Tapping into the F&I revenue stream

Marine dealers face rough seas this year amid fewer new boat sales in most markets and a general belt-tightening by consumers who are fearful of a recession.

Instead of hunkering down and trying merely to weather the storm, however, savvy marine retailers should use the expected lull to take a serious look at dealership policies and procedures, with an eye toward increasing efficiency, customer service and profitability.

The finance and insurance of new and used boats,
along with extended warranties and other products sold at the time of a boat purchase, can provide a tidy, relatively easy profit for dealers after the heavy lifting of the sales process is complete. Decisions about whether to send buyers to a local lender, use a third-party provider of F&I services or handle those tasks in-house should be reconsidered from time to time.

Are you losing sales because buyers can’t get financing? How are those buyers being treated by third-party vendors? How is that affecting your customer service index scores? When times are good, lost sales easily can be forgotten when the next hot prospect walks in the door. But successful dealers know that every customer and every sale is important, and revisiting F&I policies can help ensure a quality buying experience.

Keeping Control of the Loan Process
“You lose control of the customer as soon as he goes out and negotiates his own rate,” says Kevin von Busch, national retail sales manager for the Key Recreation Lending arm of Cleveland-based Key Bank. “We want to help dealers become a one-stop shop so they can sell a boat, get a customer financed, offer an extended warranty and do what it takes to exceed customer expectations.”
In the past two years, Key Bank has grown its market share in the marine industry after posting gains of more than 30 percent in 2006 and 2007. However, von Busch says the lender expects a 10-percent decline in business this year, reflecting the overall pulse of the industry.
“A consolidation of dealers in some markets is likely, and a consolidation of manufacturers is possible,” von Busch says.

Key offers a wide range of lending products, including fixed-rate plans that allow borrowers to skip up to three payments a year or make one annual lump-sum payment. Manufacturers can buy down interest rates, making their boats more attractive to potential buyers. Listening to customers, tweaking loan programs and streamlining business processes are vital to Key’s growth in the industry, von Busch says.

The message dealers should be giving consumers is that there is loan money available for marine products, says Don Parkhurst, senior vice president and head of the marine and RV finance division of Atlanta-based SunTrust Banks Inc.
“No one was making subprime loans, and no one is now,” Parkhurst says. “There also has been concern that (lending) standards have tightened, but that’s really not the case. Banks may require more in the way of verification, especially for smaller boat loans, such as proof of income and personal finance statements.”

Parkhurst says that the boat market has split, with smaller and medium-sized boats comprising one segment and larger boats another. While both segments are off, the larger boat market has not been hit as hard by the downturn.

“I surmise that an employee concerned about losing his job is going to defer buying a boat,” Parkhurst says. “But larger boats generally are bought by people who are self-employed and well-heeled, and they’re still buying.”

In the past couple of years, SunTrust has changed its focus slightly, paying more attention to the higher end of the boat-lending market. Parkhurst believes the soft market will continue into 2008, with a real chance the country will move into a recession. However, the Federal Reserve likely will order further cuts in interest rates that will begin to spur refinancing activity, Parkhurst says. He sees an earnest recovery beginning in 2009 or 2010.

The personal touch is a selling point for KTK Financial Services, says Delaina Goggia, dealer services representative for the company, based in Central Point, Ore.

“You will never hear an automated menu when you call us,” says Goggia. “This personal touch cuts out a lot of frustration for our dealerships.”
KTK handles all aspects of financing, leaving dealership employees with more time to take care of customers.

Technology Speeds Approvals,
Increases Efficiency
A downturn in the market provides a good opportunity for both dealers and manufacturers to examine the nuts and bolts of their businesses, notes Peggy Bodenreider, vice president of sales for the marine group of GE Money, based in Irvine, Calif. She also sees a challenging 2008 for the industry, with a possible turnaround next year.

GE Money touches the industry beyond boat financing with such services as inventory financing, deposit plans and training opportunities. Boat loan products include no interest/no payment options for a certain period of time, low or no down payment plans and extended terms, Bodenreider says.

Over the past few years, the GE Money marine group has been examining its loan products to ensure that dealers have the products they need to compete. It also has been tweaking its online loan processing “to provide an easy way for dealers to do business,” Bodenreider says. “Online applications and online loan documents make it easier for smaller staffs to keep the F&I function in-house. If a dealer controls the financing, he controls the sale.”

Many marine dealerships haven’t kept pace with the tremendous technology leaps that have occurred in the past few years, notes Lisa Gladstone, president of Priority One Financial Services Inc., St. Petersburg, Fla. The company’s online Dealer Resource Center lets dealers view the status of finance deals in real time and print last-minute contracts and paperwork. Dealership customers can apply for loans and estimate monthly payments online, making the process easier for them.

“Priority One created these online services to increase our dealers’ profits, reduce their hassle factor and give them more time to spend with their customers,” says Gladstone.

