Dealers prefer to make the biggest portion of gross profit on the front end of a vehicle sale rather than on the back end -- that is, in the F&I office -- because money made on the front end tends to be a solid gain, while money made on the back end may not be. For example, an extended service contract sold in the F&I office can be canceled by the customer at any time, requiring the dealership to refund the commission it made on the sale.
So it can be problematic for retailers when F&I managers eager to boost their commissions entice customers to buy F&I products with giveaways -- free oil changes, say -- that slice into the money made on the front end of the deal.
There are ways dealers can make sure F&I managers don't dent front-end gross to expedite their own sales, but the first step is recognition of the potential.
"I see it on deal jacket reviews when I go back and look at the four-square worksheet," says analyst Robert Campbell of WithumSmith+Brown in New Brunswick, N.J. "One of the problems is that a lot of dealers rely on [auto finance service groups] that do their audit checks. Those companies aren't usually looking for this. They are looking to see if the [F&I] products are presented and sold correctly."
There are no solid figures on how widespread it is for F&I managers to cut into front-end gross to fuel their own sales, but some dealers have said they've seen it happen in highly competitive markets.
Reasons for the disconnect between the front of the store and F&I abound but often involve front-end staffers not understanding the F&I process and F&I managers trying to hit quotas without regard for the solid profit reaped on the front end of the deal.
To stop the drain, some dealers have enacted strict controls on what can be changed in a deal once it leaves the front end and who has the authority to make such changes. The downside of such rigid controls is that they can create a bottleneck, making a lengthy F&I process even more laborious.