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F&I Best Practices and Performance Metrics

Posted by Mark Mackson on Mar 27, 2017 2:32:24 PM

Introduction

By adhering to a comparatively small number of essential best practices, even good-performing F&I departments can expect to see improvements, and underperforming departments should experience material positive changes in both the top and bottom lines, as well as in customer satisfaction and compliance.IMG_4850.jpg

Best Practices

Best practices not only should lead to growth in sales of the most profitable products, they also should enhance customer satisfaction and contribute to legal compliance.  F&I experts don’t always agree about specific best practices, but a review of the literature of F&I best practices—including articles written by, and interviews with, high-performing F&I managers; interviews with executives of supporting organizations; and surveys of F&I departments—reveals a number of practices that most concur are essential for top performance. 

  1. Use Menus

Menus assure that every customer is presented every product in a consistent manner in the shortest period of time.  A menu not only helps customers make informed decisions about a dealership’s products and services, it also makes it easier to monitor and track an F&I manager’s performance, and it is an important compliance tool.

  1. Use Evidence Manuals, Visual Aids and Other Sales Tools to Help Explain the Value of Products

 Research reports, statistics, customer testimonials and other forms of independent confirmation of the benefits of various F&I products can be powerful sales tools. 

  1. Use Checklists 

A single deal can involve a number of processes and can result in an enormous amount of paperwork.  A checklist helps to ensure standardization and compliance.  The F&I checklist should be completed by both the F&I manager and the billing clerk, and is an integral element of the F&I overall review.  

  1. Conduct Regular Training 

Most dealerships recognize the need for more F&I training—about sixty percent of respondents to an informal online Automotive News survey questions last year said they have increased F&I training during the past five years—but many experts agree that more can be done to develop and implement effective training programs.  F&I departments should take advantage of training offered by lenders and F&I product vendors. 

  1. Focus on Customer Satisfaction 

NADA’s most recent State of the Industry Report concludes “A greater emphasis on customer understanding and satisfaction in F&I yielded better business performance in 2011.”  F&I experts agree that key elements of customer satisfaction include:  (1) customers thoroughly understand the value of the F&I products they are offered; and (2) the sense that they are being dealt with openly and honestly.  Customers need to feel that they are being presented with options rather than being “sold.”  

  1. Leverage Technology 

Many F&I experts concur that effective use of technology is essential just to keep even with the competition, and the best performing F&I departments will be those that excel in using technology to facilitate transactions and to deliver value to the customer.  Additionally, a growing number of customers are “digital learners,” and are most comfortable with information presented on a computer screen.  F&I departments should be prepared to accommodate this increasingly common learning style. 

  1. Maintain a Relentless Focus on Compliance 

The complexity of all the various state and federal regulations, taken in their entirety, can be overwhelming.  Despite the challenges, compliance should permeate every aspect of the F&I process, especially since penalties for noncompliance can be catastrophic. 

  1. Review the F&I Department Regularly 

Reviewing assures that customers receive what they agreed to, provides input into performance measurement, and is essential for ensuring that transactions are compliant with all relevant rules and regulations.  Some experts recommend a multi-tier audit process:  A daily review by the billing clerk; a monthly, more detailed review by the office manager; and a quarterly review by an outside set of eyes, such as the dealer’s attorney or accountant, or a compliance expert. 

  1. Performance Metrics 

Most F&I departments strive to improve performance, but what does being a top performer actually mean to the top line?  A dealer with average sales but with a superior F&I department can bring in nearly half a million dollars in profit per year as compared to a comparable dealership with an average F&I department.  Dealerships with above average sales can produce a great deal more F&I profit.

Viewed at the individual product level, the penetration rate for GAP is about 37 percent, according to F&I and Showroom magazine’s benchmarking study (2010), but data compiled by Zurich in North America (“Zurich”) show that the very best F&I departments have GAP penetration rates in excess of 50 percent.  Service contracts average about 38 percent for all dealers, according to NADA data, but elite F&I departments have a penetration rate of 54 percent, according to Zurich.  Zurich data also shows that the very best F&I departments generate more income from service contracts and GAP, and far less from finance as compared to average F&I departments. 

  1. Benchmarking Performance 

Benchmarking is not a new concept for F&I departments, but it is an important practice for any department seeking to improve performance.  Benchmark data such as the Zurich Elite Performance Account Benchmarks provide an objective basis for active oversight and assessment of performance, and are an important tool for maintaining focus on continuous improvement and growth. 

 

Conclusion 

Improving F&I performance across all measures—penetration, profit, customer satisfaction and compliance—is critical for many dealers.  By focusing on a handful of best practices, most dealers are likely to see a material improvement in the performance of their F&I departments.

 

 

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Topics: Purchasing


Mark Mackson


Mark is the Founder and CEO of Fladco.
He has over 30 years of Financial and
Group Purchasing experience.

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