Recent declines in gross profit from vehicle sales have seen the Finance & Insurance Department become increasingly important as a generator of income for Australian dealerships. On average, 39.6% of the gross profit generated from a dealership’s sales department is a direct result of the performance of the F&I Department, according to the 2015 NADA Data released by the National Automobile Dealers Association#.

Imminent changes to the treatment of financier flex rates will see dealership income generated from ‘finance’ eroded. In the past, high-performing F&I departments have been achieving a $1,500 average income per retail vehicle, based on a 35-40% finance penetration. These will result in less available revenue from the ‘F’ and a much higher focus being placed on the ‘I’.

In the face of these challenges, the importance of high quality insurance products offering superior benefits to both customer and dealer become increasingly vital.

Building customer loyalty

Recent figures from Deloitte indicate that 50% of metropolitan customers who have been through the F&I process return to the dealership for purchase of their next vehicle, compared to only 24% of non-F&I customers*. The Business Manager has become the ‘trusted advisor’, with trust being an overarching customer expectation, in addition to accessibility and speed of purchase.
Considering that non-dealership finance customers account for approximately 60% of all opportunities, systems and processes need to be aimed toward increasing customer satisfaction and therefore retention, ensuring that every sales opportunity is maximised. For a dealership to achieve this they need to offer the same service to all customers, regardless of their intent to finance through the dealership. This process then becomes part of the Business Manager value proposition and focuses not only on the initial transaction, but on the future relationship with the customer, increasing the likelihood they will become a ‘customer for life’.

High quality motor vehicle insurance, for example, can offer exceptional benefits not only to the customer but to every profit centre within the dealership. The better policies may include benefits such as a guarantee on genuine parts, choice of repairer and guaranteed new-for-old replacement vehicle through the selling dealer. Flow-on benefits may include an increase to customer satisfaction and retention; fewer factory warranty issues; increased parts and labour sales, and an increase in vehicle sales due to purchase of replacement vehicles after a vehicle is written off, in addition to increased commissions and other incentives paid by insurers, financiers and manufacturers.

The importance of genuine parts

Most vehicle manufacturers have chosen to partner with an insurance company that can guarantee replacement parts used in repairs will be genuine OEM parts, therefore driving income back to the selling Dealer, as well as maintaining the integrity of the vehicle.

Due to claims costs, some insurance companies have chosen to incorporate non-genuine, parallel or ‘grey’ parts for vehicle repairs, devaluing the importance of using genuine manufactured parts. Not only do these parts run the risk of compromising the integrity of the vehicle, they also reduce potential dealership income from future genuine OEM parts sales.

Customers rely for guidance on their Business Manager as someone adept at addressing their financial and insurance questions, with the ability to present options to help them make informed decisions. Processes such as menu selling help ensure F&I departments remain compliant and transparent, offering every customer every single product for which they are eligible, and having the customer acknowledge via a signature what level of finance and insurance protection they have chosen with the purchase of their motor vehicle.

The most successful dealerships employ Business Managers who are proactive, transparent and contribute to the dealership’s overall income whilst satisfying the customer’s expectations are met at the same time.

 

*Deloitte – Motor Industry Services: 2015 Dealership Benchmarks.
#2015 Annual financial profile of America’s franchised new-car dealerships