We are in interesting times. Opportunities that will define the future of F&I are emerging as we speak, and it's more important than ever that we work to preserve this important department. Your future will be filled with solicitors trying to convince you there is no need for F&I — that they have a method for the sales department to handle the complete transaction, that their electronic solution will do the job of F&I, or that F&I can be replaced with an app or a vending machine.
Were this true, I would be writing about technology of the future. But I'm not. I love tech — but in this case, the predictions are wrong. F&I is imperative to the future of dealership profits.
The Way It Was
All the way up to 2008, right before the financial collapse, auto finance sources had little direct contact with consumers before the sale. The digital market was small and most customers were payment-focused. Back then, if a customer wanted to do any level of research, they would have to do it from their home computer, make notes, and do the best they could to remember all the information when they arrived at the dealership.
Most car guys and gals would try to move the customer to a different, more profitable unit. If successful, the customer's original data would become irrelevant and they would go home to research the new unit — which they had just bought.
Technology has changed everything. Consider The New York Times, one of the most prestigious newspapers ever published. As the internet developed, it had to scrap its business model and develop an entirely new method just to survive. Auto dealers must likewise adopt a new F&I model soon, or they will face the same pressure.
The Way It Is
Since 2008, more than 100 million automotive transactions have been influenced in one way or another by the advent of the smartphone. We've seen customers sit across from us and share information about price, equipment, selection, financing, and — of course — payments. The finance manager's job has never been more challenging.
The first objection we hear is often rooted in the customer feeling like the payment should match what's on their phone. When it doesn't match, the customer becomes suspicious. This is the moment we begin to lose income and customer loyalty.
Technology is increasingly making the transaction more difficult for F&I managers — because in F&I school, managers focus primarily on how to overcome payment objections rather than relating to the customer, understanding buying habits, accurately assessing the vehicle's future use, building value in products and services, and simply understanding what they are selling.
"Technology can compete with an undereducated, unethical, and fear-based F&I manager. But you're not trying to hire that person. So don't let that be the comparison."
Ask yourself: does your F&I team understand the products and services they're selling? Many general managers would be disappointed if they walked into F&I, picked up a contract, and asked logical questions about coverage and claims. I do this often, and I'm routinely shocked at the lack of knowledge. This makes a value conversation with the customer impossible.
Staying focused on payment only makes the transaction more difficult. A "payment mentality" prevents the finance manager from talking about the value in F&I products and the problems they solve. It keeps the customer focused on the payment instead of being focused on fixing their future problems.
F&I Defined
Let's define what F&I actually is — because there is more to it than just selling products. F&I, when done properly, should deliver the vehicle, get all the money bought, protect CSI, track contracts in transit, ensure correct deal structure, complete all basic documentation, and — don't forget — sell products. The department has always been the conduit between the dealership and its financial future. When it performs well, everyone benefits.
For many dealers, F&I is the most profitable department in the store, based on compensation as a percentage of gross. However, F&I is poised to become the single highest gross profit center in the dealership if current trends continue — but only for dealers who invest in a better process.
Since the '90s, we've heard "a pay plan is your job description." F&I managers work their pay plan. Unfortunately, I've seen too many managers who only care about their own PVR — who will ask the customer for extra money down to squash a deal if they won't get products due to loan-to-value restrictions. Their defense is they're protecting their PVR. But this behavior directly undermines the dealership's unit sales, customer loyalty, and long-term profits.
The Way It Will Be
Many dealers got crushed in 2008. Dealers with loyal customers didn't. Dealers who want to weather the next storm will need customers who are loyal. So how do we drive long-term loyalty and profits?
Dealers who adopt a "base hit" mentality — and stop trying to hit home runs — will actually earn more money per vehicle. One home run is never worth as much as four or five base hits. A 10- or 15-year relationship with a customer who brings their vehicle back for service, buys their next car from you, refers family, and maintains your community reputation is worth much more than a single home run transaction.
Ideally, the customer leaves happy and goes home feeling good about the transaction. A surprising fact is that most customers expect you to profit. They just don't want to get ripped off. There is middle ground here that is profitable for the long term — and it must be harvested.
Technology can compete with an undereducated, unethical, and fear-based F&I manager. But you're not trying to hire that person. So don't let that be the comparison. We need to solve the right problem: not eliminate F&I — our most profitable department — but improve it. Neither electronic transactions nor hybrid sales departments will ever effectively compete with having an ethical, knowledgeable, and professional finance manager.
Finance teams of the future will be staffed with professionals whose goals align with those of the dealer and whose jobs are supported — not replaced — by new and emerging technology. The data supports that a standalone finance department, when performing properly, is not only possible but ideal. Getting there requires investing in the people and the process that make it work.
