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Leveraging F&I to Maximize Car Dealership Profit Margin

By Robert Rosenow | Aug 17, 2023

Last updated on Aug 28, 2023

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Long-term car dealership profitability is the result of multiple dealership processes all working together to make the most of every opportunity. Those dealerships with consistently strong profits understand that a cross-functional approach that integrates Finance & Insurance (F&I) into all departments helps everyone perform at their best.

Here are a few recommendations on how to integrate the revenue-generating aspects of F&I to create more revenue-generating opportunities for sales, service, and other key teams.

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Cross-Functional Management & Leadership Explained

A 360-Degree Approach to Dealership Profitability

The conventional business wisdom of separate, disconnected departments all working independently of each other is no longer effective in today’s ultra-competitive automotive industry. Customer relationships now happen anywhere and everywhere, and it is crucial for dealership teams to be ready to respond when the opportunity presents itself.

Consider a scenario in which an existing customer brings their vehicle in for service, and asks their service advisor if now is a good time to think about trading in and upgrading to a newer model. If the service advisor knows enough about current pricing, promotions, and interest rates to start that conversation, they can hand off a warm lead to someone on the sales floor.

70% of customers say connected processes – such as seamless handoffs – are very important to winning their business.

Alternatively, if that same customer has to wait for the next available sales rep to answer their questions, they may change their mind altogether and the opportunity drives away when their service appointment is complete.

Cross-functional management is designed to capture more opportunities and convert them into bottom-line dealership profits by eliminating the “handoff gap.” According to a survey by CRM software giant, Salesforce, “70% of customers say connected processes – such as seamless handoffs – are very important to winning their business."

icon-tipTo translate that to automotive sales, 360-degree dealership management means creating a single, unified sales process that reflects a comprehensive experience for the buyer.

This allows customers to stop seeing F&I as an add-on, but rather an added value built into their vehicle purchase. Unfortunately, approximately 50% of dealerships have a two-phase approach that separates front-end sales from F&I.

Integrating F&I into all dealership activities creates opportunities for customers, staff, and overall profitability.

Best Practices for Uniting Sales & Other Departments Through F&I

If the concept of breaking down barriers between departments and creating a more collaborative approach seems daunting, it doesn’t have to be. A cross-functional approach is the epitome of the phrase “a rising tide lifts all boats,” because it means when one department is doing well, all departments are doing well.

Again, picture the difference that can be made when F&I is seamlessly built into the sales experience. A prospective buyer is really stuck on price. Traditionally, sales might have been left with an undesirable choice between going below invoice or letting the sale walk out the door. But, if F&I is involved from the beginning, the whole conversation changes.

Rather than focusing solely on sticker price, Sales and F&I work together to figure out the buyer’s target monthly payment, and work backwards from there. Along the way, additional service plans, warranties, and other added-value (revenue-driving) products are built into the deal. The customer walks away happy with their monthly out-of-pocket cost.

F&I is seamlessly built into the sales experience

Dealership profitability is boosted by additional revenue. And the team has even created a pathway for return-visit touchpoints and enhanced loyalty for that customer going forward. It’s a win-win-win scenario.

Another good example based on recent automotive trends data shows that Vehicle Service Contracts are already on the upswing. With a 360-Degree approach that integrates those products into the entire sales experience dealerships can capitalize on an existing market behavior and further boost dealership profit margins.

VSC – Q2 2023

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When presented this way, employees no longer feel territorial about collaborating with each other, but excited about the future possibilities. The next step is supporting that enthusiasm with an established framework for how business processes will now be conducted.

STEP 1
Start with providing basic education sessions between managers and all teams. Communicate latest promotions, new product offerings, current labor and repair costs, and other key talking points when speaking with customers.

STEP 2
Allow team members to “shadow” one another to see how customers behave in different situations and then learn to recognize where expanded conversations are best suited.

STEP 3
Follow up with cross-departmental collaboration meetings on a monthly basis to review results, identify new opportunities, or further refine the process based on challenges and successes.

