticker price, Duncan says. But now, cautious lenders sometimes limit the loan amount to the dealer invoice minus any factory incentives.

That leaves little room for F&I add-ons, Duncan says. "The F&I manager only has $800 to $1,200 worth of room in a deal to fit product into," Duncan says. "And when you've got a service contract with a $700 or $800 cost, that's all you're going to be able to sell the guy."

That's where ancillary products come in, says Mark Krejci, president of Continental-National Services Corp., an F&I consulting firm in Tampa, Fla. "What happens is you're able to get more products, and higher and more commissions, and still go under the service contract price advanced from the lenders," he says. Some products can generate as much as $300 in profit per vehicle, Krejci says.

Rod Buscher, CEO of Summit Automotive Partners in Denver, has seen his per-vehicle revenues rise by $200 so far this year. He attributes half the increase to F&I product sales. "It's strictly because we are looking for other opportunities where we can increase revenue," Buscher says.

Even automakers are starting to sell such things as coverage for tires, wheels, dents and dings.

The growth of such products marks a major shift in finance and insurance. For 30 years, F&I managers largely offered only service contracts and credit life and disability insurance, often using aggressive sales tactics.

AutoNation helped usher in the era of menu-based F&I, which gives customers a list of products from which to choose.

Changing times are forcing F&I managers to get creative. Among the latest offerings at Summit Automotive Partners: nitrogen tire inflation and "involuntary unemployment" insurance. Summit also offers identity-theft protection through LifeLock.

"It's not a typical automotive product, but it's a product that's valuable," Buscher says. "People are thinking outside the box and coming up with new product to react to the current economic environment."

Of course, the growing popularity of inexpensive F&I products cannot make up for the collapse of auto sales.

"The dealers are gaining market share in the product world, but they won't really see the true benefits of that, the fruits of that labor, until car sales get back to where they were," Duncan says. "Without F&I, most car dealers would be losing money, or losing more money than they currently are."

Schon at Ferman BMW says F&I has been a profit center, but he would prefer to sell more cars.

"Does it make up for loss of business? Not really. Would we rather have our 20 or 30 percent of business back? Yes."