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December 2009, F&I and Showroom - Feature

by Justina Ly

Although the appetite among lenders for F&I products remains unchanged, there are products that are showing potential for good things when it does. Some of these products are relatively new to the market; others have been repackaged to include other products.

Anthony Gladney, finance director for a Ford outlet in Orland Park, Ill., knows a thing or two about how important his F&I income is to the dealership’s bottom line. His finance office accounts for 40 to 45 percent of his dealership’s total profit. And while a majority of his monthly F&I income comes from traditional F&I products, such as finance reserve, GAP and extended service plans, nearly 15 to 20 percent comes from ancillary products such as tire-and-wheel, dent-and-ding and key replacement programs.

“Without them you’re talking about a 20 percent decrease in profits, so it’s definitely worthwhile to have them,” said the 12-year F&I veteran, who’s been selling these products since 2000.

During the industry-wide decline in sales and front-end profits, F&I profits have never been more crucial. And while the usual suspects — finance reserve, GAP and extended service contract — are still products lenders are willing to fund, some dealers report that ancillary products, such as tire-and wheel protection, windshield replacement and key replacement, are resonating with consumers.

Providers say these products are especially good for customers who have limited budgets, but want to protect and maintain their vehicles. Because they produce lower grosses, providers say these product categories should be viewed as high-volume products that can add additional profit per deal.

This was evident in a study F&I magazine conducted in January, during the toughest quarter for auto financing in 2009. Fifty-seven percent of dealers reported success with selling tire-and-wheel protection products, while 50 percent reported success with appearance protection products. Dealers also reported in the study that 42 percent of lenders advanced on tire-and-wheel, while 19.8 percent advanced on appearance protection.

“In order for dealers to maintain and expand their profit levels in F&I, they’re going to have to learn to sell more products,” said David Duncan, a senior executive at Safe-Guard Products International. “The consumers today demand value. They don’t get any value out of two points of rate.”

Choosing the Right Ancillary Products

Bryan Kasper, vice president and general manager of the Ohio-based Kasper Auto Group, realized early on that cost played a major role in his customers’ acceptance of these new-wave products. Since March, his dealership has offered theft, environmental protection and combo appearance production products — which include windshield repair and replacement, paintless dent repair and roadside assistance — provided by the Cleveland-based National Automotive Experts (NAE).

“We found that people are not willing to shell out the money for the bigger dollar products, but they are willing to buy some of the lesser dollar products,” he said.

Dealers can find ancillary products from a handful of product providers. But before jumping into the aftermarket pool, experts recommend that retailers examine customer demand and seek out feedback on the products from other dealers. That’s what Gladney did before he brought in the new products.

Gladney called a couple of out-of-state dealerships that sell the products and asked them for input on marketing, selling and claims handling. Hearing positive feedback from those dealers, Gladney decided to give the products a go. But before he did, he made sure the products were fully insured by their providers.

“We at the dealer level don’t want to offer our clients any product that’s not insurable,” he said. “We plan on being here for the long-term and we don’t want to pick up the pieces if a company goes out of business.”

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