Jan Kelly: F&I can be 'most profitable square footage' at dealership

Publish Date: 
Feb 16, 2013
By Arlo Redwine

DEALER EXPO, Indianapolis, Ind. - Some dealers have F&I departments that on average contribute up to $1,400 in profit per retail unit, said F&I expert Jan Kelly during her seminar, “F&I: The Most Profitable Square Footage in Your Dealership.”

She gave several suggestions on how dealers can create such a lucrative department, along with warnings about how not to lose those profits by being caught in the costly web of government regulations.

First, hire a finance manager. Kelly suggested that dealers hire a dedicated F&I manager paid by commission. “If you give them a salary, are they motivated to sell? No. They’re a secretary, and they’re just pushing paper. They get so tied up with the DMV and the title work — the mechanics of it — that they forget the mission, which is to sell. F&I is a selling position.”

When recruiting a finance manager, dealers should search for a detail-oriented person with a good memory, who is comfortable with computers and both written and verbal communication. Managers also must have integrity. “That means they don’t misrepresent anybody or anything,” Kelly said.

F&I outsourcing has its place, Kelly said, but dealers should try to avoid it. “Yes, outsourcers can save you an employee,” she admitted. “Yes, they can help you when you have no dedicated presentation person, but you lose control of the deal. You lose control of the profits because you’re going to have to pay them so much money, plus a percentage of everything they earn.”

Kelly said dealers with an in-house finance department also forge stronger relationships with their lenders and customers, who are more inclined to return for their next motorcycle. Service contracts and prepaid maintenance also help retain customers.

Besides, dealers who outsource are still responsible for finalizing the finance packet. “When you outsource a contract, the dealership is liable for that contract,” Kelly said. “If there is a misrepresentation of the consumer, of the down payment, or of the unit, the dealership is liable. The outsourcing company is not.”

The F&I office should be close to the sales department and contain a desk, three chairs, a computer, a laser printer, a dot matrix printer, a scanner/copier/fax machine and a dedicated telephone. The office also should have a door that closes. “You’re going to be talking about personal things,” Kelly said. “People have to be kept in a face-saving environment.”

About 50 percent of dealership customers now have credit scores in the 500s, Kelly claimed. “But it doesn’t mean they’re not worthy of a loan,” she added. “It means you’ve got to do a credit interview. You need to get a story and prove it. You need to get your facts before you send it to a lender.”

Because so many people have bad credit, dealers must shop around for both subprime lenders and credit unions, Kelly said. “Community credit unions — that’s going to save you. That’s going to be the magic bullet that’s going to make this year a great year,” she said, suggesting that dealers start with CUDL members. “Community credit unions are buying deals that nobody else will touch with a 10-foot pole.”

Kelly implored dealers to keep track of which lenders are financing their customers, and form working relationships with the top ones, inviting them to lunch, and to their dealerships, so they “get to know you, like you and trust you, because that’s what the foundation of a good lending relationship is.”

Get licensed to sell insurance. Income streams from the F&I department, Kelly noted, come from the following:

  • Finance reserve (which Kelly calls “funny money” because 85 percent of existing loans do not go full term, leading to chargebacks to the dealer)
  • Mechanical protection (service contracts, prepaid maintenance, tire-and-rim insurance, and protective coatings on paint and leather)
  • Roadside assistance
  • Security products (micro dots, starter interrupters, tracking systems)
  • Equity protection (GAP, credit life, disability, property and casualty insurance)

Kelly called physical damage insurance “an income center that is grossly underlooked.” Dealership staff should become licensed in their states to sell insurance, she said. This way they receive commissions (instead of smaller finder’s fees) and are rewarded for renewals. “If you give insurance quotes, about half those people will get your industry-specific insurance,” she said.

During the sales process customers should meet with the finance manager twice, Kelly said. The first time is when they commit to buy, giving the manager time to quote insurance rates, sell F&I products and do a credit interview. Then, while the manager is finalizing paperwork, the sales department can take customers on a “Gear Walk,” giving them a chance to add high-margin products to the selling price. Customers also can meet the service department. Then back to F&I for the final delivery. (Continued.)