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Solving the Pay Plan Dilemma

F&I professionals are outpacing the earnings of their colleagues in the sales department and even at the executive management level, and every attempt to relevel the playing field has its pros and cons.

November 2015, F&I and Showroom - Feature

by George Angus - Also by this author

Things are looking pretty good for 2015. After delivering 15.5 million units in 2013, it looks like, at least as of mid-December, we are on target to reach the National Automobile Dealers Association’s sales prediction of 16.4 million units in 2014. As for 2015, the association put sales at 16.94 million units, but there’s talk we could surpass the 17 million-unit mark.

So, yes, the future looks bright. However, as sales continue to increase, gross profit averages on new-vehicle sales continue to tumble. What’s happening is dealers are having to sacrifice new-vehicle gross profits and are increasingly relying on F&I as their primary income source. And this problem is magnified in highly competitive metro areas.

According to Delta Trends, the research and consulting firm that manages the annual NADA Data report on dealership sales and financial trends, gross profit margins fell from 4.2% in 2012 to 3.8% in 2013. At the same time, the percentage F&I contributed to gross profit increased from 36.9% in 2012 to 38.8% in 2013. And that was the fourth yearly increase in a row. As a result, dealers, agents and product providers are dealing with a growing gap in compensation between sales staffs and F&I managers.

Earnings and Retention
According to the 2013 NADA Dealership Workforce Industry Report, the  situation I described has widened the compensation gap between sales and F&I. That year, the national average pay for F&I managers was $128,500, beating sales managers ($122,500) and topping the average pay for sales consultants ($63,800) by more than double.

This gap was even more pronounced when  my firm surveyed a group of what we consider top-performing F&I dealers. Their F&I managers earned an average of $206,600, while average salaries for their sales managers and sales consultants came in at $136,300 and $65,000, respectively. Even general managers in these top-performing F&I dealerships barely averaged more than F&I managers at $228,500. In some cases, they made less.

This widening gap in profit sources is causing morale problems, which is impacting employee retention rates, as reflected in the 2013 study. It showed that of total dealership employees, one out of four new hires leaves within a year, and almost half are gone in three years. Worse yet, six out of 10 sales consultants leave the dealership each year, while 40% of new hires in sales are terminated within 90 days. And of those new hires, 41% belong to Generation Y. That group’s turnover rate in 2012 was an alarming 54%.

Compensation is an emotional issue, and there are strongly divergent views on how this gap should be addressed. Some even question whether it should be addressed at all. Take a look a the following comments we received during our polling:

From a sales consultant: “Listen, I work a phone prospect or Internet lead for days to get them in the door. Then after four or five hours of test drives, switching cars, and negotiating a deal, the customer goes back to the Internet for a better price and my sales manager ends up giving the car away just to move a unit. And for all of that, I get a $100 mini.

“Then, the customer goes into F&I for 30 minutes and they bump the payment it took me an hour to get the customer to agree to and make $1,800 on the back while we make nothing on the front. That’s a deal I produced. If I hadn’t sold the car, they wouldn’t have had a chance to make that profit. I should get some of that money.”

From a sales manager: “I manage a sales staff, control inventory, make sure the cars are ready for sale on the lot, and train and hire new people because I can’t hang on to the good ones because they aren’t making any money. I also take the heat for every customer problem. The F&I manager sits in there all day waiting for a deal we work to put together so he can do his 20 minutes of work. And he gets paid more than me? Something’s not right here.”

From an F&I manager: “F&I is a separate department from sales. I have earned my position in F&I. I deserve what I make. If you think I get paid too much, try to survive without the income F&I brings in. F&I makes more profit than the sales department with a 12- by 15-foot office and a computer.

“Why should I share what I generate with sales? I sold cars for years and I had to live on commission. I still do. If salespeople can’t sell cars and hold decent grosses, then that’s their problem. Taking money from the highest net profit department in the dealership and giving it to people who aren’t generating it makes no sense.”

From a dealer principal: “Certainly, F&I income is important. I can’t be profitable without it. But I can’t keep paying these F&I managers as much as my general manager. And the salespeople are starving. I have to do something to keep my good salespeople.

“My F&I manager is a bit of a prima donna, but my service-contract agent says I would have trouble finding anyone as productive for less money. Plus, my CSI scores are good and the guy is honest and makes me money. But how much of my gross profit can I pay out in commissions? There must be a way to balance our compensation without giving away the dealership.”

Indeed there must be. Let’s take a look at some of the answers we’ve tested.

1. Give Spiffs to the Sales Department
Dealers can incentivize sales cooperation by giving some form of commission based on F&I performance.

Pro: Promotes cooperation between sales and F&I.

Cons: Salespeople may get too involved in selling F&I products and this can lead to pre-exposure and sales resistance during the F&I process. The dealer pays out more compensation if the F&I percentage stays the same.

