With the growth in non traditional lending, online pre-approvals and products such as tire and wheel protection, the F&I business is changing fast
We’ve all been hearing about how the concept of auto retailing is changing. Consumers are reaching out to dealers in different ways when it comes to the vehicle buying process. More and more deals are beginning online, requiring stores to place more and more emphasis on their digital business, attracting leads and then bringing them in. Once they’re inside the dealership, the way in which the sales process is conducted is also changing and that extends to the business office. Extended warranties, paint protection, insurance and credit protection are still staples and a major driver in dealer profit, yet the way in which they are marketed and provided is having an impact on business. Additionally, products that were strictly once the domain of the F&I department are reaching other aspects of the dealership as both the needs of the market and individuals change. For dealers that represents both opportunities and challenges.
“Dealers are seeing significant value in finding gross profit and customer retention in these kind of programs.”
– Blair Jones, president, Pro-Tech Seal Inc.
AUTO DEALERS MOVING INTO TIRES?
One trend, that seems to be happening in the F&I sphere, is the proliferation in wheel and tire protection programs. Blair Jones, president of Edmonton, Alta. based Pro-Tech Seal Manufacturing Inc., says a lot of his dealer customers, are turning to lot-wide membership and rewards programs featuring tire and rim protection (like Pro-Tech Seal’s SecureRide Tire and Rim Road Hazard Coverage) to drive profitability. “Dealers are seeing significant value in finding both gross profit and customer retention in these kinds of programs,” he says.
According to Jones, based on Pro-Seal’s own data analysis, one out of every ten people now put in claims for tire damage and one out of six for wheels on the SecureRide program. Armed with such feedback, it’s easy to see why savvy dealers have been putting such programs in place for every vehicle that’s on their lot.
“The spin-off benefits from such a program can be astounding,” says Jones, “especially when you factor in that up to 10 per cent of your customers will be back in your service department for wheel and tire service.” Further sweetening the pot, is the fact that the average front-end profit per vehicle is around $200 and tire and rim damage generates an R/O of around $450. Therefore, it’s easy to see why such programs are proving attractive.
Furthermore, alongside rim and wheel protection programs, dealers who offer them have also seen a boost in tire and wheel sales through the store, adding a further revenue stream, perhaps one they might not have previously considered. “Many of our clients find themselves back in the tire and wheel repair business,” says Jones, “thanks to the level of customer retention these warranty programs are able to generate.”
As a result programs such as Pro-Tech Seal’s SecureRide Tire and Rim Road Hazard Coverage, are not only able to provide an additional profit and retention opportunity for dealer service departments, they also provide another tool in their arsenal with which to compete against independent garages and tire shops.
Jones says that for dealers who are struggling with service retention and looking to sustain long term business from their customers, taking a long hard look at implementing a lot-wide tire and rim warranty program through the business office is worthy of consideration. “It might just make the difference you need,” says Jones.
“Greater competition among lenders, whether banks or captive finance arms also puts F& managers in a position of strength.”
– Claude Moureaux, strategic advisor, Desjardins Group
LONGER TERMS, GOING MOBILE
Another change on the financing side has been the growth in non-traditional lending, when it comes to vehicle contracts. Claude Moureaux, strategic advisor with Desjardins Group, says that more and more dealer customers are being qualified for alternative financing. “It’s a whole segment that’s been growing,” he says. As a result, Moureaux believes that for lenders to provide solutions for these customers, that often means spreading out the loan term, so payments are reasonable. However, because many of these customers have negative equity, lenders need to ensure they can effectively manage the risk. “It’s creating a whole new way of doing business,” he says. “You still want the deal to go through the F&I department but you need to ensure that you’re willing to manage [that risk].”
He also says that the emphasis in the business office has shifted from short-term strategies, designed to maximize up-front profit (usually by placing products directly in front of the customer) and more toward a long-term focus, where the real value is seen as loyalty.
“There are a new breed of F&I managers, who are proving very strategic in the way they work,” says Moureaux. “They are focusing on higher yield products to keep customers coming back, which often involves cross-selling or bundling products together.”
Desjardins has responded to this strategy by offering bundled packages, such as combining auto loans with life insurance and roadside protection. “For the same rate of the loan, F&I managers can earn more per customer,” says Moureaux. And yet, from the customer standpoint, bundled packages are seen as adding more value, since the actual monthly payments tend to be lower.
Yet another trend, is the speed at which financing can now be approved and also the service customers expect. “Today, many consumers have high expectations,” says Moureaux. “Approvals can literally take seconds but at the same time it is important for F&I managers to be able to clarify exactly what their customers need, that’s where the service comes in.” The growth in online and mobile technology is also making significant changes in the way F&I business is conducted, says Moureaux. “Early adopters will work with web strategies to obtain qualified customers through omni and web channels, so F&I will become more integrated with the overall sales process and customers will be able to be pre-approved for financing or insurance through a website. For a lender like us, it’s important to be at or above the benchmark on both aspects; it’s a competitive market out there and you want to make sure you stand out in terms of being able to deliver both timeliness and quality to the dealers and their customers.”
Speaking of competition, the growth in electronic portals, (such as Dealertrack) fighting for a share of the F&I business has mushroomed in recent years, which presents new and different opportunities for F&I managers. “To capture the attention of F&I departments, these programs are becoming more and more generous in terms of the rates they’re offering,” says Moureaux.
“Greater competition among lenders whether they be banks or captive finance arms, also puts F&I managers in a position of strength, since they’re able to pick and choose which program suits them best and are having to rely less on
heavy incentives.”
Another trend which is being seen as positive and likely to lessen the need for heavy incentives to move metal off dealers’ lots, is the return of short-term leasing, which has largely been absent from the market since the Great Recession of 2008-9, especially for high-volume vehicle brands. Moureaux says that the return of short-term leases will spur the used-vehicle market, increasing the supply of quality pre-owned cars and trucks. For dealers, this will represent another profitable avenue, since traditionally, used cars can prove a good source of revenue, particularly through F&I, not only via financing itself but also programs such as tire and rim protection and extended warranties. “F&I managers are going to have to be ready for astute buyers in the used market,” says Moureaux, “since they often have a different set of priorities than those that buy new.” That said, it really is good for new car dealers to be able to provide quality service for used customers and growth (or perhaps re-growth) in that market will be a positive development for the industry in the coming years.
