Column: Time to change car dealers’ F&I pay plans?


I have always believed that finance and insurance is a critical linchpin in connecting car buyers back to the selling dealership. As a dealer, you can either practice hope — meaning, you hope the customer returns to your store — or you can create a contractual link with a customer.

A contractual link increases the odds of a customer returning to your store. For example, 70 percent of customers who purchase a vehicle service contract return to the selling dealership for service, paving the way for long-term customer relationships.

The contractual link is created in the F&I office. However, F&I managers are currently paid through a commission-based structure that incentivizes them to sell products with the highest margin without regard to whether a contractual link is created.

Take guaranteed asset protection and appearance products, for example. These products have a high upfront profit margin for the dealership and thus the F&I manager makes a good commission. Therefore, the F&I manager is highly incentivized to sell them. However, GAP and appearance products do virtually nothing to bring customers back to the store again.

F&I pay plans today reflect how dealers think about F&I profitability, which is to focus on profit per vehicle sold, or PVR. What if that focus shifted from how much a dealership can make up front to how much a dealership can make over the lifetime of a customer? This shift in mindset starts to really influence which products you want to sell in your F&I department.

One of the most profitable F&I products for a dealership is a vehicle service contract. For every service contract sold, there is an upfront number that goes toward your PVR. But the story doesn’t end there. If you sell 100 service contracts and 70 percent of those customers return to your service department and the average claim is $700, that equals $49,000 in additional claims yield revenue for your dealership. There also is the back-end profitability that can be earned through a dealer participation program.

Prepaid maintenance is a product where the long-term profit impact greatly surpasses the money made in F&I. Customers with both a maintenance plan and vehicle service contract are 40 percent more likely to bring their vehicle back to the selling dealer or group for claims covered under their service contract, compared with a customer with only a service contract, according to APCO data.

On this basis alone, a maintenance plan increased the selling dealer’s service contract claims yield by $142 on average per service contract written. Not to mention the likelihood of earning increased customer pay and warranty business when the owner returns for the prepaid maintenance.

Yet, prepaid maintenance penetration remains low. I would argue the reason is because there is little money or incentive for F&I managers to sell a plan. They would much rather sell Scotchgard. Clearly there is a misalignment between what is good for the F&I manager and what is good for the dealership’s long-term customer retention strategy.

What would an F&I pay plan that is aligned with a dealership’s customer retention strategy look like?

Dealers would pay higher incentives for F&I products that bring customers back into the store. What if an F&I manager was paid $20 for every prepaid maintenance claim made? Or what if the F&I manager received a bonus for reaching a monthly maintenance plan sales objective?

It will take vision and fortitude for dealers to fundamentally change F&I pay plans. Most employees don’t like change, especially if it affects their income. Make clear the intent is not to undermine income opportunities for F&I managers but to expand those opportunities by creating long-term relationships that lead to more service revenue and repeat sales.