STEP 4
Open up opportunities for team members to advance from one department to another when positions become available. This not only establishes a promote-from-within culture that recognizes talented people, but also helps enhance employee retention because team members feel they are valued asset to the dealership as a whole.


Lead to Succeed: Top-Down Dealership Profitability Strategies

Even with buy-in from individual employees and departments, cross-functional management and integrating F&I into all operational tasks takes practice. This is why leadership must “walk the walk” when it comes to implementing new procedures. People’s natural tendency is to do that which feels easiest or most familiar – and moving from a multi-phase or siloed sales structure towards a more total-dealership-centric model comes with a period of adjustment.

The secret to a smooth transition lies in confidently leading by example. Resist your own urge to slip back into familiar ways or old routines. Be engaged and present in team-building activities. Reward positive efforts even if the results are not perfect at first. When managers and employees see that leadership is invested in a new direction, it speeds up adoption of new attitudes and behaviors.

Strategically, leadership must also be active in creating a culture that supports car dealership profitability.

Remember, one of the key benefits of a cross-functional approach is that new, different, and innovative ideas have greater opportunity to be heard and shared. Those ideas don’t exist, however, if leadership only recognizes or recruits people who always agree and all act the same.

When managers and employees see that leadership is invested in a new direction, it speeds up adoption of new attitudes and behaviors.

To avoid evaluating team members and candidates based on personal opinion, think instead about the experience your want your customers have and ask yourself who on your team is best suited to deliver on the various roles involved in that experience. 

icon-factJM&A GROUP REMINDER
One of the key benefits of a cross-functional approach is that new, different, and innovative ideas have greater opportunity to be heard and shared.

In addition to consistent, motivated leadership, teams also need the tools, training, and support in order to maximize results and ultimately enhance dealership profit margins. Think back once again to that ideal customer experience. How much of it can happen with the people, technologies, and processes you currently have in place and how much needs to be added, taught, or changed?

Maximize results

Commit to continuous improvements across the board and sales and profitability will grow right alongside because leadership has developed a culture focused on customer experience, personal accountability, and efficient, effective dealmaking.

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Tactics for Implementing & Measuring Successful F&I Integration

F&I Training Programs and Effective Change Management

One of the most common reasons new behaviors or processes fail is fear of failure. It is a self-fulfilling prophecy that dooms many efforts before they start. Rather than face the initial difficulty of trying something new, the lure of staying in the comfort zone takes over and new habits never get fully or correctly established.

This is particularly true when it comes to disciplines like F&I. Because it’s so vital to the lifeblood of car dealership profitability, and because there are regulatory issues and dealership compliance involved, the responsibility over F&I tasks is typically only entrusted to a select handful of employees. Rather than make a mistake, other departments keep a safe distance and don’t get involved with F&I at any level.

This is a mistake – and a lost opportunity.

Cross-functional leadership doesn’t mean everyone becomes an F&I expert overnight. Rather, it means teams without day-to-day F&I exposure understand the role F&I plays in the business, and learns how to talk about F&I at a basic level in order to enhance customer confidence, trust, and satisfaction.


This, of course, takes targeted dealership training programs aimed at establishing a core foundation of F&I knowledge.

If you’re already creating or working with a collaborative dealership culture, then the matter of proper F&I training for cross-functional teams can be as simple as the below three-step process.

F&I training three-step process

1. SHOW
Demonstrate the function and purpose of F&I across multiple dealership profitability scenarios. Some team members may be unaware of just how much revenue F&I creates for dealerships in an ongoing capacity. Others may not know the nuances behind financing and how to be a problem solver when less-than-textbook deals present themselves. Let employees see these and related tasks in action (Remember shadowing? This is a great hands-on way to implement it).  

2. DO
Once the groundwork understanding has been laid, flip the script. Let team members from cross-functional departments demonstrate or practice the art of the warm handoff themselves, always keeping an experienced or knowledgeable F&I partner close by for support.  

