The chip crisis is limiting new vehicle supply and driving the prices of used vehicles sky high. Unfortunately, the supply issue doesn’t look like it will resolve any time soon, so how can dealers best retain profitability in the F&I department? The logic is simple: if you’re not selling as many cars, you need to make more money per transaction. Here are a few recommendations to help make that happen.
Go Back to Basics
When sales volume is high, employees are busy and the showroom on weekends can be chaotic. This can result in employees cutting corners, both in sales and F&I processes. In the F&I department, this usually means an in-depth needs analysis isn’t being done for every customer.
With lower sales volume, F&I managers have the opportunity to go back to basics, take their time with each transaction and get to know each individual customer. Better engagement leads to a better needs analysis and finding the right products for each individual.
Keep Service Contracts Top of Mind
When customers are paying premium prices for pre-owned inventory, protecting that investment becomes more important. As a result, we are seeing substantially higher attachment rates for service contracts.
Some of this is due to more focus from the dealerships, but it’s also because consumers are more open-minded to these contracts. In the last 16 months there has been so much uncertainty, and the future is still unknown. Therefore, service contracts are providing consumers with peace of mind.
Continue Ancillary Giveaways
At the same time that we’ve seen higher attachment rates for service contracts, sales of ancillary products — such as key and dent protections — have dropped a little. Some dealers are abandoning these F&I products that were previously packaged as branded giveaways.
But in bad times, it can be even more important to stick to your brand promise and uphold your value propositions. If it seems onerous to keep the giveaways, one option might be to bundle them with a service contract.
Mind the GAP
With the prices of used vehicles continuing to climb, from a consumer perspective GAP insurance is more important than ever. However, there is some concern that if and when used car values decline, that insurers will be overexposed.
This may not be a cause for worry. Residual values of used vehicles are so strong that consumers coming into the purchase have more equity than they have historically had. This makes it easier for banks to make loans despite the higher prices.
As long as vehicle prices and consumer equity move together, whether up or down, we won’t see much of a difference in GAP risk, so we’ll be breaking even.
Cross-Train F&I Managers
There are still some challenges involved in scaling remote F&I sales to demand, but many dealers are finding success. With multiple rooftops and cross-trained employees, it becomes easier to manage the ebb and flow across the stores by using remote options. For example, if your Chevy store is busy and your Ford store is not, the F&I manager from the Ford store could help the other location as needed.
I’ve always been impressed by how well dealers adapt to evolving market conditions, and I have no doubt they can get through this chip crisis. I see dealers getting more creative about buying used cars and arranging financing. I see tremendous effort on rebuilding people and processes. The dealer model is incredibly resilient, and I predict dealers will continue to make money and emerge stronger on the other side.