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Looking to Boost Profit Margins? Might Be Time to Consider Your Own Branded F&I Products

Whether your dealership is franchise or independent, transitioning to a dealer-owned warranty program may be a significant key toward increasing your profit potential, despite the direction of sales activity in the near future.

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Tim Blochowiak is the vice president – dealer sales for Protective Asset Protection.

2018 has been an interesting year for both franchise and independent auto dealers. After several years of increasing sales following the recession, the pace of sales saw a plateau in 2016 and in 2017 sales began to dip slightly.

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Vehicle replacement activity following major hurricanes in Texas and Florida gave 2017 sales activity a late-year shot in the arm; nevertheless, the pace of sales is no longer on an upward trajectory for the near future.

This poses a challenge for dealers looking to increase profits, especially when sales activity is facing downward pressures. However, several leading brands have experienced a sales increase following the storms, such as GM, which increased sales by 12 percent in September, and Ford, which increased nearly 9 percent in the same month.

Looking Ahead

Once the immediate flurry of vehicle replacement activity works through, though, manufacturers and dealers will be left scrambling to close out 2018 on a high note, and profit-eroding incentives will most likely play a significant role in their game plan to draw in new customers.

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Service, Repair and F&I

Sure, all the recent sales activity means that service bays are full of vehicles that need to be maintained, and this no doubt adds to the bottom line. In fact, according to Edmunds.com, only about 30 percent of a dealership’s revenue comes from new vehicle sales. The remaining 70 percent is found in activity from used sales, service and repair and F&I products. And even that breakdown can be further boosted depending on which type of program and products are administered for areas such as F&I.

One of the ways in which dealers are boosting those F&I profits is through the use of a dealer participation program, whereby dealers own, market, sell and support their own branded F&I program. These are also called Dealer-Owned Warranty Companies (DOWC). Besides greater profit potential on F&I sales, the great benefit here lies in the fact that dealers can actually tailor and customize their own F&I offerings. For example, an independent dealer can build a portfolio of F&I products that caters to a variety of branded vehicles, not just one. These F&I products can range from service contracts to ancillary products.

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Even though there is great profit potential, a DOWC often means the dealer must own and operate the program as well, including certain administrative duties. Fortunately, when dealers partner with the right provider, most of these administrative duties and support are handled by the provider, leaving the dealer to only worry about selling their own branded F&I products to the customer — something they should already be used to. This is especially critical since a recent survey presented to 1,500 dealer professionals showed that 29 percent said their current F&I products are “too much of an administrative burden” and “don’t offer enough margin for the dealership.”

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Given the fact that most dealers are entrepreneurs, with some even owning their own dealership, a DOWC will feel natural to them since it’s their opportunity to offer an F&I product that is merely an extension of the brand they’ve worked hard to establish within their own communities. But finding the right partner provider is critical, especially when the customer depends on the integrity of the product in times of need. The right provider can ensure your dealership lives up to its F&I product when the customer needs you the most, which can go a long way toward building a longer lasting relationship with that customer.

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Lastly, DOWC programs mean that the dealer must remain in compliance with all regulatory obligations. Trusted partner providers have full legal and compliance departments to help each dealer ensure they remain in full compliance on all F&I offerings. In addition, dealers must consider the company that insures the products offered under their DOWC program — making sure they are working with a stable and well-established provider.

Whether your dealership is franchise or independent, transitioning to a dealer-owned warranty program may be a significant key toward increasing your profit potential, despite the direction of sales activity in the near future.

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Tim Blochowiak is Vice President of Dealer Sales for Protective Asset Protection

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