Affordability creates F&I sales concerns

Rising interest rates are driving up monthly payments of new and used vehicles, leaving less room in customers' budgets for the purchase of finance and insurance products. Some dealers are expecting lower F&I sales this year, while others are confident their penetration levels will remain steady.

"There's no doubt affordability is playing a huge role," said Jonathan Jordan, director of retail strategy for F&I provider and consultant JM&A Group of Deerfield Beach, Fla.

Jordan told Automotive News he's seeing the interest rates that customers are getting from dealers up about 2 percent year over year, translating into about $50 more on customers' monthly vehicle payments. That makes consumer budgets more of a concern.

"One thing we're really emphasizing right now is F&I products in general really benefit customers in a lot of ways, even when affordability is a big concern," he said. "Think about a vehicle service contract; in a world where consumers have a really tight budget and have a mechanical breakdown, having a vehicle service contract really helps out to take care of the repair."

With that said, the key is to make sure F&I staff is trained, Jordan said.

"We're paying very close attention," he said. "Affordability is a huge concern; [there's] a lot of pressure on consumers, dealers, when it comes to F&I, and we really emphasize the need for the right process and training in your store to make sure F&I teams are prepared and ready to go."

Brian Brueggeman, partner for Oak Brook, Ill., accounting firm Crowe LLP, told Automotive News most of his company's clients expect F&I sales to drop about 7 to 12 percent this year. The increase in all-cash car purchases, rising interest rates and lower discretionary income all could contribute to lower F&I profits in 2023, he said.

Brueggeman points to a EV buyers as a potential growth market for F&I sales.

"I think people probably will want to buy F&I products on EVs just given the fact they're so new. And when something goes wrong on an EV they are very expensive to fix, especially on the battery side of things," he said. "It's just making sure and understanding what those F&I products are because it definitely is a little bit different on the EV than a traditional internal combustion engine. The battery makes the car weigh a lot more, so there's more wear and tear on the tires, etc. So I think there will be a different shift on the F&I products, but I do think people will definitely purchase more and more products."

Brueggeman noted even though there may be a decrease in F&I per vehicle sold in 2023, if more vehicles are sold this year compared with 2022, dealers may be able to make more F&I profits just by selling more vehicles.

Damon Lester, dealer principal at Nissan of Bowie, in Maryland, said affordability concerns are affecting vehicle purchase decisions but not necessarily F&I product purchase sales.

He said people aren't buying higher-end trim packages, but they still see the benefit of F&I offerings.

"Customers are still valuing the importance of extended warranties and service contracts even more now just because of the fear of what inflation will do from an oil change standpoint if you didn't have those types of packages," Lester told Automotive News. "You're seeing more of a slowdown in the price of the vehicle, not necessarily what the products in F&I are. From year to date last year, we've been consistent. We haven't seen a dip in F&I income."

Lester said the strategy to sell F&I products in this economy still goes back to the basics of making sure customers understand the benefit of a service contract or extended warranty, pointing out potential long-term savings.

"Why it's important to protect you from a future, higher expense and to be more fiscally responsible by doing it now versus paying for it later," Lester said. "Here's why this type of package is important because we don't want to come in and buy an oil change for $60. You buy it now, it's $200, and you get 10 oil changes for free. So, you're seeing value of pricing and buying it upfront versus doing it a la carte later."

David Griffith, general sales manager for Jack Kain Ford in Versailles, Ky,, said rising interest rates and continuing high prices of new and used vehicles have an impact on F&I product sales.

"A lot of times people are stretching just to get to the vehicle itself, but that's where we really try to stress the importance of those [F&I] products and how they will protect ownership experience because their investment is so much heavier," Griffith told Automotive News. "Our penetration has probably gone down a little, but not a lot. But there is a definite concern with customers now going into finance and already feeling like their payments are higher and some are stretching longer terms to achieve a lower payment, which sometimes that's not the best option for us in the industry because it takes a buyer out of the market for now."

Griffith said his dealership has maintained its main focus on extended service plans. Protection plans for fabric, tires wheel and key fobs also are "very important products" since those items are pricey to replace, he said.

"Now is the most important time for F&I products and managers to really know their product and sell themselves on the value because the customer has never needed it more with the price of vehicles," Griffith said. "Sometimes F&I managers will complain about the rates and the prices."

Instead, they need to view it as an opportunity to build the value of the products they're selling and assist a customer, he said.

"Because there is an opportunity even though prices and interest rates are up," Griffith said. "It's a time for us to polish our craft and really, really show our customers the value."