About five years ago, when the Consumer Financial Protection Bureau and Justice Department began cracking down on auto lenders for potentially discriminatory practices connected to dealer reserve, Johnson Automotive's Greg Kostern feared lenders might quit paying dealers a reserve altogether, ending a lucrative source of revenue for the company's finance and insurance departments.
To help offset that possibility, and to retain customers, the company upped its focus on F&I product sales and made them a larger part of employee pay.
Over the last several years, many dealerships have begun to prioritize F&I product sales over reserve — the percentage-point spread lenders pay dealerships as a retail margin on loans they arrange for vehicle buyers.
According to one estimate, F&I product sales now make up 70 percent of F&I department revenue at large dealership groups vs. 40 percent about 20 years ago. One side benefit of the shift has been a boost in service business.
At Johnson Automotive, warranty work, covered by products such as tire-and-wheel protection, prepaid maintenance and extended service contracts, for example, has risen at least 35 percent in the last five years because of rising F&I product sales, said Kostern, business operations director for the Raleigh, N.C., group.
"It's been proved time and time again: The more products that have been sold, the more claims, the more opportunities that get brought back to the service department," he said. "The more touch points we can have, the better."