Debating the Chargeback

The subject of chargebacks popped up on Ethical F&I Managers (EFI), a Facebook group for us F&I pros. It wasn’t the first time the topic has come up, but there was a twist: The discussion wasn’t on how to limit chargebacks; it centered on how they should be applied.

Ah, the chargeback. The topic is as old as the profession itself, as the cancelation of products hurts an F&I manager where it hurts the most: in the pocketbook. I wrote about how to control them back in 2011 (“Controlling Chargebacks”), but I’ve never discussed how they should applied.

As I saw on the EFI page, the topic stirs up a lot of passion. And, well, I’d like to hear from you on this subject. But first, here are five ways most dealers handle chargebacks. I even added in my take. After reading, let me know how you feel by sending me an email.

1. Limited-Time Chargebacks: If you’re lucky enough to have a pay plan with time limits on chargebacks — about three or six months of exposure — don’t go anywhere, because not many dealers offer one. My first dealer did. He forgave them after 30 days, and I was the envy of my friends in the business. But this little allowance came with a price.
See, the comptroller subtracted 25% of my gross for future cancelations. That’s right. I only got paid on 75% of what I generated, but we were also on 100% exposure with the finance companies back then. This meant if a contract terminated early, I got charged back all the reserve. I reckon it wasn’t too bad, since I had very few products to sell and reserve was big in those days.

2. Individual Chargebacks: Dealerships that have several finance managers may allow chargebacks to you as the original producer, even when a coworker does the deal. I’m sure I don’t need to tell you how frustrating this is, because if you’re not lucky enough to be in the rotation when that repeat customer comes in, you get to eat the cancelations.

3. Departmental Chargebacks: This is a pooled pay plan in which all finance managers are paid from the department’s bottom line. That means they all face the collective results when cancelations are tallied. This can be the best and worst of both worlds, as this type of pay plan requires that everyone is practicing good habits with proper rate administration and pricing.

4. Inherited Chargebacks: There are occasions when a finance manager moves to a new dealership and is forced to absorb cancelations from his predecessor. The general manager and dealer have this policy in place for various reasons. That’s why it’s wise — although sometimes difficult — to discuss this when taking a job.

Hey, no one likes having to eat that whopper deal from the previous manager that ended up as a repo. It burns because you had nothing to do with it, yet you’re getting saddled with the cancelation. There is an upside to this, however. See, when you leave, guess who gets to eat your whopper of a chargeback?

5. Lifetime Chargebacks: Being on the hook for the life of the loan may seem like the worst possible scenario, but it’s really not. Yes, you can’t escape the eventuality that the customer is going to trade or the car is going to get repossessed, but there is a very good reason why I support the concept of a lifetime hit.

See, I believe it creates a sense of ownership that tends to better manage your actions. It also ensures the customer is getting served up a full array of products to protect his or her purchase, rather than be fed things that only benefit the producer’s pocket. Of course I’m referring to F&I managers who live off a heavy serving of reserve.

Dealers are always exposed to chargebacks in all departments, regardless of origin. But here in the box, we only have to be concerned with what crosses our desk. As F&I managers, I believe we should be accountable for these costs. It’s what makes a good manager great.

Hey, F&I managers are some of the most highly compensated individuals in the store, which means we should shoulder the responsibilities that come with such a rewarding role. And like a smart and shrewd businessperson, it’s our job to be conscious of this most sensitive area. Regardless of the policy your dealership has in place, manage chargebacks like they’re your own money, because, frankly, they are. Good luck and keep closing!

Marv Eleazer is the F&I director at Langdale Ford in Valdosta, Ga. Email him at [email protected].