As dealership operations continue to change over the years, there is always speculation about how the F&I office will adapt and evolve. Every new piece of technology and government regulation leads some to predict the end of F&I as it’s known today — instead leaving these responsibilities to an automated system or a salesperson.

But industry insiders have reached a general consensus that the more things change, the more they stay the same. The F&I department will simply adapt to new laws and incorporate new software and computer systems while still providing the same functions it has for more than 40 years.

Greater Regulations Can Equal Greater Sales

The increased regulatory focus facing the industry does not have to be a death sentence for F&I profits. In fact, following the new laws and guidelines could help dealers increase sales.

Jim McDavid, vice president of North American sales for JM&A, says using a menu-selling process that provides full disclosure to every customer will actually allow dealers to sell more products.

"Full disclosure leads to satisfied customers who buy based on the value of the products being offered to them," McDavid explains. "In general, happy customers result in customers buying more."

The value of the products being offered is independent of the regulatory environment dealers are facing, minimizing the negative impact of compliance requirements, says David Cole, chairman, president and CEO of Aon Warranty Group.

"Without a strong regulatory compliance environment, I think it potentially allows for salespeople to become lazy,” Cole says. “They may not take the time to understand and learn the benefits of their products and the added value for the consumer."

Most dealers also see the benefit in working with customers who are better informed and more interested in making educated decisions. A customer who recognizes that a specific product fits his personal need is more likely to have a positive buying experience and become a repeat customer.

"We’ve always felt that from a company standpoint, greater regulatory control is good for us because we’ve always operated under a full disclosure and added-value, benefit-building process," Cole says.

The one exception is dealers who choose not to embrace new regulations and are resistant to hiring and training F&I employees properly. These dealers will experience a reduction in F&I profits because consumers will not see the value if the F&I manager is unable to present the products the way they should be presented, Cole says.

Complete Disclosure Is Unlikely

Despite calls for action from consumer advocacy groups, it is unlikely that dealers will be required to disclose all profits on F&I products in the near future.

Glenn Roberts, national F&I executive for Universal Underwriters Group, predicts that dealerships’ markup amounts will be limited rather than requiring that all exact profit amounts be disclosed. "This will stop rogue F&I people from selling products for $2,000 that only cost the dealership $50."

Currently, the state of Pennsylvania allows the dealer markup to be no greater than double the cost of the product. A Tennessee state appeals court recently ruled that dealerships in the state are not required to disclose the reserve they receive on their finance agreements. This court decision has been consistent with rulings elsewhere, including California and Alabama.

The one guarantee is that dealers must be able to show that similar customers were offered similar interest rates based on credit information, says Bob Corbin, president and chief operating officer of Innovative Aftermarket Systems. In addition, they must also prove that customers weren’t offered rate discounts for purchasing additional F&I products. The ability to justify each customer’s rate is a necessity in case a lawsuit is encountered.

Roberts says the “predictable loss” coming to F&I offices as a result of a flat-fee structure creates the need to develop a plan. "Dealers are going to need to transition from reliance on rate reserve to flat fees and potentially capped markups on F&I products," he says. "Otherwise, you’re going to have to be happy with less."


Training Is Proactive Action

What many dealers describe as a hostile environment has been brought about by the actions of a few rogue dealership employees.

The best way to avoid problems in your own dealership is to establish clear policies and back them up with training and certification.

Of course, training does not guarantee that your employees will apply what they have learned. It is ultimately up to the dealer principal, general manager or executive management team to ensure that the practices are applied and adhered to.

Certification takes training a step further and demonstrates that there is a fundamental understanding of what has been taught and how it should be put to use.

"Just going through training indicates what a person’s been exposed to, but it doesn’t indicate what he’s absorbed or learned," Cole says. "Certification is all about determining whether he took on board the training to be in a position to go back and implement the desired behaviors."

To address the heightened regulatory focus of the industry, JM&A has developed a certification program that gives F&I managers an understanding of federal and state laws governing the sale of F&I products. F&I Legal and Ethical Standards, or FILES, provides certification in both the selling process and the regulations that must be followed. Testing is state specific and requires annual recertification.

One of the primary impacts of F&I certification is the dealership’s ability to provide insulation for itself from the potential liability associated with the performance of F&I managers, says JM&A’s McDavid.

Technology: A Replacement or a Complement?

The growing trend to automate as many processes as possible is being experienced in F&I, but most predict it will stop far short of eliminating the F&I manager entirely.

In fact, Aon’s Cole says it will have just the opposite effect. “There is still the need for the personal one-on-one relationship so the salesperson can articulate the potential benefits of the product,” he says.

"Simply having the product described with a price on a menu does not answer a lot of questions. A consumer needs to have these questions answered in order to make an informed decision about whether he needs, wants or desires that particular product," Cole adds.

Similarly, Corbin from IAS says menu-selling software continues to be the prevalent solution dealers are looking for, but it still doesn’t eliminate the human element completely.

"A multimedia presentation is like an electronic brochure, but it’s still the job of the finance manager to overcome the objections and answer questions," Corbin says.

“When I buy a car, I get my picture taken next to the car. I don’t do that when I buy a refrigerator,” Corbin explains. "You’ve got this emotional attachment that requires the sale to be a little more personal and you need the human intervention. That’s always going to be needed in F&I as well as in the front-end sales process."