3. OBSERVE
After a bit of repetition, allow teams to start involving F&I on their own... but keep a watchful eye out to fine tune specifics or correct missteps before they turn into bad habits. It’s okay to keep teams accountable here as long as leadership remains accountable, too.

There is a popular idea that it takes 21 days to establish a new habit... but the truth is that there is no magic number. New processes can catch on as quickly as a day or two (think about the first time you used a smartphone with a touch screen), or can take months or longer to establish (like training for a marathon). The real key is consistency.


Harnessing Data to Measure F&I Performance

Once F&I is functioning as a holistic part of your car dealership profitability strategy, the next benchmark is evaluating how well the new approach is delivering on bottom-line goals. Every dealership employee may love the new process, but if it isn’t yielding results, adjustments need to be made.

When it comes to tracking and measuring F&I performance, data and metrics offer powerful insights that help inform the kind of decisions that need to be made. It is normal for dealership profits to have highs and lows; but sharp spikes and low valleys often indicate there is a problem worth investigating. Aside from trends and forecasting, specific data points can provide additional visibility into F&I performance over both the short and long term.

Use PVR (Per Vehicle Retail) to Track Overall F&I Performance

In a healthy dealership profitability scenario, PVR and sales inventory should move slightly opposite one another. The fewer vehicles sold, the higher the overall purchase should be – both in terms of vehicle price as well as F&I products included in the sale.

When number of sales increases, PVR tends to decline, but shouldn’t decrease so substantially that it wipes out the boost in sales. It’s when both PVR and number of sales are down that it’s time to rethink your approach.

Example: 2023 Vehicle Sales vs. F&I PVR Performance

Example: 2023 Vehicle Sales vs F&I PVR Performance

↑ GOOD: Vehicles sales increased 13.8% from February to March but this dealership was able to largely maintain F&I PVR, with a drop of only 4.9%, and then was able to increase PVR while vehicle sales continued to increase.

Example: 2023 Vehicle Sales vs F&I PVR Performance

↓ BAD: Vehicles sales increased 3.6% from March to April but F&I PVR decreased at a higher rate at -9.8%.

Products Per Deal (PPD) Can Show Specific F&I Sales Figures

Of all car dealership profitability metrics, this one figure often tells the most about F&I performance. When customers lease or finance a vehicle, they tend to be more receptive to F&I offerings as the impact on monthly spend is usually very small. However, with cash deals, customers often have a set figure in mind, and the F&I component becomes a more difficult sale. Maintaining a healthy balance between deal types allows your teams multiple opportunities for success.

Deal %

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Dealer Example

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Product Leakage

For dealerships with significant reinsurance portfolios, your F&I product mix should reflect that structure – otherwise dealer profits are lost to competing products. If you do have multiple offerings from OEMs, make sure your F&I offering supports your own dealership financial goals.

Armed with these data points and others like them, your dealership can make more informed decisions and effectively tailor your F&I, service, sales, and other departments to continue building revenue by cross-selling as the opportunity arises.





Technologies & Strategies for Continuing to Grow Dealership Profit Margins

F&I 2.0 – F&I Technology to Increase Digital Retail Opportunities

In many dealerships, F&I is looked at as an “event” – a separate interaction from sales both from a business process and customer experience perspective. But more and more research into consumer insights tells us that creating a seamless purchase pathway, through and including F&I, makes for an overall more positive and lucrative sales process.

We know that when customers are informed and educated about F&I earlier in the process, they are more inclined to buy, leading to dealer profitability and consumer satisfaction. However, most digital and e-commerce dealership tools focus solely on sales and leave out F&I, which creates a disjointed experience and friction.

Consider this scenario: Customer A is a digital native shopper, who researches and buys online on your website. They schedule an appointment to take delivery of their vehicle, expecting a “sign and drive” experience, only to be escorted to the F&I office for what feels like an upsell because they thought they would be picking up their keys and on their way.

When customers are informed and educated about F&I earlier in the process, they are more inclined to buy

Now, you’ve taken what was supposed to be a smooth interaction with a satisfied customer and turned it into a frustrating experience.

