F&I Is Stronger Than Ever

F&I is under attack. Disruptors want to automate it. Lawmakers want to overregulate it. Consumer finance “experts” warn listeners and readers not to buy your products or rely on the dealership for financing. And as if that weren’t enough, prices, interest rates, and incentives threaten to push more customers out of the showroom and onto the used-car lot.

It’s a dire situation for F&I professionals, or so you would think. But all the latest reports indicate that, in the face of adversity, you’re doing just fine.

Last month, the National Automobile Dealers Association’s annual NADA Data report found several key performance indicators improved, were flat, or decreased only slightly in 2018. Starting with F&I income as a percentage of sales, for new vehicles, flat at 2.9%; for used, up from 3.7% to 3.8%. F&I aftermarket income represented 24.9% of the gross profit on all sales in 2017. That number increased to 25.5% last year.

Overall F&I product penetration rates for new vehicles fell from 90.3% to 89.6% in 2018. Used-vehicle penetration rates were flat at 73.2%. Those numbers are reflected in service contract-only penetration rates, which were down slightly for new vehicles (from 46.9% to 45.7%) and up for used (from 47.4% to 47.6%).

For a year in which sales and affordability began to normalize in earnest, that’s not bad.

In March, FICO released the results of its 2019 Global Consumer Survey of Vehicle Finance Perceptions. The report was based on a survey of 2,000 loan and lease customers in the United States, Canada, and Mexico, Australia, Chile, Germany, New Zealand, Spain, and the UK.

Analysts found American and Canadian dealerships have a lot to teach the world about F&I. Highlights of the FICO report include:

• Canada and the U.S. are the global leaders in dealer-arranged financing, generating 66% and 63% of all auto loan and lease originations in their respective markets.
• Germany (60%) is the only other included country to beat the global average of 56%. The lowest scores belong to Chile (39%) and Mexico (49%).
• A remarkable number (58%) of Canadian car buyers said they planned to arrange their next auto loan or lease through the dealership, followed at some distance by the U.S. (40%).

F&I is engrained in our automotive culture. Despite having had internet access for more than 20 years, American car buyers still regularly drop in on dealerships, looking for a good vehicle, a loan, and a way to secure both. They meet with a highly trained and skilled business manager who gives them on-the-spot credit counseling and works a network of finance sources and product providers to deliver the deal.

Once they leave, they talk about their in-dealership experience in person and online. And down the line, when the unexpected happens, they enjoy the benefits of the protection you sell.

And those benefits are pretty exceptional. New cars and trucks are rolling computers that are increasingly expensive to fix, easy to total, and frequently used as Ubers. Talk to any product and administration executive about the value of F&I. They’ll tell you about the losses they’ve suffered on GAP over the past several years as the accounting catches up to the technology. (The word “staggering” is frequently employed.)

That still leaves the image problem. NADA is at work on the issue, having recently published new guidance in partnership with the National Association of Minority Automobile Dealers, the American International Automobile Dealers Association, and your state dealer association. The aforementioned executives are working to get more positive press about F&I online. Positive reviews from satisfied F&I customers are beginning to appear.

In the meantime, keep doing what you’re doing. Dealers and customers are relying on you day in and day out. And that is unlikely to change anytime soon, despite what you may have heard.