The virtue of virtual F&I – maximizing touch-free F&I profits

By Myril Shaw

COVID 19 may have forever changed the way F&I is done, and in several respects, perhaps that is for the best!

Just as everyone is now learning how to set up virtual showrooms and touch-free sales, as well as safe social distance deliveries, it is time to learn about the best way to maximize F&I effectiveness and profit in the days of social distancing and virtual sales.

Carvana established the first automotive model for touch-free F&I in the automotive space by doing EVERYTHING online with no human intervention. While it worked, it did not drive F&I profit to the level that it could be. That said, with no human involvement, the F&I cost associated was so low, that net profit was probably okay.

What happens when you add human involvement into a remote F&I process?

F&I is an area where “good enough” just is not good enough. Settling for mediocre results can cost a dealer tens to hundreds of thousands of dollars of profit per year.

Let’s begin with establishing the baseline targets and then outline the steps for exceeding those targets in a virtual F&I world.

What should you be expecting from F&I performance (whether in a physical or virtual environment)?

1. Minimum F&I gross profit on amount financed – 7.5%
Across all your financed deals, the minimum Gross Profit should be at least 7.5%. For example, if your average deal financed has an amount financed of $50,000, you should expect to see an average F&I gross profit of $3,750. On deals above $100,000 this percentage will begin to be reduced.

2. Minimum percentage of all deals financed – 40%
Your F&I department needs to see 100% of all sales – even when the customer says that they are paying cash. There is absolutely no excuse for anything less than 100% TO. Given 100% TO, 40% or more of all deals should be financed. If 40% of deals are financed and the average gross F&I profit on the amount financed is 7.5%, the average F&I gross profit on unit sales will be at least 3%.

3. Minimum penetration rate of protective product sales on all deals – 60%. One or more protective products (extended engine warranties, accessory warranties, GAP, interior/exterior protection, tire and road hazard, etc.) should be sold on at least 60% of all deals – cash and finance.

4. Maximum F&I cost (excluding protective product dealer cost) as a % of F&I gross profit – 25%. There is NEVER a reason to be spending more than 25% of F&I Gross to pay for your F&I results. Put another way, your F&I net profit per unit sales should be AT LEAST 2.25% of AT LEAST 5.625% of amount financed.

How do these results translate into real-world profits?

If you are selling 125 units per year (cash and finance) at an average amount financed of $40,000 (which means that the average selling price is $44,000 or more), you should expect nothing less than F&I net profit of $112,500. This is cash that goes directly to your bottom line. Perhaps you have a bigger store and are selling 250 units per year at around $50,000 per unit. That should be translating to $281,250 of your store’s overall net profit.

Whatever the environment, physical or virtual – if your store is not seeing these results, there is room for improvement and perhaps it is time for a change.

Are these results achievable? Absolutely! There are dealers seeing these results or better on a regular basis! Some of these dealers are already seeing those delivered in a virtual environment.

So, now that F&I must be performed in a virtual world, what needs to be done to achieve these results? Here are the 7 key steps:

1) It all begins with setting the proper expectations among your employees. Let them know what the minimum targets are and then provide monetary rewards for meeting and exceeding them.
2) Ensure that proper systems and tools are in place to facilitate F&I sales over the phone. These include:
· Quick and easy tools for credit application analysis and submission to lenders.
· Clear and automated guidelines for which lenders to submit credit applications to (lenders are watching look-to-loan ratios more closely than ever).
· Tools to allow pre-packaging of combinations of protective products so that “menus” can be presented orally rather than visually,
· Ensuring that all personnel handling/printing personally identifiable information have cross-cut shredders and the other tools needed to protect against identity theft and/or sales to people on government watch lists (compliance laws have not been relaxed).
· The tools needed to track customer progression through the sales cycle from the application submitted to contracts submitted to lender and funding received – with automated reminders.
· Processes allowing the salespeople and other management to track the customer stage in the process without interfering with the F&I manager activities.
3) Service level commitments must be in place ensuring that the F&I Manager can be in touch with the customer within 15 minutes of an application being submitted and that follow-up conversations happen at least twice per day until the transaction is concluded in some way.
4) Scripts, processes, and requirements for maximizing reserve and presenting protective products and tools to enable quick and easy analysis of reserve rates versus protective product sales.
5) Easy lender and protective product contract generation from home offices.
6) Well-defined finance contract presentation and review rules, including identity verification with a picture of the customer’s driver’s license, while practicing safe social distancing – it is likely that this step will occur during delivery, so training must be completed to ensure that those doing the delivery are fully compliant.
7) An efficient process for delivering the executed contracts to the lender.

Once these seven steps are in place and the process is efficient, you will see the results.

Maximizing F&I profit in the virtual world may not be easy, but once achieved, you will never want to go back!

Myril Shaw is the chief operating officer of Dealer Profit Services; a member of the Boating Industry Top 100 Leadership Alliance. He may be reached at myril@dealerprofit.com.