Pay disparities are hurting morale, dealership retention, expert warns

LAS VEGAS -- Rising disparities in pay between the F&I and sales departments are leading to morale problems and high turnover at dealerships, a noted F&I authority said at a conference here.

Dealerships are testing a number of alternative pay plans, but nothing proposed so far appears to solve the problem, George Angus, president of Team One Research and Training, said Tuesday at the Industry Summit, an annual F&I conference.

“Don’t wait until your house is on fire before you address this thing,” Angus told his audience, composed largely of F&I product vendors, trainers and dealership personnel.

Angus said the pay gap concerns him because “this leads dealers to thinking they can eliminate the F&I manager,” for example through so-called hybrid systems in which sales personnel handle all F&I duties.

Hybrid staffing arrangements were one of several responses to the growing pay gap that Angus discussed, all of which came with pros and cons.

Angus cited data from the National Automobile Dealers Association and from his company’s research that showed the extent of the widening pay gap. He attributed the gap in large part to shrinking margins on new-vehicle sales due to more competitive pricing in the Internet era.

NADA's 2013 Dealership Workforce Study showed the national average pay for F&I managers was $128,434, vs. $122,549 for sales managers and $63,799 for sales consultants.

Over the past three months, Team One looked into compensation at what it considers the top 150 dealerships in F&I performance in terms of profits, sales-satisfaction scores and other criteria. It found the gap to be even larger.

According to a slide from that study that Angus showed during his talk, the average annual pay at those dealerships was:

• F&I managers: $206,600
• Sales managers: $136,300
• Sales consultants: $65,000
• General managers: $228,500

In some cases, he said, F&I managers were taking home more than dealership general managers.

Those disparities, Angus said, are part of the reason NADA found that one in four new hires at dealerships leave within the first year and six in 10 sales consultants leave every year. Among so-called Gen Y employees -- those born roughly between 1975 and 1995 -- it’s even more dramatic, with 54 percent of Gen Y new hires in sales leaving within 90 days.

Team One interviewed dealership personnel about sales and F&I department pay plans. “You can’t believe how passionate the comments we got were,” Angus said.

Sales consultants fumed about spending days turning a lead into a new-car sale, only to see no more than a “$100 mini” on the deal while, they said, the F&I manager pulled down more than $10,000 for 30 minutes spent on a deal that wouldn’t have happened without the sale.

But F&I managers defended their pay in their comments, noting that they bring in the lion’s share of a dealership’s profits while protecting it from running afoul of regulators.

“It’s a tough job,” Angus said, noting the long hours that F&I managers put in and the complex knowledge of the lending market needed to be effective, “and the money makes up for it.”

Some of the alternative pay plans he has seen include:

*Combining lower pay with shorter hours for F&I managers. The main advantage was happier F&I staff members, with less stress and more time with their families. But the change also meant some of the top performers left for higher pay elsewhere, leading to higher training costs for staffers who were promoted into the vacated spots, as well as reduced profits for at least a short time due to the loss of those high performers.

*Sharing a set percentage of total gross or net profit among all employees. A dealer can combine front- and back-end profit on sales into a kitty that’s divided among all employees who contributed to the sales. The pros are supposedly enhanced teamwork and a fixed percentage of profits going to compensation, which makes the dealer’s financial planning easier. But the change may undermine motivation, as the sales consultants see less need to try to eke out a front-end gross.

*Tweaks to F&I and sales pay plans. For example, some dealerships’ F&I managers now earn twice as much for selling products as they do on dealer reserve, with bonuses for higher penetration rates. Or the dealership may have switched to flat rates; one example cited gave the dealership flat rates of 1 percent on new-vehicle financing and 2 percent on used-vehicle financing.

In addition, those stores’ salespeople may be on a reduced, flat commission on all units sold, regardless of price.

*Hybrid plans that eliminate all purely F&I positions. Pros: Sales personnel can make more, and the dealer’s overall compensation costs go down.

Cons include increased risks of running afoul of compliance rules, and the inevitable loss of some F&I income because sales personnel aren’t as well trained on selling F&I products. Offsetting the latter requires additional, ongoing training, which also costs.

Angus also argued that claims of enhanced customer satisfaction scores are bogus. “For the first six months or so” after a hybrid staffing solution is installed, he said, “everyone’s happy, but then the numbers start to deteriorate.”

Angus’ conclusion: "F&I is going to be the backbone of the dealership’s profit, and some of it’s going to have to be shared -- but without reducing the F&I manager’s pay."