When auto sales slid during the recession, retailers turned to the F&I office as a profit center. In the past decade, F&I profits have steadily increased -- and continue to be a powerful weapon for dealers against margin compression.
In 2009, F&I gross accounted for 2.2 percent of new-vehicle department sales, according to data from NADA's average dealership financial profile, and F&I penetration for those sales was 77.2 percent.
Nearly 10 years later, F&I gross has risen to 2.9 percent of new-vehicle department sales, with a penetration rate of 89 percent.
While narrowing vehicle profit margins continues to pressure dealerships in 2018, today's selling environment is more complex than a decade ago.
Increased federal and state oversight of the industry means the F&I office faces more compliance challenges than in 2008. Meanwhile, today's customers express the most dissatisfaction with how long it takes to finish a deal -- particularly when it comes to paperwork in the F&I office.
Solutions to these problems seem to work against one another. More emphasis on compliance requires more thorough processes and paperwork -- adding time in the office that customers say grinds car-buying to an unbearable pace.
"It adds steps. It adds documentation that's needed that wasn't there beforehand," Jason Barrie, general manager of Dealertrack's F&I dealer business, told Automotive News. "More time leads to larger dissatisfaction at the dealership."
After the recession began, customers saw increased value in F&I products, Barrie says. As affordability became an issue, customers shifted their attention away from new vehicles to products that would help maintain the vehicles they had.
"They needed to drive to get to that job that they had, and, at the end of the day, protecting that asset was an important part of the life cycle of that vehicle," Barrie said.
While consumers still want to keep their vehicles roadworthy, they are increasingly looking at month-to-month costs. Monthly subscription-type fees now dominate in almost every area of retail for consumers, from online shopping to streaming services. Protection products add to the monthly cost consumers are looking to trim.
In a lease-heavy market, maintenance products go a long way, said Firas Makhlouf, chief information officer of Driver's Village in Cicero, N.Y.
"When the financial crisis happened, we'd not been strong in the back end," he said.
Since the late 2000s, the dealership group has added lease care through Allstate and an additional maintenance product developed internally "to give the options to the consumer to protect and maintain their vehicle, but to give the dealers more options to generate F&I gross," Makhlouf said. On average, the group's F&I product revenue is between $650 and $700 per vehicle, though for some of his franchises, it is around $1,000.
Moving forward, the F&I office will remain a key part of the dealership model, Barrie said, in part for its ability to boost profits on the back end. Also, improving F&I product penetration goes hand in hand with increasing service business, he said. And a good service business drives loyalty to the dealership for repeat vehicle sales -- and more F&I product sales.
A Cox Automotive service industry study found that of 3,550 customers surveyed who visited a dealership at least once in the last 12 months for service, 74 percent were likely to return to that dealership for their next vehicle. Customers who did not return for service within that time frame repurchased at that dealership 35 percent of the time.
"We surmise the two are intertwined," Barrie said. "If a customer adds a service contract to a new- or used-car purchase via F&I, they become a service customer after the sale."
