It's not the money; it's how you make it

The dealership finance manager is one of the most complicated and highest-paid positions in automotive retail. Though a six-figure salary awaits a top F&I manager, so does the pressure to make up for shrinking front-end profit margins and the burden of maintaining compliance standards.

As new-vehicle margins melt away, structuring a pay plan that rewards one of the biggest earners in a dealership but still ensures the job is done ethically and legally is one of dealers' greatest challenges, auto retail experts said.

A traditional F&I pay plan is commission-based. F&I managers' pay is largely based on product sales and finance reserve — the retail margin dealerships earn for arranging a loan. In 2016, F&I managers made $138,209 on average nationally, while 14 percent made more than $200,000, according to the National Automobile Dealers Association's 2017 Dealership Workforce Study. That compares with an average salary of $130,342 for sales managers and $115,082 for parts managers.

But a question of ethics doesn't arise because of the amount of money F&I managers make, said Jim Ganther, CEO of Mosaic Compliance Services. It's about how they earn it.

"Your pay plan is your job description, and if your pay plan in F&I is based on the sale of F&I products, your job description is, sell F&I products," Ganther said. "That sounds reasonable, except, what if the customer doesn't need all those, or what if the customer doesn't know that she even bought them?"

He recommends incorporating spot-checking into every F&I pay plan. Any errors in an F&I manager's deal jacket would impact his or her pay. "They're being paid to sell product. They're not being paid for baseline compliance because there's no money in a clean file," Ganther said.

Sometimes, pressure to behave unethically comes from other departments or other employees. A typical pay structure penalizes F&I managers for chargebacks, a portion of a dealerships' F&I income that hasn't been received because of a cancellation and is then "charged back" to the dealer, even on products the current manager didn't sell.

There is little incentive for a new F&I manager to follow the rules after being saddled with the debt incurred by a bad actor who packed F&I products onto a customer, according to Jenn Reid, vice president of automotive marketing and strategy at Equifax Automotive Services. Whether a customer reconsidered a product or a rogue ex-F&I manager had been payment packing, when the customer cancels the product, the new F&I manager will be hit with the chargebacks, she said.

But preparing for chargebacks by working the costs into a holistic pay plan, Reid added, helps mitigate the damage from bad actors and eliminates the temptation to deceive customers. Reid suggests a plan in which an F&I manager sets aside a certain percentage of his or her income each month to protect the dealership from chargeback costs.

Matt Woods, south regional manager for F&I company Service Group, says a grace period protecting new hires in the F&I office from chargebacks is standard in the industry.

"It needs to hit the F&I director directly, but a new one coming in should not be penalized for the guy who came before them," Woods said.

But working chargebacks into the pay plan penalizes an F&I manager for chargebacks that haven't even happened yet, Woods said, and sends a message to the F&I manager that the boss expects him or her to fail.

According to John Pappanastos, CEO of EFG Cos., an F&I product provider and training company, F&I managers are generally paid 17 to 19 percent of F&I revenue. Depending on the success of the F&I department, that slice could represent a substantial portion of the dealership's overall profitability.

"Shortsighted dealers get wrapped up in what they paid the F&I office this month," Pappanastos said. "Dealers are just looking to offset the pressures on margins by reducing costs in every department. The F&I office is a great place to start because we do pay so much. But if you don't compensate well, you lose your talent."

According to Pappanastos, there's nothing inherent within the F&I job that would cause unethical behavior. Well-trained employees who are compensated according to their skills are an asset to a dealership's profitability.

"If the person lacks ethics, it's not because of the compensation plan. It's really a deeper issue," Pappanastos said.

Vendors' incentives to F&I managers also can cause ethical missteps, some dealers said. Some dealers allow vendors to pay F&I managers during short-term promotions. But sometimes, those promotions never end, and the F&I managers continually push customers to choose the product. Dealers forget about the "short-term" promotions until they discover the bulk of the F&I managers' annual income is from the vendors, not the dealership.

Tyler Corder, CFO for Findlay Automotive Group in Henderson, Nev., said management at his group never allows vendors to pay Findlay employees directly. "We have vendors approach us with incentives, and we make it a rule [that] any incentives are payable to the dealership. If we find out a vendor tries to do otherwise, that vendor is out."

Regardless of how the F&I manager is paid, experts agree that ethical behaviors in the finance office start from the top down. The culture in F&I reflects the dealership as a whole, said Max Zanan, president of Total Dealer Compliance in New York.

If an F&I manager is unethical, oftentimes, other employees have to make a choice: look the other way or report the behavior.

"When dealers get in trouble, they often say it's due to a rogue F&I manager," Zanan added. "That may be the case, but the chances are about a million to one."

Nancy Dunham contributed to this report.