2. Reduce the F&I Manager’s Pay and Hours
A recent Automotive News article included quotes from a dealer who switched his F&I managers from a purely commission-based pay plan to salary and bonuses. They now make upward of $7,000 a month rather than $12,000. They also get more time off. “What we’re finding out is we don’t have to pay the higher amounts to get the same production,” the dealer said in the article. “And we’ve got happier people because they’re not working 80 hours a week.”

Pros: Better quality of life for F&I managers and less commission paid by the dealer.

Cons: In a word, turnover. “There has been turnover — some finance managers didn’t like the new plan — but that’s not all bad,” the dealer noted in the article. “The turnover has allowed the dealership to promote good performers from the sales floor to finance.” That’s fine, but he may also be losing top F&I performers to competitors who don’t mind paying for their production. And that could result in increased training costs to train new F&I managers.

3. Share a Percentage of Total Gross or Net Profit
Some dealers have converted their pay plans for all staff to a percentage of the combined gross profit from both sales and F&I. That means the salesperson gets a percentage of the total income, as do the sales and F&I managers.

Pros: Promotes teamwork among the sales and F&I staffs and creates a fixed percentage of compensation for the dealer.

Cons: May affect the motivational aspects of an individual performance-based pay plan and reduce the incentive to hold gross profits on the front and profit in F&I. Further, the argument over who should get what percent of the profit still exists.

4. Create a Hybrid Sales/F&I Manager Position
Pros: Salespeople have the chance to make more money and the dealer pays less overall compensation. Additionally, some dealers claim this move has improved their CSI scores.

Cons: Compliance issues, paperwork problems and the inevitable loss of F&I income.

Even more radical changes in the structure of the dealership are being tried. For example, we have been working with several dealers around the country who have eliminated the traditional roles in the way cars are sold. We have also experimented with an approach that eliminates the F&I and sales manager roles and combines the entire process into a joint effort by a “team” that controls the sale from start to finish. This puts much less emphasis on competition between departments and puts the emphasis on total front to rear performance. You are welcome to try it yourself. The flow chart on this page will give you a general idea of how it works.

We are working with several dealers on developing that process and other similar approaches. It should be noted, however, that these systems require a significant commitment from the dealer and senior management. They also require intensive initial training and ongoing support and monitoring to be successful.

Change is inevitable. And with gross profit averages declining on new-vehicle sales, dealers, agents and product providers must address the growing gap in compensation between sales and finance staffs. And whatever change dealers make to address this issue, they must be sure it can respond to a constantly changing market. They must also realize that whatever approach they take will influence their ability to maintain a quality staff and recruit the next generation of automotive professionals.

George Angus is with Team One Research and Training, a company that specializes in scientific, research-based program development and training programs. He can be reached at


  1. 1. guy [ January 24, 2015 @ 08:04AM ]

    We are in a performance based industry. Adjusting pay plans because that person is a high performer and makes a lot of $ is just dumb. You will lose your best people and be wondering what happen?

  2. 2. Jim Dirks [ January 26, 2015 @ 10:33AM ]

    To be honest, this is a two-edged sword for the DP. Tough to reconcile. As a FIM/Director, I dont want to see me or my team looking at a pay cut, unless there will be a comparable reduction in hours. That in my experience, is the primary hurdle in keeping good F&I producers, is the issue of hours and lost family time more than compensation. Many, not all of course but many, producers I know, would take a 20% reduction in compensation for payment to deserving others IF it were accompanied by a 20% reduction in hours. (I said not all, so if you are one of the 'not all', no need to dispute.)

  3. 3. A 30 year General Manager [ February 02, 2015 @ 10:52AM ]

    I'm exhausted just reading this article. Let me ask the Dealer Principles a question. Would you even begin to work for the compensation plans that you have set forth in your Dealerships? No Really? Would You? Bottom Line is everyone has seem to become a consultant on how to cut payroll to get the DP bigger profits. It all starts and ends at the top. How hard are you working? I know it is tough. The corporate has put unrealistic mandates on your bottom line. You have government regulations breathing down your neck for new environmental paint booths. Service techs need to be gone for more schooling. Every time you turn around there is another test to be taken. CSI is key to everything. If your not in the Certified business your out of compliance. Sell more warranties then the factory gives away maintenance contracts and the list goes on and on and on. Then you tell your managers, sell, sell, sell. Great job, I couldn't do it without you guys. Oh by the way, I have changed your pay and the percentages on your pay plan. You will be able to make more money at this new rate. REALLY, REALLY. Looks like all we need to do is sell 150 units a month and everyone will be happy. Let's face it. The last time we sold 150 units is when Oldsmobile made us take 100 units then closed the doors but promised every salesperson a $400 check to their mailbox. The Manger got $100. The Customer received FREE service contracts, maintenance agreements and 0% financing. Do you remember what the Finance guy got? I didn't think so. They just got to deliver paper, that destroyed %'s that they may have had on any other vehicles for the month. Oh by the way. Do you remember that Chevrolet asked Oldsmobile to stop paying the sales people under the table. That's right. Imagine that. Sales people took every customer they had to an Oldsmobile ( and sold them.) Do I sound upset. Yes I am. Remember any organization is never stronger than the weakest link. U R WEAK!

