Product Providers Talk F&I Production, What’s Driving It, and How Digital May Impact It
Like most discussions about the current state of the F&I industry, Industry Summit’s “From the Boardroom” panel session kicked off with the usual talk about F&I production and what’s driving it. But as the clock ticked on and the 50-minute conversation progressed, panelists shifted away from the present and peered toward the future.
Held inside the Paris Las Vegas in late August, the panel featured Tim Blochowiak, vice president of dealer sales for Protective Asset Protection; Greg Oltman, director of business development for Dent Zone Companies; David Pryor, CMO for Safe-Guard Products International; and Matt Trudeau, director of national sales for Dent Wizard. Managing the flow was F&I and Showroom’s Gregory Arroyo, who kicked things off with a simple question about F&I profit per vehicle retailed (PVR).
“My impression has always been that the national average is between $600 and $900 per copy,” Arroyo said to tee up his question. “But then I start to question myself, because I talk to a lot of F&I guys who have these crazy-high per-copy averages. I don’t know if they’re counting cars sold on Tuesdays and purple cars sold on Thursdays, but where do you guys think the national average sits?”
Seated closest to the dais, Blochowiak reluctantly went first. “I purposely didn’t want to sit here, because by the time we get down to Matt, the Dent Wizard stores will be doing $3,000 per copy, right?” he joked. “What we are typically seeing right now is anywhere between $1,200 and $1,400. AutoNation and Group 1 are typically the bell cow, and they seem to be driving the pack.”
Dent Zone’s Oltman put the average at between $1,150 and $1,200, but not quite at $1,400. Pryor agreed, noting that AutoNation is a Safe-Guard client. “We do see a lot of what AutoNation does,” he said. “They have a very strong process, and that’s what’s driving those numbers.”
Arroyo also asked whether PVR remained the best measure of F&I performance. Oltman said it was and would remain so for the foreseeable future. Blochowiak agreed, but said he has noticed dealers breaking out averages for finance, lease and cash. “As leasing continues to grow, I think monitoring the per-lease number makes a lot of sense, and the strong F&I managers are the ones who can sell consumers who are paying cash,” he said. “So it provides a better snapshot of reality breaking those three out, and, certainly, product penetrations are important as well.
Pryor agreed, but said the attention rate reserve has received in recent years from regulators like the Consumer Financial Protection Bureau has made the product index a critical measure. “Dealers are being more proactive and starting to look at, ‘OK, how do we drive more product sales to prepare for that day when we are going to have less rate reserve in the future?’” he said. “So we’re seeing a move toward a target of, say, a 2.0 product index. That seems to be what we’re hearing out there.”
The group also offered their take on penetration rate targets. For paintless dent removal (PDR), Trudeau said F&I departments with a solid process and that are consistent in their offerings are recording acceptance rates in the upper 20% range for new, and 6% to 7% for used. Oltman added that most ancillary products penetrate at a 20% clip. As for service contracts, the former director of finance operations for the Van Tuyl Group put the target acceptance rate at 50%.
As for tire-and-wheel protection, Pryor said the shift toward leasing in recent years has made the product a go-to substitute on 36-month leases. In a highline store, he added, penetration rates for the product can be as high as 40%.
Pryor also noted that leasing has made product bundles another go-to offering. “We’re seeing a lot of dealers now selling paintless dent repair, windshield protection and other ancillaries as part of a bundle,” he said. “They’re benefiting from each other. It’s helping to drive their product index; it’s helping to drive penetrations across the board.”
Blochowiak agreed. “For the F&I manager, it became a lot easier and more efficient to sell the bundle as opposed to trying to sell five one at a time,” he said. “So if [F&I managers] put three or four in a bundle at the right price point, it makes a payment palatable to the consumer. But it’s the ease of use for the F&I manager, I think, that has made the biggest impact.”
From a risk standpoint, Pryor said products included in a bundle tend to perform better than those sold separately. That allows providers to add a little more discount on the products, which makes bundles an easier sell in the F&I office. Oltman noted that he’s seen bundles climbing into that third spot behind service contracts and GAP in many stores, but he offered a word of advice to dealers looking to cash in.
“It’s more bang for the buck for the customer, right? I mean, it’s features and benefits,” he said. “But you have to have a pay plan adjustment, too, before you run out there and sign your dealerships up.”
The Digital Divide
Arroyo steered the panel toward the digital retailing push for the second half of the discussion, kicking things off by relaying what he heard from an industry veteran at F&I and Showroom’s F&I Think Tank event this past May. She said she didn’t believe much about vehicle sales or finance had changed over the course of her 35-year career, noting that “people want to drive it. They want to smell it. They want a deal that they need to be sold on.”
Pryor disagreed with that take. “I think a lot has changed at the consumer level,” he said. “The way that consumers are buying cars today, they’re spending all their time online, they’re doing their research or looking at social media. They’re looking at reviews of the dealer. They’re kind of doing everything before they walk in the door. And I think that is a piece that has changed, and I think [the F&I industry] hasn’t necessarily kept up with that.”
Social media, Pryor added, represents the biggest opportunity for the F&I industry to engage consumers online. The challenge is getting vehicle owners to share their positive experiences with F&I products. Oltman agreed, but said pay plans also need to be updated to address the online F&I push.
“When we get to that stage — and I’m going to go back to pay plans again — you have to make sure that finance wants to get involved,” Oltman said. “You’re changing their world. They’re used to the customer coming to the dealership, but now they’re buying cars online.”
Arroyo pressed the panel further, asking the four product provider representatives if they were at all concerned about online pricing transparency having a negative impact on F&I product sales. They weren’t.
“What it very well could do is create an MSRP-type pricing for our products,” Blochowiak said. “Or it could create a per-month pricing for the products online. So if you’re advertising a certain car for $399 a month for 60 months and here’s your disclaimers, well, you could tack on a service contract for $27 a month or something like that. I think that’s understandable to the consumer, and something they will gravitate toward.”
Oltman didn’t disagree, but said dealers first need to standardize product pricing before taking that digital step.
“If you’re going to price online, everybody in the dealership needs to know that price,” Oltman said. “And if you’re going to price online, it almost has to be a business plan. I mean, everybody has to know that price and you can’t have different employees talking different prices. So, once again, it’s training and education if you go that route, because there’s a whole lot more than just transparency involved.”
As for the technology solution they believe could bridge the digital divide, Blochowiak, Oltman and Pryor pointed to MakeMyDeal.
“I’ll plug MakeMyDeal,” Blochowiak said. “I had an opportunity to sit through one of their demonstrations and it’s nice, because it allows the dealer to interact with a consumer how they want to be interacted with. They can go all the way through to the car sale, all the way through F&I, or they can stop along the way and just use it as a tool to shop.”
Oltman, however, had a message for software makers: “You’ve got to know what the general manager’s business plan is, what they’re marketing online, what they can stomach and what they can’t. Once you know that, then you become a partner with them and then it’s about the people in the store. Because ultimately, they’re the ones who are going to make it happen.”
Trudeau agreed with most points made about the online F&I push, including posting pricing online. But when the discussion turned to consumers being able to complete transactions online, the salesman in him couldn’t be contained.
“I think that the digital world and these things that are coming out are fantastic,” Trudeau said. “But at the end of the day, nothing is going to replace a good F&I person engaged with a customer. And I believe that wholeheartedly. It’s old school. It’s a salesman sitting down and selling the customer. Good people and good process is what’s going to deliver those goals.”
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