Building a profitable F&I department

Advice from leading dealers and providers on maximizing F&I

It can be one of the best ways to increase dealership profits, but a strong finance and insurance department isn’t often top of mind for many dealers.

But not putting the time and effort into your F&I department means you’re leaving money on the table, says Mike Hoffman, owner of Marine Center of Indiana.

Having a good F&I department is crucial to his dealership’s success. It means more money for the dealership, more deals closed and a better customer experience, Hoffman said.

From financing to extended service plans and warranties to GAP insurance there’s plenty of money to be made in F&I. The average Top 100 dealer, for instance, has a 67.2 percent gross profit margin on its F&I department, compared with 58.9 percent on service and 18.2 percent on boat sales.

“It’s all about taking care of the customer, and I make money at it,” Hoffman said.

To be truly successful, the F&I department has to be an integral part of the sales process. At Slalom Shop Boats & Yachts, even customers that intend to pay cash will meet with business manager Nicole Haden.

“Once the salesman has reached the point where they’ve agreed to a price, but before they take a deposit they bring me in,” Haden said. “I take all money, run payments, talk about extended service, go through the process [and] still try to get them to finance with us.”

More than 60 percent of Slalom Shop’s customers choose to finance through the dealership, including many who originally intended to pay for it with other sources but saw the benefits of working through the dealership.

Marine Center of Indiana takes a similar approach, with the F&I manager playing a crucial role in sales.

“A boat isn’t sold until it’s paid for and financing is a key component of that,” Hoffman said. “Even the guys that think they want to pay cash, we sit them down with the finance manager to at least try to sell them an extended warranty.”

Marine Center of Indiana finances around 75 percent of purchases, with about 60 percent buying extended warranties, although that business has shrunk as manufacturers have increased factory warranties.

Because Hoffman knows Marine Center of Indiana will make an average of $2,400 in the finance office on each sale, he can then sell the boats for less. That’s especially useful in boat show pricing, he said.

“If I’ve got an entry-level boat and I want to really slim up the margin on it to get that customer interested, I can afford to do so,” he said. “I realized that because we make so much on the back end of the deal, I can really drop my margins almost in half and come out with the same profits for the show.”

In-house or partnership

A certain volume is necessary to make the numbers work for a full-time, in-house F&I person.

With all of the regulations around financing having salespeople handle the process could lead to trouble with protecting customer info. (See related sidebar p. 31). It can also be difficult for someone to do the task as part of another job.

One solution is a model like Marine Center of Indiana where it shares the F&I manager with a neighboring RV dealership to reduce costs and make sure there is enough work for him.

There are also companies like Priority One and Blue Water Finance that coordinate F&I services for dealers.

“We’re set up so we handle all of their retail financing needs from start to finish.” said Scott Ward, president of Blue Water Finance and Brunswick Product Protection Corp. “We act as their F&I department. The way we work with them it feels like we’re sitting next to them in their sales office.”

Blue Water focuses on helping dealers realize the profit potential of the F&I department. If a company is not structured such or is a size that cannot support a full-time F&I manager, Blue Water can help fill that gap, Ward said.

“It’s so very important to take a complete application, to have a financial professional in there, to present the individual to the bank, to properly negotiate the term,  rate  the amount financed, offer extended warranties and other back end products to retain control and generate a profit for the dealership,” Ward said. “It’s a very specialized process  and we believe that the dealership should have someone dedicated to it or employ a company like Blue Water to step in and help them with that.”

Not offering F&I services at all is a big mistake and lets the potential sale out of the dealership’s hands.

“Having successful finance and insurance at a dealership helps increase a dealership’s profit potential, avoids negative outside influences, and gives a customer the ability to shop for competitive financing without having to do it themselves,” said Eric Craig, senior account executive at Priority One. “A dealership that is able to offer competitive and convenient financing will see a greater close ratio causing direct increases to their bottom line from sales and F&I profit.”

Blue Water also works with Brunswick Corp.’s BPPC and Boaters Choice to offer extended warranties and insurance, respectively. Those services are available to all dealers, not just those who use Blue Water.