  4. 4. tony [ February 03, 2015 @ 08:05AM ]

    So let's think about income distribution. You pay the sales person on the backend for doing nothing, and the finance manager has to give up a percentage of his CHARGEBACKABLE income . OH great, that sounds like a perfect idea. Are you going to chargeback the salesperson when the customer pays the loan off early, or just the finance person.
    Some things in this business require to be left alone !!!

  5. 5. F&I Director [ February 04, 2015 @ 10:24PM ]

    I have been an F&I director for 10+ years. Every store that I have worked for has rolled 300+ cars over the curb every month. Not pounding on my chest but more eluding to the fact that we have moved some metal. With that said, the reality of this business is that sales people are becoming lazy. I have seen the old dogs retire and the new young bucks come storming in. With the new vibrant presence of young talent comes the lackadaisical approach to anything and everything. There is no more, "the buck stops here". Everyone is more concerned with passing the "buck". Yes CSI is everything but we all know that most - if not all - dealerships know their way around a bad survey. What I have done to combat the laziness is pay our sales staff on the back-end. I pay my sales staff 10% on total gross profit of their deal. From this we have since seen an increase in overall service contract penetration. Our maintenance contracts have gone through the roof. Our CSI scores have also rose to near perfect scores. The reason being, our sales staff is now interested in showing the customer the entire dealership. We mandate that every customer receives a FULL tour of our facility. The customer now knows where his or her car is going to be repaired when it DOES break down. The customer now knows where to purchase a ACM for their vehicle and the dreaded cost of that ACM. The customers also appreciate the effort and close attention to detail. This also kills the waiting time for F&I. Paying the sales staff has increased the customers awareness and need for every product sold in the F&I office. And yes the salesmen gets the same charge-back as the F&I manager. Where dealerships fall short with this method is, letting the sales staff stay lazy.

  6. 6. Mr Dixon [ February 05, 2015 @ 01:32PM ]

    These are all very interesting on different levels. Sounds like a very diverse group of employees. The bottom line is hard work and proper training lead to greater profits. Each dealership has a different pay plan. The expenses on dealerships have risen to enormous proportion over the last 15 years. Everyone from the clean up department to the principle has had to take a new approach to customer satisfaction. Let's face it. The number one goal is the sale, be it brakes, air filter or a vehicle. Nobody get's paid until something is sold. When value exceeds the price by one cent, you will have a sale. When I hear one of our employees tell a customer NO on a $40,000.00 purchase I wonder how they feel? The customers have figured out that the cars are shipped to us free and we get to keep 100% of the purchase price. haha! I love the pay the sales staff on F&I. I do not believe in charge backs after 120 days (cramming comes clean before that) or charge backs on trades on repeat customers. It makes no sense for the F&I to sell products on the new sale just to cover the charge backs from the previous deal. The dealer has to take the hit. Sales Managers, PLEASE make sure the buyers orders and all compliance is done before the customer is ever dropped in the business office. Truly a time buzz kill. As time ticks on the value depletes. It is no secret that the business office or finance department is the profit on a sale now days. You get what you pay for. If you're not, than you get what you tolerate. If you pay low percentages you have inexperience or will be looking for a new finance person soon. That cost tons of profit. Just pay them. Send everyone to training annually. Even the receptionist. She/he may be the most important.

  7. 7. Steve B [ February 13, 2015 @ 06:13PM ]


  8. 8. Sue B [ December 31, 2015 @ 10:48AM ]

    The dealer group I work for has always paid the sales staff on the "back end"; 10% and believe me when I tell you my dealer principal is not starving. The average tenure for sales and finance staff is 10 years plus. There is a reason for that. When you pay people what they are worth and absorb the bottom line hit when it comes, you have happy employees. Our repeat and referral business is through the ceiling, group wide. Customers like seeing the same sales people, service writers, etc and we mitigate the loss in customer base when a good sales person moves to another store and takes his or her customer base with them. Bottom line is it is a win for the staff and a win for the dealer. The new trend in consultants finding ways to strip money from dealership staff, convincing dealer principals that it is worth it, is only working for the consultants.

  9. 9. Kevin [ January 04, 2016 @ 08:28AM ]


  10. 10. Kevin [ January 04, 2016 @ 08:29AM ]



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