Car dealers know that increased sales result in a rise in profits. Every dealer is looking to improve his or her bottom line. However, to remain competitive and establish a positive reputation, it is crucial for dealers to understand the importance of fair pricing and F&I compliance. A dealership’s customer reputation goes hand in hand with increased profits. The more transparent a dealer is about their Finance and Insurance programs (F&I) the closer a dealer is to seeing a growth in sales.
Salespeople work for commission and therefore need to maximize every transaction for their employer. However, there are many federal rules and regulations that apply to the finance department of a car dealership. The Safeguards Rule, Privacy Rule, Disposal Rule, Red Flags, Equal Opportunity Credit Act, and more, which are important regulations, all set in place to protect consumers. These regulations must be followed and it is up to the dealers to educate their staff on the importance of adhering to these mandated rules.
A recent survey confirmed that the trust between the consumer and the car dealership is indeed broken. Nearly 65% of consumers believe that US car dealerships’ business practices are not ethical.[1]
If a car dealership is complying with all of these regulations, yet customer satisfaction is still down and cancellation rates have increased, it may be due to F&I products being priced too high. Despite knowing the risk of not complying with federal regulations, many dealers want the quick sale and salespeople want the commission.
It is highly recommended that car dealers offer consistent, competitive pricing. This will always ensure a positive dealer reputation, trust in the sales force and thus, a solid increase in longer-term profits. It is important to note that as federal and state agencies start looking into car dealers’ F&I product pricing, many dealers will be caught operating in an illegal manner. If a dealership is accused of discriminatory practices or other unethical business in order to get a “quick sale” – dealers need to do the following:
- Dealers should immediately address any issues as soon as possible and cooperate with regulators directly.
- Invest in education in your sales staff. Outline what is acceptable and establish a zero tolerance policy for any salespeople that are discriminatory or unethical in their sales or pricing. E-learning is a great way to offer salespeople training and better understanding of federal and state policies.
- Dealers should have a clearly defined internal sales policy outlining standard pricing for all products that must be strictly adhered to.
- Mark-ups should be reasonable. This will ensure more products will sell with the added benefit of customer repeat business and retention. (As opposed to just selling one product at an unreasonably high price.)
- Dealers and salespeople must stay consistent with pricing their product offerings.
- Dealers must clearly document all sales, including discounted items vs. the standard price (to beat a competitive offer.) This will ensure that there is no confusion between the customer, car salesperson and the dealership when a sale is made. Having an agreement in writing provides a paper trail if there is any question on sales practices.
- Dealers need to work closely with F&I product providers and F&I General Agents to make sure that their sales training is in line with this approach.
- Reward top salespeople who maintain ethical business practices and retain customer loyalty. This showcases a dealership that is proud to balance customer satisfaction with increased sales.
In conclusion, car dealers want to make money and increase their bottom line. In order to increase profits, they tend to inflate pricing and may use unethical business practices. This has resulted in a negative perception of the industry as a whole and requires dealers and salespeople to be transparent about F&I and offer the most competitive pricing. This balance of smart, educated F&I salespeople and commitment to following the federal and state regulations will result in longer-term increased profits for dealers and an improvement in overall reputation.
[1] July 2016 Survey conducted by Total Dealer Compliance