Missing the mark


bowCanadian dealers have been a doing a tremendous job of growing their F&I sales.

Data from Dennis DesRosiers of DesRosiers Automotive consultants shows that Canadian dealers made a total of $1.5 billion from insurance/warranty/other products in 2013, although there is no way to determine the breakdown between the revenue generated from new and used vehicles.

But how much attention do F&I managers pay to their used car buyers, who are also looking to purchase additional insurance and protection products?

Looking at the current automotive marketplace, they could well be missing out on lots of opportunity.

According to data from DesRosiers, there were 2.72 million used vehicles sold in Canada in 2014. That accounted for 59.6 per cent of the total new and used vehicle sales that year.

In a presentation on Canadian automotive market insights and trends at the recent AudaVision 2015 conference held in Toronto, DesRosiers talked about the “mountain of older vehicles,” in the marketplace that are good quality.

DesRosiers said the vehicle survival rate is doubling and added, “now that 10-15 year old vehicles are affordable and built with high quality, consumers are embracing ownership of older vehicles.”

He also said dealers are positioned perfectly to capture more used vehicle sales, and that includes revenue in the business office as well.

Dealers are also aware of the growing number of subprime customers who are more likely to finance a used car than a new one. These customers are becoming increasingly important and require skilled salespeople and F&I managers to deal with them.

OEMs are also jumping on the F&I opportunities in the used vehicle market by offering some valuable products as part of their certified pre-owned (CPO) programs, said Luc Samson, Vice-President of Sales and Administration at iA-SAL.

The thinking being that by offering a used car buyer a good F&I experience, he or she might be tempted to buy a brand new vehicle when the time comes to trade it in.

Samson said in his experience, the average gross profit per unit is often higher on used vehicles than on new ones. That’s even the case after factoring in administrative costs and other fees.

There are lots of product offerings for used car buyers in the marketplace that dealers find quite popular, including extended warranty, creditor insurance and Guaranteed Asset Protection (GAP) insurance.

These products tend to have high penetration, making them appealing to a business office manager once they’ve delivered the finance acceptance for the customer.

There’s even a high demand for appearance protection products for used car buyers, said Samson.

He said a buyer who has just purchased a $13,000 used car might still want to protect their investment and get undercoating or paint protection in the same way a $30,000 new car buyer would.

Let’s face it: a used car buyer is going to tell their friends, “Hey, check out the new vehicle I just bought!”

Ned Calija is the used car manager at Hyundai Mississauga. He’s noticed over the last few years that used car operations have grown considerably at his dealership, and it now sells one used vehicle to three new ones.

There’s especially a big demand at his dealership for vehicles that are gently used and only a year or two old, said Calija.

Calija said about 60 per cent of the used car buyers will purchase an extended warranty on their vehicles at his dealership.

He can recall many times when an extended warranty was a bonus for a used car buyer. One customer ended up with a malfunctioning alternator just three days after purchasing the vehicle, and was happy to have an extended warranty on the vehicle.

Based on all of the market conditions and the number of products out there, there’s no shortage of opportunities for business office managers to generate money from used car buyers.

But after speaking with Samson and Calija, it’s important the business office comes up with products and packages that suit individual used
car customers.

They should also consider the term for which the customer is financing the vehicle.

Samson said when dealing with a subprime customer, the dealership will want to trade in that vehicle within the next 24 or 36 months, instead of waiting for the duration of the term, and resell them another vehicle at a lower rate.

That means adjusting the protection base on the terms of the vehicle if they end up wanting to trade in the car, so the balloon payment is not too high.

Viewing and treating used car customers no differently than your used car buyers will help your team generate more F&I business opportunities.

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