“It’s a benefit to the dealer and buyer to provide that one-stop shopping,” Ward said.

Brunswick Product Protection also can help dealers generate recurring income through any service work covered by the contract.

“We do everything we possibly can to drive service business to the selling dealer,” Ward said. “It’s a recurring revenue stream for the dealer that sells the product.”

An easier lending climate

During the worst of the recession years, dealers often found it difficult to get customers financed, but that seems to have abated somewhat in the last couple years.

Haden said Slalom Shop is finding that good credit buyers are having an easier time than they were just a few years ago, with less documentation and a quicker process.

Hoffman echoed that sentiment, noting that if the customer has “reasonable” credit, “we’ll get it done.”

With its network of national and regional banks across the country, Blue Water works with a wide range of lenders. Overall, the company is seeing approval rates up about 2 percent year-over-year, but that is more due to improved credit than a change in lending standards.

“We’re just seeing a little better customer out shopping, a little better customer coming through the door,” Ward said. “People are more aware of what their credit score is these days … so some of the weaker customers are aware of that and maybe aren’t even trying to apply for a loan because they know they most likely wouldn’t even qualify.  The beauty of Blue Water is however, we have sources, both national and regional, to place loans with Subprime lenders, Prime lenders and everything in between.”

Even customers that a dealer thinks may not qualify shouldn’t be quickly dismissed, as there are many lending options out there, even for those with credit challenges.

One of those is Medallion Bank, which makes loans to individuals that have had previous issues, including bankruptcies or delinquencies.

“If the dealers are having trouble getting people financed, it’s not because the banks aren’t willing to do it,” said John Haymond, vice president for marketing and development. “If they have a FICO score above 550, we’re going to do everything we can to get them financed.”

In many cases, dealers simply aren’t aware of all of the programs available – and neither are their buyers.

“In a discretionary industry like marine, a lot of people don’t understand that they can get financing if they’ve had a bankruptcy or had credit issues in the past, so they don’t even try,” Haymond said. “A lot of dealerships don’t even advertise the fact that they have a credit-challenged lending source. That’s a missed opportunity.”


The Red Flags Rule

Many dealers don’t realize they fall under what is known as the “Red Flags Rule,” which requires financial institutions or creditors to have a written identify theft prevention plan in place. A dealer with an F&I department falls under that definition.

If you’re not taking steps to protect buyers’ information and data and prevent identity theft, you’re not only violating the law, you could open your dealership up to lawsuits as well.

“There is significant liability on the dealership when a customer’s information is mishandled,” said Eric Craig, senior account executive at Priority One. “Every dealership needs to know the Red Flags Rule and when to utilize privacy notices.”

Privacy notices are required when a dealer shares a customer’s information with any outside entity for any purpose and should include why the information is being shared, what information it is, who it is being shared with, and for how long the information will be used, Craig said.

The Federal Trade Commission also offers guidance on the rule. Here are some highlights, but you can read more at

An identity theft plan must have four elements: Reasonable policies and procedures to identify the red flags of identity theft, a program to detect the red flags you’ve identified, appropriate actions you’ll take when you detect red flags and how you’ll keep it current to reflect new threats.

• Companies need to implement data security practices that make it harder for people to get access to personal information, such as credit applications

• Even if a third party pulls the credit and evaluates it for you, the rule still applies

• Simply accepting credit cards does not make you a “creditor” under the rule

At Slalom Shop Boats & Yachts, all credit applications and files are kept in locked drawers in business manager Nicole Haden’s office, which locks automatically when she leaves. Haden handles all the credit applications to minimize exposure.

“The salesman isn’t taking a credit application, so he doesn’t have that information on his desk,” Haden said. “Everything is secure and nobody else sees it but me, then it goes into a file in a locked drawer.”

Even things as simple as making sure computer monitors are not visible or using screen protectors can be an important step, said Scott Ward, president of Blue Water Finance and Brunswick Product Protection Corp.

“We hear stories all the time where this information is put in the wrong hands and there can be damage as a result,” Ward said. “If you’re taking in the information, every measure needs to be taken to protect that information.”


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