As vehicle prices continue to fluctuate, dealerships across the country are facing serious challenges. Thinner margins on both new and used inventory mean that sustaining profitability can become a real challenge. However, one area of the dealership that's uniquely suited to help dealers unlock profitability in a high-price market is the Finance and Insurance (F&I) department.
By turning low-margin vehicle sales into more profitable transactions, a high-performing F&I department can make all the difference when it comes to keeping your dealership profitable. In many ways, F&I is no longer just a back-end function and has instead become a frontline strategy for maximizing dealership performance.
Let’s explore how to unlock F&I department profitability through smarter strategies, improved training, and digital retail integration in the finance office.
The New Reality of a High-Price Market
Dealerships continue to face elevated costs for both new and used vehicles. For the past 18 months, the “average new vehicle price has hovered around $49,000, nearly 30% higher than pre-pandemic levels.” At the same time, customers are more price-conscious than ever. This means that combating shrinking margins by raising the price of the vehicles on your lot is a double-edged sword for dealerships that carries the risk of driving away business and frustrating loyal customers.
This has prompted many dealers to explore new profit opportunities, turning their focus to the F&I department. With the right approach, F&I can evolve into a vital revenue stream—one that boosts both customer value and dealership performance.
F&I Strategies for Dealerships
Driving Effective Product Penetration
Rather than relying on vehicle sales alone, offering F&I products like vehicle service contracts, GAP insurance, tire and wheel protection, and maintenance plans can be high-margin opportunities for dealerships that also add long-term benefits for customers.
Consider these strategies to help improve your product penetration:
- Train F&I managers in needs-based selling: Rather than relying on scripted interviews, managers should strive to identify and address individual customer needs.
- Tailor menu presentations: Customize product recommendations based on the customer’s driving habits, budget, and vehicle type so your sales pitch is more relevant and personal.
- Build trust through transparency: Customers are more likely to buy when they understand the benefits of F&I products and don't feel pressured. Be transparent about the benefits with each customer so you can build trust.
F&I, at its core, doesn't just improve profitability; it also helps boost customer satisfaction and loyalty.
Staying Ahead on Compliance
An optimized F&I department helps keep dealerships profitable by unlocking new revenue streams, but it also helps to protect profitability by complying with regulatory requirements. F&I departments are required to abide by many regulations surrounding consumer privacy and lending practices, and noncompliance can lead to costly and reputational consequences.
Laws around fair lending, privacy, and disclosures are constantly changing, so staying on top of evolving regulations should be a priority for your dealership. Emphasizing ethical practices when training F&I staff is also crucial. F&I departments should have clear policies in place for handling sensitive customer information, and staff should be trained on these policies as well as the importance of having a customer-first mindset.
Integrating Digital Retail into F&I
The digital revolution has fundamentally changed the car-buying process. When shopping for a new vehicle, customers now expect the ability to complete much of the process online.
To meet these expectations, it's important for dealerships to integrate F&I into digital retail platforms. This includes:
- Educating customers on F&I products online: Customers should be able to learn about your product offerings before visiting the dealership.
- Utilizing interactive menus and videos in-store: These tools can inform buyers about the benefits of F&I offerings in a way that's low-pressure yet persuasive.
- Synchronizing online and in-store processes: A seamless experience, whether virtual or in-person, is essential for creating a consistent customer experience.
Maximizing Profitability in New and Used Inventory
As F&I income for 2024, it’s important to note that F&I gross can differ between vehicle age. New and used vehicles both require a tailored approach to F&I sales. Customers purchasing older models, for example, tend to be more receptive to additional coverage, However, these customers could be on tighter budgets than customers purchasing new vehicles. F&I add-ons for new vehicle sales can result in higher profit margins, but these sales can also be more challenging to make.
It's important to consider these factors when developing your F&I strategy so you can maximize profit across both new and used inventory. Train your team on the skills needed to approach and support customers who have varying budgets and needs. Savings in one area, such as find lower insurance premiums, could help boost profit on additional products purchased.
The Next Steps to Profitability
The rising cost of new and used vehicles presents some considerable challenges for dealerships already dealing with tight margins, but a strong F&I department can unlock profitability and long-term growth. Be sure to carefully evaluate your current F&I strategies, and invest in the right training, tools, and processes to position your F&I team for success.
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