The wild ride into the future of F&I

The convergence of several factors presents challenges and opportunities for F&I professionals as we head into the tail-end of the year. Digital retail platforms have exploded as car research and shopping steers online, sparking fear this trend could have a disproportionately negative impact on F&I income.

At the same time, high interest rates and worries over the economy have car buyers contemplating all-cash deals and second-guessing the value of paying for Vehicle Protection Products. Finally, the rise in connected cars, including electric vehicles (EVs) necessitates staying ahead of changing vehicle protection needs.

The wild ride of auto retail shows no signs of slowing down. It’s smart for dealers to prepare and train staff to adapt to evolving market conditions, as well as look to their F&I providers to help them navigate changing vehicle protection needs.

Digital retail solutions are here to stay

Consumers expect all transactions to be easy and convenient, including a vehicle purchase. For that reason, digital retail solutions will continue to grow in popularity. While industry-wide concerns that dealerships could leave F&I money on the table without face-to-face discussions with customers are valid, the convenience of digital platforms creates an opportunity for dealerships and F&I professionals to communicate in new ways.

“F&I managers need to be tied into the digital retail tool to receive real-time notifications when a customer completes a credit application or reviews Vehicle Protection Products so they can immediately reach out with the offer of a phone call or a video call,” says Jeremiah Shelton, Vice President of Training and Development for EasyCare, an APCO Holdings Brand. “There’s an opportunity to sell more service contracts, maintenance packages and GAP when managers can effectively convey the value proposition and product benefits. Instead of seeing digital retail as a problem, savvy managers will see the opportunity and adjust presentations accordingly.”

Dealers should also have a robust F&I presence on their websites. Every Vehicle Display Page (VDP) should also include a link to the F&I product page. Too often that information is missing or buried behind multiple pages. F&I product videos explaining how a product works, including links to third-party resources that explain both pros and cons deliver the information that consumers want

Education key to converting cash deals

The days of 2 to 3 percent interest rates for auto loans are behind us. Today’s high rates have many customers considering cash deals. Often a cash deal is not the best financial option for customers, especially if they are pulling cash out of investment or retirement accounts where cash today can bring you returns of 5% or more. Remember, the role of the F&I manager is to inform the customer so that they can make the best overall decisions, not to simply sell products.

Educating the customer is key. If a customer says that they plan to pull from a retirement fund, F&I managers might remind them that their money is earning compound interest. A side-by-side comparison of how much money will be lost in earnings in the years until retirement, compared with what will be paid to finance through the dealership over a 4- or 5-year term is an irrefutable argument to leave that money in the market.

A customer with cash in hand still needs to be educated about their options. Often, customers do not understand the implications of a total vehicle loss. While the insurance company will pay market value, this most likely will be less than what the customer paid in cash including taxes and tags. Demonstrating the value of financing through the dealership with the additional GAP Waiver can be a persuasive argument for customers to keep cash available for emergencies and use someone else’s money to pay for a depreciating asset.

Tech-forward vehicles need unique protection plans

Connected cars and electric vehicles (EVs) will continue to take up more road space. J.D. Power expects that half of U.S. new vehicle customers will have a viable EV option by the end of the year, and closer to 75 percent by the close of 2026. Yet, most consumers do not understand the risks and potential liabilities inherent in tech-forward vehicles.

These vehicles carry software and data security risks along with much higher service bills when components need to be repaired or replaced. In addition, automaker decisions such as Tesla’s recent move to drop the starting price of its Model Y leaves buyers who bought at the height of the market underwater in the event of a total loss.

Dealers and F&I managers are in a unique position to be an irreplaceable resource for customers purchasing tech-forward vehicles. It’s wise to develop a plan to make sure staff can help customers understand vehicle technology and risks and how to protect their investment. Leverage the expertise of your F&I product provider to deliver information and training on products that address technology risk and GAP to enhance the ownership experience, allay any customer fears, and prevent a financial catastrophe.

The future of F&I looks to be a wild ride. However, dealers and F&I professionals who take the time to prepare for challenges and opportunities will come out on top.

¹Reuters (April 18, 2023)

About APCO Holdings

Since 1984, APCO has grown to become a leading provider and administrator of F&I products for the auto industry. Built on a foundation of financial security and a commitment to understanding our customers’ needs, APCO is a trusted partner to some of the most well-respected insurers, highly successful dealerships, and leading auto industry players in the country. The company markets its products using the EasyCare, National Auto Care, and GWC Warranty brands, as well as other private label products, through a network of independent agents and an internal salesforce that specialize in consulting with and servicing the automotive dealership markets. EasyCare and GWC Warranty F&I products are the only “MotorTrend® Recommended Best Buy” in the industry. They also carry top ratings from the Better Business Bureau, have protected over 11 million customers and paid over $3.5 billion in claims.