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Leveling The Playing Field: What F&I Can Do For The Wise Dealer

Once or twice a month I am asked to make a presentation on special finance to a twenty group. It is something I always enjoy and nearly always gives me the impetus for this monthly column.

This meeting was no different.

It was a great group, consisting of very seasoned, but smaller volume, domestic dealers. In reviewing their composite prior to my presentation, I was stunned to see their average finance and insurance gross profits or, more appropriately, lack thereof. This was the second domestic group in a row that I addressed where the group finance and insurance average was well below $500 per copy net of chargebacks. Too many were under $300 per copy.

I was stunned. Twenty years ago my twenty group averaged better than that.

To top it off, these dealers were very sharp individuals. They noticed their new car market share eroding and took strong steps to offset it, through strong used vehicle operations. Unfortunately, like many domestics, too many of them have suffered from “red ink” income statements over the course of the last 18 months.

Dealers that are seeing their net profits disappear, simply cannot afford to have underperforming finance and insurance departments. If a store is selling 60 to 70 units per month, struggling to break even and averaging less than $400 per retail unit sold in F&I, two thoughts immediately come to mind.

The first thing that comes to mind is you just aren’t trying. That may step on a toe or two, and if it does, I am sorry. With all the available (and beneficial) products available, it simply means that you must not be asking. Today’s buyers, as a group, have never had so much negative equity. As a result, GAP policies have never been more important. Just ask any customer of yours that has had their car totaled, and was left with a monstrous deficiency balance, after their insurance company paid only the “market value” of their vehicle. It is simple to present, and adds just a few dollars a month to someone’s monthly payment. If you aren’t selling it, you just aren’t asking.

With service contracts, credit life insurance, security etching, wheel and tire coverage, maintenance agreements, and other items available, a finance manager has a host of items that offer excellent value and are desired by your customer. If you aren’t selling them, you just can’t be asking.

The second thought that comes to mind is, if you were to simply double your F&I gross profits to get near the industry average of $800 per retail unit, what would that extra $400 per car deal mean to you? I will take a wild stab and say the incremental increase would be $300 per retail unit after paying all the associated commissions or bonuses. At just 60 retail units per month, that translates to an additional $216,000 a year in additional net profit. For a lot of dealers selling 60 units per month, that can be the difference between treading water and putting some joy back into the business.

The F&I department is one area that provides a relatively level playing field among dealerships of all sizes. The products, opportunities costs are basically the same among competing dealerships. Whether you are a small family-owned store or an AutoNation store, you can enjoy strong back-end profits.

Recently, another trade journal ran a story which stated the average F&I income per vehicle retailed, by company, for all publicly held dealer groups, based on their 2006 annual reports. It reflected an average over $1,000 per vehicle retailed. How do you compare?

During my 18 years as a dealer, I found that perhaps the easiest position to fill, train and develop was the finance manager. In many of my stores, they were doing double duty with Special Finance. The options for training to develop your producer are vast. The products are easy to find. Make it your goal to achieve $1,000 per unit retailed, and don’t rest until you achieve it. It will help make this business a lot more fun!

Until next month,  Good selling

Vol 4, Issue 10


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