Faced with declining sales, a subprime credit crunch and an increasing amount of foreclosures and bankruptcies, getting a deal bought is definitely challenging these days. That's why it's important that F&I managers prepare an attractive package for banks, especially if one expects advances on F&I products.
The trick is for dealerships to focus on the basics when it comes to deal structure, product pricing and lender relationships. Here are some key areas to concentrate on while working with your customers and lenders.
Evaluate the Customer's Financial Standing
Structuring the deal correctly in sales and placing the customer in the right vehicle is an important first step in addressing the issue of tighter lender buying practices. As we have seen, issues that arise in the F&I office often start on the sales floor. Much of it is rooted in customers not being sold the finance-appropriate vehicle. With today’s economic challenges, it's fair to assume that most customers are stuck in negative equity and have unrealistic expectations of what they can afford. That's why it should be the sales department's responsibility to keep the lines of communication open with the F&I office during the sale. This will ensure that the salesperson backs the customer into the right vehicle, as it is highly critical that both departments work together to evaluate the customer's current financial position. An overabundance of negative equity depletes lender advances and limits the F&I manager’s ability to sell products.
Improving Lender Relationships
Remember, dealers and lenders are on the same team. Both have a vested interest in successfully completing a car deal. Dealers sell cars and lenders lend money. One rarely happens without the other. For this reason, it is important dealerships establish strong personal and trusting relationships with each lender in their portfolio. This is especially true for F&I managers, as they need to understand the lender's approval process and buying criteria. Dealers should also make it as easy as possible for the lender to say yes to submitted deals. This means submitting all documentation up front and properly completed. It also means adhering to the lenders' criteria and not wasting their time with deals they cannot buy. Lenders need to be able to trust that the dealers' F&I managers are fully disclosing equipment, F&I products, credit issues and negative equity. By increasing the quality of the relationship, lenders will be more likely to approve loans without stipulations, and will respond quickly when loan requests are submitted.
Choosing the Rights Product for the Customer and Lender
Many F&I managers instinctively want to sell as many products as the dealership offers. An example of this may be an F&I manager who sells multiple theft-deterrent systems on the same vehicle, such as window etching, a vehicle-security system and a vehicle-recovery device. While the customer may want these products, which are obviously profitable for the dealership, lenders may see this as excessive and may be less than willing to authorize the necessary advances. That's why it may be better to recommend the customer purchase a different product mix. For example, instead of purchasing multiple theft-deterrent products, suggest products such as guaranteed asset protection (GAP). It also offers value to the lender. Because the lender has a long-term vested interest in the vehicle, any products that help protect and maintain the condition of the vehicle will be seen as a valuable addition to the lender. This could improve the likelihood that the lender will provide a sufficient advance.
Price F&I Products Appropriately
The last key area to consider is how dealerships price their F&I products. While some states set retail prices for certain F&I products, often dealerships have the ability to negotiate price. If the product pricing is designed to maximize profit on a deal-by-deal basis, lenders may view those products as excessively priced. Establishing consistent pricing strategies that allow for reasonable profitability, yet stay within lenders' parameters, should increase the number of approvals. It should also help avoid potential compliance issues. This practice develops trust with the lender and allows the store to maximize profitability for the dealership's entire business portfolio.
Bruce Foster is the director of performance development center for JM&A Group.