Dealer-arranged financing and the sale of owner protection products have met the needs of millions upon millions of car buyers — and generated additional income for dealers — since the first F&I department opened its doors. But times have changed. The manufacturers’ continual reductions in new vehicle margins, coupled with competitive pressures in the retail arena, have created a greater dependence on F&I revenue as a way to keep the lights on.
Nearly all voluntary protection products have grown in sophistication and changes in vehicle ownership needs have spawned new ones. However, in the face of increased reliance on F&I revenue, equity must be maintained whereby the potential dollar value received by the customer is in line with the retail price paid for the protection product or service. When industry regulators and overseers take aim, parity among all parties to the transaction is always the bullseye.
The recently published “NADA / NAMAD / AIADA Voluntary Protection Product: A Model Dealership Policy” is a primer for operating an equitable and profitable in-store owner protection program. (Email me at [email protected] for a free copy.)
The ability to generate additional revenue by selling more voluntary protection products is a win-win for sellers and buyers alike. Are you capitalizing on the opportunity? Here are a few key factors to consider:
• Are your current products and marketing methods in sync with today’s core clientele — Gen Xers and Millennials? Take an inventory of your current offerings. Having generic products available in every category, while essential, isn’t enough. The availability of two product options within the same category, e.g., tire & wheel, might have as much appeal to a Honda buyer as a Porsche buyer — and result in an additional sale.
• Are your VSC administrators adjusting their deductibles for inflation? Depending on the vehicle and level of coverage, $500 or $1,000 deductibles may be prudent options. The customer doesn’t pay the deductible when purchasing the coverage, and it results in a lower purchase price — and additional sales.
• Do your menus and presentation techniques align with a generation of buyers who want to drive the decision-making process? Once the buyer’s order is signed, a card showing the voluntary product menu offerings configured as a simplified cost/benefit analysis might be handed to the customer to review while waiting to see the F&I manager. In this case, it’s the customer — not the F&I practitioner — who broaches the subject of GAP or VSC protection, increasing the chances of an additional sale.
• The knee-jerk response for generating more revenue is to increase the profit margins on the items offered for sale, which affects a corresponding reduction in volume. There is an optimum volume/selling price balance point unique to each product and clientele. It just might be achieved by lowering the markup. It’s worth a try — and might result in more sales.
I’ve been in sales most of my life and all of my career. We have a saying, “Challenging times bring sales opportunities.” The current market is a perfect example of just that.
Yes, times have changed, but that doesn’t mean you can’t find new ways to generate revenue and profit. Good luck and happy selling!
