Dealerships adjust compensation, roles, workload to make finance office hum

Two years ago, James Seale tried something different. Would a revamped and lower-paying compensation plan for finance managers hurt product sales and department productivity?

Seale, general manager of Southwest Kia in Mesquite, Texas, says the answer is now clear: No.

The dealership switched from an all-commission pay plan for finance managers to salary plus bonuses. Finance managers now typically make $7,000 to $8,000 a month instead of the $12,000 or $13,000 a month previously paid in those positions. But they get more time off, and productivity is going up, Seale says.

"What we're finding out is we don't have to pay the higher amounts to get the same production," he says. "And we've got happier people because they're not working 80 hours a week."

Instead, finance managers typically work 40 to 45 hours a week. There has been turnover -- some finance managers didn't like the new plan -- but that's not all bad, Seale says. The turnover has allowed the dealership to promote good performers from the sales floor to finance. They typically are younger employees recruited straight from college who don't expect the higher compensation levels the dealership used to pay.

Southwest Kia is one of many dealerships experimenting with ways to get more bang for the buck in the F&I department. Some dealerships have merged sales and finance responsibilities into lower-paid hybrid positions. Others have hired junior-level F&I staffers to defray some of the workload.

The experimentation makes many finance managers uneasy. But finance manager compensation is generally increasing as dealers put more focus on boosting gross profits from the F&I department, says Ted Kraybill, president of DeltaTrends, a Clearwater, Fla., consulting firm that manages data collection and analysis for the National Automobile Dealers Association Dealership Workforce Study.

"As the margin on car sales gets thinner and thinner, the dealers are looking to F&I products to increase their profits," Kraybill says. "If they're selling more of those products, the F&I managers are making more money."

According to the 2012 study, F&I managers made a national average of $118,899 in 2011. Compensation ranged from a high of $135,491 in states such as Texas to a low of $103,162 in Midwestern states such as Michigan. (See map, Page 37.)

The 2011 national average is up 33 percent since 2008 when F&I managers made $89,497 on average as industry sales began to crash. That was the last NADA study completed before the 2012 study.

At mass-market brand dealerships where the margin squeeze is the greatest, F&I managers now typically make more than sales managers, Kraybill says.

In 2011, F&I managers made an average of $116,073 at those mass-market dealerships vs. $110,526 for sales managers, not including the general sales manager position, according to the 2012 study. That doesn't happen at luxury-brand stores where sales managers still make more. On an overall basis, F&I managers made 3 percent more than sales managers in 2011, a turnaround from 2008 when they made 5 percent less.

The phenomenon at mass-market stores can be problematic when it breeds resentment among sales managers, Kraybill says.

"I have a problem with F&I managers making more than sales managers," he says. "Sales managers, if they're doing their jobs correctly, are responsible for a team of salespeople and bringing that team along and helping that team make money. An F&I manager, they're not really managing people at most dealerships, yet they're getting paid more."

Kraybill expects dealership experimentation with different F&I staffing structures to continue. More dealerships may use F&I assistants to handle administrative duties, for example.

But he isn't betting that compensation will go down. In fact, the numbers are more likely to rise as technology advances such as electronic menus make finance managers more productive.

Not every dealer evaluating F&I staffing structure or pay plans is trying to reduce per-person compensation.

Greg May, a Honda and Chevrolet dealer with stores in Waco and West, Texas, is evaluating how finance manager pay would be affected by eliminating the finance rate markup. Because of the regulatory scrutiny on markups, he's considering going to flat fees exclusively in the third quarter of this year.

But he doesn't want it to hurt compensation. His finance manager makes $20,000-plus a month, and he's fine with that. The dealership already retains about 80 cents out of every F&I dollar it collects after accounting for commission and chargebacks.

"He's very highly compensated," May says. "He has the potential to make more, absolutely."

Sonic Automotive Inc., the nation's third-largest auto retailer as ranked by 2012 unit sales of new vehicles, pays its finance managers more than the national average, and that won't change, says Jeff Dyke, executive vice president of operations.

"We just changed our finance manager pay plans to be more aggressive this year," Dyke says. "We're rewarding them."

He declined to detail changes or share average pay data for Sonic finance managers.

Dyke emphasizes that Sonic will retain finance managers and continue to pay them well despite big changes planned for the company's sales and finance departments in 2014. That's when Sonic's sales associates will start using iPads to complete the entire car-buying transaction, including F&I.

Finance managers will be elevated to true manager roles at that time, Dyke says. It's not a cost-cutting measure.

"We do not go looking for ways to shortcut compensation, and we never will," he says. "We're going to pay our people well."

In addition to recruiting new college graduates, dealerships should consider hiring finance managers from other service industries, such as retail banking, says Mike Poskey, vice president of ZeroRisk HR, a Dallas consulting firm doing 40 percent of its business in auto retailing.

But dealers shouldn't focus on recruiting from other industries as a way to cut compensation, Poskey says. He advises his dealership clients that they shouldn't worry about pay.

They're making money "hand over fist anyway," Poskey says.

"They might as well pay above market value for good people and keep them. You're going to get your return through customer retention."