Attention F&I product providers and lenders: Dealers want your help.
As the gross profit margins on new-vehicle sales continually narrow, dealers are worried about the future and where the profits on the sales side will come.
The F&I office is an obvious place. But to keep it that way, dealers have a wish list that only F&I product providers and lenders can fulfill.
But first it’s important to know what underlies dealers’ fears.
The Consumer Financial Protection Bureau has been pressuring auto lenders for the past few years to stop allowing dealerships to set their own finance reserve amounts on auto loans. The finance reserve, also called dealer reserve or dealer markup, is the share of a car buyer’s interest rate that the dealership earns for arranging the loan.
The CFPB holds that when dealerships charge customers varying amounts of reserve, it results in minorities and other legally protected groups paying higher interest rates than other borrowers. That disparate impact amounts to illegal discrimination, even when it’s unintentional, the CFPB says.
The dealers I talked with believe they will inevitably face some sort of flat-fee structure because of the CFPB pressure. If they are right, it will be imperative to retain F&I profits through the sale of extended service contracts, tire-and-wheel policies and other ancillary products.
That’s where lenders and providers come in and can be true partners, these dealers said.
“The providers have got to think of new products,” said a dealer, who declined to be named. The dealer didn’t know what the new products would be but offered the example of lease protection coverage. A few years ago that product did not exist, the dealer said. Now it’s a big seller for people who lease vehicles and want some protection against wear-and-tear charges they might face when their lease expires.
Another dealer, who also spoke on the basis of anonymity, said: “What I want is a little bit of everything but to make a lot on it.”
The dealer said the products that currently exist need to be better honed or packaged to offer consumers the best value for what they really want and eliminate those products consumers don’t want or need. Improved product offerings and packaging, can also help dealers better maximize their profits.
Dealers also say lenders will need to be more creative in offering better loan-to-value ratios so that consumers have enough room in the loan to purchase F&I products.
Finally, dealers want help in training salespeople and F&I managers to do a better job of pitching F&I products earlier in the sales process.
“It can’t be in the last 10 minutes of the selling process that you do it because then you’re compressing too much information at once,” the second dealer said. “We have to figure out how to let the customer know what’s ahead.”
And looking ahead, it will be those lenders and F&I providers who help dealers keep F&I profits up that will come out ahead.