A robust dealer management system also can handle F&I issues as part of the sales cycle, notes Cam Collins, president and CEO at DockMaster Software, North Palm Beach, Fla.

“A buyer is more likely to be receptive to F&I offerings provided by a dealer during the selling/closing process,” Collins says. “Once the customer is committed to buy that new boat, an F&I professional can provide the buyer with a myriad of options.”

If the sales process is developed correctly, the customer can choose from various products such as service contracts, credit insurance, accident insurance and others that add value to the boating experience with just a small increase in the monthly payment, he notes.

A new player to the F&I software market is Solex, which is rolling out its solution to the RV industry now and plans to have its marine package up and running later this year, says John Walsh, CEO of the company based in Idaho Falls, Idaho.

The product combines lender approvals with a menu of aftermarket products designed to help marine dealers increase their bottom lines, Walsh says. Depending on the customer location and dealer location, the system will generate the correct documents for the jurisdiction to ensure dealers stay in compliance.

“We intend the Solex product as an F&I manager, helping larger dealership do a better job with the F&I function,” Walsh says, “and allowing smaller dealerships to offer F&I with the staff on hand.”

Rounding Out the Deal
Offering F&I in-house helps with sales of such profitable add-ons as extended service warranties, says Quentin McClung, senior vice president of product development and marketing at Protective, Birmingham, Ala. The company offers new and pre-owed marine engine coverage and accessory warranty packages based on the type of boat purchased.

“My advice to dealers is that they’re losing profit opportunities if they aren’t offering extended service contracts,” says McClung. “You should present 100 percent of our products to 100 percent of your customers 100 percent of the time.”

As dealers search for new revenue streams, service contracts make a great deal of sense, says John Tabar, national vice president of Atlanta-based Assurant Solutions. Before working with a dealership, Assurant conducts a profit gap analysis that looks at a dealership’s sales, parts and service, F&I, procedures, compliance to national benchmarks and other areas that drive profitability.

“We partner with our dealers, so we want to make sure that the cultural and philosophical fit is good before moving forward,” Tabar says. By tailoring coverage to the boat and its intended uses, the dealer gains credibility with the buyer, which can raise CSI scores.

“In a competitive market, dealers are looking for an edge, an advantage in the market,” Tabar says.
When shopping for insurance, consumers want the proper coverage, a low rate and quick approvals, says Paul Bender, co-owner of RV America Insurance – Powersport and Marine, based in Simi Valley, Calif.

“We bind coverage in 12 minutes or less, once again adding value to the selling process by removing an obstacle to the sale,” he says. Providing insurance services at the dealership helps buyers gain confidence that they’ve made the right decision, Bender says.

“Possessing the proper coverage could mean the difference between an exciting boating season, and one spent high and dry on the docks,” says Chantal Cyr, vice president, boat and yacht division of Travelers, based in Saint Paul, Minn. “While everyone is looking at ways to cut costs and save, boaters need to remember that the price of the policy is important, but it’s the coverages and services that bring value to their monthly premium.”

Dealers should make sure that the insurance coverage fits where and how the boat will be used, Cyr says. Other coverage considerations should include exclusions related to ice and freezing, fishing equipment, mechanical breakdowns, wreck removal, as well as paying for environmental issues such as fuel spills.

The national focus of Global Marine Insurance allows it to operate in areas where other insurers don’t, says Matt Anderson, vice president of marketing for the company based in Traverse City, Mich.

“In New Orleans or Florida, it can be difficult to get boat insurance,” says Anderson. “We have the capacity to write in those areas.”

Global Marine has been building relationships with dealers who want to offer complete F&I packages. Where allowed, the company will offer dealer incentives for leads, and for larger dealers, the company will provide a licensed agent on-site.
“We’re always building relationships with dealers, finding the best value and coverage for customers and obtaining approvals right way,” Anderson says.
The market downturn has been a boon for SeaSafe Group, which offers warranty products for new and used boats, selling them to manufacturers, dealers and directly to consumers.

“The phone’s been ringing more in the last three months than in the last three years,” says Jamie Gaskins, president of the company, based in Sarasota, Fla. “Smart manufacturers are looking for something to set themselves apart in this market, and a comprehensive warranty is a good way to do it.”

Dealers benefit from the increased attention that boats with a five-year warranty receive from potential buyers. Certain systems, such as engine, hulls and pumps may be warranted from the manufacturer for a limited time, but the SeaSafe warranty encompasses a broader range of items for a consistent length of time, giving the buyer piece of mind when making the purchase decision.

SeaSafe also offers a certified pre-owned boat program that dealers can sell to customers, generating $500 to $1,000 in profit in the time it takes to mark a box on the up-sell sheet.
In the auto industry, F&I is the second-largest profit center (behind service), Gaskins says, and auto dealers are successful in selling service contracts nearly 40 percent of the time. In the marine industry, just 6 percent of customers buy a service contract.

Are your F&I policies (or lack of them) keeping you from maximizing profits at your dealership? Now would be a great time to find out.