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Pay-Plan Breakdown

May 2009, F&I and Showroom - Feature

by Joe Bartolone - Also by this author

How F&I managers are compensated has been an ongoing debate. Dealers often view a pay plan as a reflection of the goals they want to achieve. F&I managers, however, argue that sometimes these goals can lead a dealership down the road of noncompliance. Regardless of who’s right, a pay plan is an F&I manager’s job description.

As a compliance auditor and consultant, my expertise is not in designing pay plans. However, by following an audit I can usually tell if a dealership has a well-balanced pay plan or whether the pay plan is driving undesired behaviors and results. That’s why it’s important that dealers review the performance objectives of a F&I pay plan to determine if they’re achieving the profit, administrative, compliance and behavior goals for which they hope. Now let’s take a look at eight commonly used pay-plan objectives to see how they impact performance.

Objective 1: High CSI Ratings

F&I Manager’s Interpretation: I need to get the customer through the F&I process as quickly as possible.

Auditor’s Take: Unless a customer has been stuck in a marathon close in the sales department, he or she is usually open to a professional presentation in the F&I department. They appreciate your attention to detail and when you review the terms they agreed to in sales. They like it when you take the time to understand their needs and offer products that satisfy those needs. They also take note when you offer to assist them after the delivery.

Compliance Alerts:

• A high percentage of recontracting, which is commonly referred to as yo-yo transactions.

• No initials at the top of the menu indicating agreed-to terms and disclosure of the base payment.

• Based on the time stamp, short interval between first and final menu.

• No acknowledgement page on menu to confirm accepted and declined products.

• Near-term payoffs and product cancellations.

• Low customer satisfaction index (CSI) scores.

Objective 2: High Product Penetration

F&I Manager’s Interpretation: No matter what, every customer is going to buy something.

Auditor’s Take: Some pay plans set a baseline for product penetration and pay a bonus if the product penetration exceeds a higher level. An example would be requiring an average of one product per retail deal, with a bonus paid if the average is 1.4 products per retail.

Compliance Alerts:

• Product Bundling: This occurs when two or more products are sold and disclosed as one product on the buyer’s order, retail installment sales contract (RISC) and product enrollment form (typically service and maintenance). The customer does not see the products separated during the deal recap. This is typically done by reducing the price of the product that was disclosed, and allocating a sum of money to a second or third product.

• Product Stuffing: This practice is different from bundling in that the allocation to pay for the undisclosed product comes from gross, not from a second product.

• Trading Rate for Product: Lowering a customer’s agreed-to annual percentage rate to facilitate a product sale can be viewed as a deceptive practice in the eyes of attorneys general.

• Payment Packing: This occurs when undisclosed and uninvited F&I products are added to payment quotes in the sales department. It is inappropriate to quote payments on a short undisclosed term in sales, then rolling the payment out in F&I to include products while the payments remain the same. It is also inappropriate to quote payments in sales using an artificially high and undisclosed interest rate, and then lowering the rate in F&I to include products while keeping the payments the same. Typical signs of payment packing are higher product penetration than market averages, unfiled menus, or poorly executed menus.

Objective 3: Mixed Product Penetration

F&I Manager’s Interpretation: Sell products in packages regardless of the customer’s needs.

Auditor’s Take: Some F&I managers will sell product packages instead of individual products by offering a discount, but only if the customer buys the package.

Compliance Alerts:

• Recap sheets will show unusually low profit margins on one or more products.

• GAP sold to customers with a loan-to-value ratio of less than 70 percent.

• A clear sign of this type of pay plan are higher product penetrations than market averages.

Objective 4: High Profit Per Vehicle Average

F&I Manager’s Interpretation: Sell at whatever price the market will bear.

Auditor’s Take: Most play plans are based on one simple concept — the more profit the manager generates per deal provides for a higher percentage of the profit. While profit is not a bad thing, it may lead to undesired results.

Compliance Alerts:

• Price gouging.

• Excessive Finance Reserve: Although only regulated in two states, most finance sources have capped finance reserve at 250 to 300 basis points, but finance reserve should still be monitored.


  1. 1. Dave Radford [ May 26, 2009 @ 01:13PM ]

    Really great article. Thanks for the information.


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