February 2009 - Feature
F&I Experts Discuss F&I Basics: The Art of the Deal
By Glenn Roberts
Given our current economic conditions, almost every dealership
is looking for ways to increase profit. With F&I’s outsized contribution to
dealership profit (46.8 percent of overall dealership profit, according to CNW Market Research), it is natural for dealers to look to
F&I to offset declines in other areas of the dealership. However, changes
in our banking system are making that a difficult task.
I recently received an unsolicited letter from my mortgage
company, which I think really sums up the current lending environment. It read:
• There are no more zero-down payment loans, except for Veterans
Administration loans.
• The minimum down payment will be 3.5 percent on Federal Housing
Administration loans.
• A minimum credit score of 720 is required for the best rate.
• A credit score below 620 will make it very difficult to get
financing.
• Loans for investment properties require a 20 percent minimum
down payment.
• A 25 percent down payment and a credit score of over 700 are
required for loans where income and assets are not verified.
Basically, my mortgage company was putting me on notice. It was
telling me I better get my affairs in order if I wanted to borrow money. They
also wanted me to know the party’s over.
So what does this mean for car dealers and for F&I? It means
we are back to traditional lending — the kind we had more than 20 years ago.
It’s the kind of lending where banks vigorously underwrite the loans and expect
all of the information on the credit application to be true.
It means the “Art of the Deal” is back. With fewer customers
coming through the door and stricter lending, your ability to sell cars is
going to depend on how good your dealership is at structuring deals. Deal
structure is going to dictate your ability to hold front-end gross, as well as
your ability to sell F&I — even if the deal gets turned down.