To avoid this, look for a digital solution that not only incorporates F&I, but also has the capabilities to display your menu and effectively inform customers on the costs and benefits of your products. No more missed opportunities and upset buyers. Instead, you have buyers who feel in control of the process and have time to make a decision that’s right for them.

Customers can prefer to buy online, in-store or a mixture of both

And whether your customer prefers to buy online, in-store, or a mixture of both, having flexibility built into the process is a win-win. That’s why dealers nationwide are incorporating Virtual F&I into their business model to help harness the power of digital retail and let customers interact when and how they prefer.

icon-tipThink of it this way – do you want every customer who wants to complete some or all of the transaction online to be lost revenue, or an opportunity for profitability?

To maximize your customer experience and F&I potential, ensure your website and digital tools engage and educate consumers and streamline your processes.


Smart Partnerships Generate Sustainable Dealer Profits

Implementing a cross-functional sales approach that seamlessly integrates F&I into all aspects of the car dealership business is a powerful way to increase dealer profit margins, but it takes time to develop organically. Dealerships who work with a strategic F&I partner can help create more opportunities for F&I as well as other key revenue providers.

When evaluating such a scenario, be sure to look for:

icon-hybrid-training

Full Service vs. Finite Product Offering
There is a difference between someone who offers an F&I platform or technology tool, and someone who aligns both human and digital solutions to meet your goals. A true partner will care about your success as if it is their own by providing training, data analysis, and ongoing guidance.

iconVirtual Inspection Process

Transparency & Reporting
A dedicated partner will be eager to show you the improvements they are making on your behalf. They will also want to work with you to address any areas that are underperforming and implement changes for the better. This dealer-centric approach is a key difference between an F&I provider working from a partnership perspective and a company that simply sells F&I products.


FAQ: F&I Profitability

Want the TLDR version of how to leverage F&I to maximize car dealership profitability? We have answers to your top questions here.

What is the average profit margin for a car dealership?

A 2023 survey of more than 130,000 car dealerships utilizing IRS data showed an average net profit margin of just 1%.

Where does the car dealer make the most money?

While vehicle sales are important, the low- or no-cost offerings of F&I products generate the highest dealership profit margins as well as ongoing revenue.

How to sell more F&I products?

When all dealership departments incorporate F&I into their sales processes, it greatly increases the conversion rate and sales of these high-revenue products.

Navigating Your Future F&I Success for Dealership Profitability

The days of customers walking into a dealership and being guided from one department to the next are over.

Whether it’s because customers would prefer to do some or all of their shopping online, or they want a more seamless experience with better perceived value, a cross-functional approach that integrates F&I into other dealership activities creates more opportunities to maximize dealership profit margins.

  • By applying strategies such as collaborative training, shadowing, and monthly team meetings on the personnel side, team members become more empowered to facilitate not only F&I sales, but also other revenue-producing offerings.
  • For leadership, a willingness to actively review and adjust cross-functional procedures, creating ways for employees to advance within or between departments, and cultivating a culture that welcomes new ideas and prioritizes cooperative revenue generation are all strategic benchmarks in building dealership profitability that lasts.
  • Other ways you can maximize car dealership profitability include carefully collecting and reviewing data and metrics to make informed management decisions, choosing robust e-commerce technologies that effectively sell and promote F&I products, selecting the right partner for virtual or third-party F&I services, and committing to ongoing improvement and optimization across all dealership operations.


Understanding the role of F&I in achieving profitable car dealership operations is essential. As automotive industry experts, it is your responsibility to generate effective strategies, apply suitable technology, and utilize appropriate management methods that bring positive results.
 
It is also significant to be aware of the changing dynamics and tendencies of the industry, for it can provide an improved customer experience as well as greater profitability. Having knowledge of effective tactics, investing in the correct technology, and comprehending the landscape are all key to making sure your dealership is successful and your customers are happy.
 
Finally, finding the ideal partner to support your endeavors is an invaluable part of ensuring that your progress is consistent. Partnerships are essential for your success.
 
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