All indicators point to a strong recovery of the auto industry; dealerships are delighting in the annual selling rate of 14 million vehicles and lenders are being more liberal in the face of the recovery. In fact, a new report from Experian Automotive shows the average credit scores for car buyers have dropped to near prerecession levels. Consumers are able to once again secure financing for not just the cost of the vehicle, but also for aftermarket add-ons.
All of this translates into more opportunities for F&I departments to profit by selling aftermarket products and services for new and used vehicles.
However, looming in the background of this welcome news are federal government regulations and consumer dynamics that are expected to impact how and what dealers sell. For one, there have been talks for some time about the Consumer Financial Protection Bureau (CFPB) bearing down on F&I-related practices. Although the Bureau hasn’t taken any strong action yet, it is just a matter of time before it turns its sights on the auto industry, putting forth serious measures to protect car buyers from dubious dealer practices.
Dealers who take a wait-and-see approach to these impending regulations may find themselves caught behind the eight ball, scrambling to implement new processes that protect car buyers and finance departments.
What’s more, regulations aside, dealerships are also findings that consumers are better educated about aftermarket products and are less willing to spend money on those products that offer limited or hard-to-prove value.
With heightened scrutiny on our industry as a whole, it is a good time for dealers to eliminate the mediocre from their F&I menus, becoming more focused on offering a limited menu of healthy products.
Reducing the fat on your menu
The first step is to reassess the F&I products and services you offer. In determining which products are most beneficial to the dealership, profit margin and product penetration are the two obvious data points. But not so fast. To ensure the long-term health of your dealership, you need to ask yourself, “Are these products offering the best value to my customer? Can we justify their value?” Instead of just focusing on the raw numbers, consider too the impact that your products have on customer satisfaction, retention and opportunities for your service department as these can be even more impactful on your bottom-line in the long run.
Although it may sound counter-intuitive, cutting products can actually help you sell more because it gives you greater focus. By placing more effort on fewer products, you will be more effective and customers will thank you for not trying to push every option imaginable on them. Your trustworthiness improves, and you become experts in the slimmer menu of products you sell.
How do customers really perceive the products? Why not ask them?
By evaluating the consumer perception of F&I offerings, you can accomplish two things: 1) Stop pushing low-value products that could result in complaints and scrutiny from the CFPB and other watchdog organizations, and, 2) Gain first-hand insight into consumer preferences so you can ensure you are offering products of high perceived value by your customers . As a way of assessing your consumers’ attitudes and perceptions, consider conducting a customer survey and use the findings to make decisions about which products to cut from your menu, as well which should drive marketing campaigns.
It’s trimming time
Set a goal of trimming all of the fat from your menu. Gather members of your management team from all departments as part of the decision-making process. Staples like service contracts and GAP will certainly rise to the top of the ‘keep’ pile. From there, identify the two or three remaining products that will not only generate a strong return on investment to the dealership, but also to the customer. Eliminate outmoded products that have been eclipsed by advances in technology or products that your customers know can be purchased at a fraction of the cost at a convenience store.
Nothing is more disturbing to me than when I talk to a dealer that acknowledges to me that he wouldn’t sell this product to his mother, but “we can’t get rid of this one, it’s too profitable for us.” While the raw numbers may suggest that such products are adding to your dealership’s profits, the reality is that you are harming the long-term health of your business, and doing a disservice to the broader industry. The so-called consumer watchdog organizations have been absurdly unfair with the many unfounded accusations leveled against our industry, but it’s those dealers that just can’t seem to do things the right way that bring about the scrutiny to our industry.
By taking proactive steps now and not waiting until your hand is forced, you’ll be able to accomplish the dual objectives of bringing higher-value products to your customers while improving your bottom line.