DETROIT -- Penske Automotive Group Inc. is refining its training process on insurance product sales to boost overall finance and insurance revenues.
Penske already earns about 60 percent of its F&I revenue from the sale of insurance products. Penske remains last among the six public retail groups in F&I revenue per vehicle. It reported $1,070 per vehicle in the fourth quarter of 2014, up 2.8 percent from the year-earlier period.
But in-house trainers and hired consultants are increasingly working with Penske's sales and finance staff across its 244 dealerships to boost sales of insurance products such as extended service contracts and wheel-and-tire plans. "There is a lot of training we're doing and process improvement in the stores in improving the 'I' part" of F&I, said Tony Pordon, Penske's executive vice president of investor relations and corporate development.
Penske Automotive, of Detroit, ranks No. 2 on Automotive News' list of the 150 largest U.S. dealership groups, with retail sales of 216,462 new vehicles in 2014.
Penske is focusing on improving the insurance side of its F&I business because there are many ways to earn revenue on the finance side, Pordon said. Penske dealerships, like most stores, get paid flat fees for some deals, a dealer reserve on others and nothing on cash deals. About 25 percent of Penske's new-vehicle retail sales are cash, Pordon said. The group's portfolio is skewed toward luxury brands.
On a manufacturer's 0 percent financing incentive offer, Penske earns a flat fee from the captive lender for doing all the paperwork and other aspects to the deal, Pordon said. "On average, our flat fees range $300 to $400" on those sorts of deals, he said.
But when Penske arranges financing for a customer, it can take an interest rate markup, known as a dealer reserve. The reserve is generally 1.5 to 2 percentage points, Pordon said. He declined to provide an average dollar amount that Penske earns on the average rate markup because vehicle pricing and terms of deals vary.
On the product sales side, Penske has wide opportunity to improve revenue, Pordon said. Penske is focusing on introducing insurance products earlier in the vehicle sales process rather than when the customer gets in the F&I office, he said. "It's training and process. We would have the F&I person at the front of the discussion, teaming with the salesperson to tailor a package that meets the needs of the consumer."
Introducing a customer to F&I products earlier in the transaction makes for an easier sale of those products later, Pordon said.
"If a customer thinks they're paying $315 a month on the car payment, then gets back in the F&I office and signs up for a product and now it's going to be $345 a month, you have a much harder time trying to sell something at that point," Pordon said.
Penske's trainers are teaching a more streamlined sales process with sales and finance teams working closer to pinpoint the customer's needs and introduce the products to the customer earlier, Pordon said.
"Let's say it's a lease," he said. "Most consumers wouldn't consider having an extended warranty on that because they get the factory warranty already. But let's say that customer drives 15,000 miles a year on a 36-month lease. There is going to be an extra 9,000 miles they might need protection on."
A salesperson and finance officer would tell the customer that an extended service contract is an option for them, he said. Or if the salesperson learns the customer has lost a car key in the past, "You tell them about key fob protection," he said. Penske is also working to better simplify its F&I menu. "You don't want something on the menu that overwhelms customers," he said. "They'll get turned off."