Fundamentals, product focus among EFG suggestions for F&I in 2024

Retailers ought to focus on fundamental skills and finance and insurance product revenue to manage a more difficult sales environment in 2024, an F&I product provider advises.

Interest rates have affected affordability and vehicle prices haven't fallen, despite larger inventory, Eric Fifield, EFG Cos. chief revenue officer, told Automotive News in December. "You have a double whammy happening," he said.

Dealership staff these past few years have become accustomed to buyers purchasing more F&I products as a response to vehicle scarcity to protect the cars they expect to keep longer, Fifield said. But those easy sales are no longer the case.

"Especially in the F&I space, [F&I sales staff have] to focus on the fundamentals of how they sell and the strategies to sell and overcoming objections and making sure that customers understand the value proposition really well — and those types of things," Fifield said.

Fifield said F&I managers should spend more time on the "basics" — matching customers' driving habits to products and explaining the need for coverages.

"That dialogue is required now versus they're just automatically buying those things," he said.

Guaranteed asset protection, which pays off the remaining loan balance not reimbursed in a total vehicle loss, is a valuable product in the current environment, Fifield said. Vehicle service contracts make sense as a hedge against rising labor and repair costs, he added.

EFG spokesperson Ellen McGee said another fundamental skill involves working with lenders on deals. Fifield said there is value in knowing how to structure a transaction — encouraging buyers to put sufficient cash down to obtain an acceptable interest rate and finding a loan term that suits a customer's driving habits.

This is all "basic stuff that providers like us that have training universities are really focused on because those things are being impacted," he said. "The profit per retail is starting to come down so dealers start looking at, 'OK, how do we maximize our profitability?' "

In December, EFG CEO Jennifer Rappaport predicted to Automotive News that "you're going to see dealers really getting back to training" as sales become harder.

"You're about to enter an era where you need to make sure your personnel are about as razor-sharp as they can be in terms of the front-end selling, but also on the back end," she said.

Bookings for EFG's training have "absolutely" grown year over year, Rappaport said.

F&I product profitability becomes particularly important given the pressure higher interest rates place on a dealer's finance reserve margin, Fifield said. When interest rates were low, a retailer could add a margin into the rate charged to the borrower without that customer balking. But today, the average rate on new vehicles is several percentage points.

"There's a tipping point there," Fifield said.

A superprime customer won't accept a new-vehicle interest rate pushed up to 11 percent by the dealer reserve, he said.

"They can't hold margin," Fifield said of dealers, so they must seek that profit through product sales.

Fifield said he doesn't think dealers are sacrificing F&I product margins in the current environment, except perhaps occasionally to meet a bank's restrictions on the scope of a deal.

"I would say, if you're matching customers' driving habits and you're structuring the deal with the right terms, you shouldn't have to give up that," he said. "Those are the basics, right?"