The F&I department is a critical profit driver in the dealership. On today’s episode of F&I Today, VP of Ascent Dealer Services, Paul Brown, discusses how to choose the correct products that maximize long-term profits while enhancing customers’ vehicle ownership experience.
The key to driving success is to offer the correct product mix that secures customer satisfaction while maximizing profitability. These products must be relevant to customer needs, and the F&I team must fully understand and believe in the product. If the staff doesn’t believe in the products, they will find it challenging to sell them and performance will ultimately suffer.
The first step in building a strong product portfolio is evaluating service contracts. At the surface, most service contracts are similar, with exclusionary coverage and named components. While these “one-size-fits-all” contracts work for a significant portion of customers, they will not work for all.
"There's no such thing as a bad product for reinsurance; there's just bad reserves."
Brown recommends that dealers offer several types of contracts: primary, secondary and tertiary. Primary service contracts should directly feed the reinsurance portfolio. The secondary and tertiary contracts should be tailored exclusively for:
- High-mileage and older vehicles: Vehicles older than eight years or over 85,000 miles.
- High-end or luxury vehicles: While a dealer may not handle many high-line cars, they’re likely to receive one during the trade-in process.
By offering multiple service contracts, the F&I department can match customers with contracts that best meet their needs, regardless of vehicle age or price. Additionally, it optimizes the reinsurance portfolio without negatively affecting loss ratios, positioning the dealership for long-term profitability and wealth.
Beyond service contracts, there are additional products that make up a strong F&I product portfolio. The ideal product mix includes:
- GAP Insurance
- Bundled products (Dent and ding, tire and wheel, key replacement)
- Chemicals (Interior and exterior protection, windshield protection)
- Factory Warranty Compliance Program
Chemical protection contracts have a high gross profit potential and can easily generate up to $1,000 per contract. In addition, they’re ineligible for a chargeback, so the dealer retains the gross. When choosing a chemical, select one that has effective point-of-sale displays to engage customers, swift application and a warranty.
A critical aspect of the portfolio mix to evaluate is GAP insurance. GAP is one of the most commonly charged-back contracts when a customer experiences a total loss or theft. Several contract providers offer GAP contracts with no chargeback. Brown highly recommends that dealers connect with their agency to discuss available options.
When choosing products, it’s essential to consider how the products complement the dealership’s reinsurance portfolio. Avoid choosing products that will negatively impact reinsurance. The proper selection will support long-term wealth building.
Even if a dealer has an optimal product mix, the success will always fall to the finance staff. Firstly, the finance staff must become experts on the products and fully understand their benefits, coverage and exclusions. When staff accurately recommend options to customers, they reduce confusion that can frustrate customers when they discover that the contract they purchased does not cover the vehicle issue they are facing.
Most importantly, the staff must fully embrace and believe in the products that they’re selling. If they don’t, they’re likely to avoid selling the products, resulting in lackluster performance.
Dealers should consistently monitor service contract, GAP and chemical penetration rates and compare them to regional and national averages. Low penetration often stems from the finance staff’s lack of confidence in the products.
The product portfolio is essential for the success of the F&I department. Dealers must ensure that the products not only meet customer needs but also strengthen the company’s reinsurance position. Ultimately, the overall success depends on the finance staff. A knowledgeable and passionate team will enhance customer satisfaction and foster long-term customer loyalty.
