Deal structuring was all about trying to maximize profit for the store and getting the deal bought. Often times this meant switching the customer to a cheaper car, getting the customer a co-signer or getting more down payment. This was done before the customer went into the F&I office.  

Some of you are saying “that’s what we do at our store now.” To that I say congratulations. But there are some of you saying “what’s he getting at?”   What I’m getting at is that in a captive finance transaction, the sales manager plays a powerful role in whether any money is made in F&I and, in fact, whether the car gets sold at all. 

The primary job of the sales manager in a captive finance transaction is to present F&I with a viable deal. A viable deal is one that a bank will buy in a form substantially similar to what was submitted. It is structured so that the customer who comes into the F&I office is quoted an interest rate that is reasonable based upon his or her credit history. Also, it’s a deal where the F&I manager can sell F&I products with the expectation that the bank will approve them with the front end gross remaining.   

Some dealerships complain about constantly being “line five’d,” meaning the bank puts a cap on the amount of money it will provide on a deal.  The dealership then has to decide what to cut. Often this happens because some sales managers believe their job is to allow the customer to structure the deal. They feel as long as the customer says “yes” they have done their job: They then ship the deal to F&I and let the F&I manager try to get it bought by their finance source. 

The consequences of bad deal structuring can hurt your dealership. When a customer is on too much car and you are trying to hit the customer’s stated payment limit to keep the deal together, you end up negotiating with yourself. You cut the front end gross, take out the F&I products and put more in the trade than you should. 

Here are some steps that will help you structure better deals:        

Select The Right Vehicle
First of all, problems in the F&I office often start on the lot. Teach your sales people to show customers cars that are reasonably within their ability to pay. For example, a Malibu is several thousand dollars cheaper than an Impala. That can make the difference between a deal that the bank buys (one in which you can obtain a reasonably good profit front and back) and one that is heavily conditioned.

Pull Credit Early
Get the customer’s permission to pull a credit bureau early in the negotiations.  This will allow you to know if the customer is negotiating on a car that you are likely to be able to finance. In many cases the first time anyone knows there is a problem with the deal is when the F&I manager pulls a credit bureau. The customer might have been perfectly happy with a two-year-old car but will be unlikely to switch to it after negotiating for a new car. A credit bureau is a road map to a car deal. 

Ask For Down Payment
Concentrate on the cash down payment. If customers are asked how much they want to put down, you know the answer—nothing. But cash down payments make deals. Consider an incentive to your sales force based upon money down. You will find that your cash down payments go up.     

Develop a Retail Rate Matrix
Quote payments using interest rates that are reasonable based upon the customers previous credit. If a customer has a 650 FICO score, you probably know which bank will finance them and what the rate will be. Consider developing a retail rate matrix prepared by F&I to guide the sales managers.  If your F&I manager receives a deal where the interest rate quoted is not an issue, it allows him or her to spend time making additional money for the dealership, not restructuring the deal.  
 
Have Experienced Desk Manager
Lastly, the best “desk men/women” have hands-on F&I experience.  Understanding of deal structure is greatly enhanced if your sales manager has worked a good stint in F&I. About 20 years ago you rarely found a sales manager that did not have hands-on F&I experience but we’ve gotten away from that. Consider rotating your sales managers through F&I if they don’t have that experience.    

The information contained herein provides a general overview for the reader.  F&I transactions are subject to applicable federal and state laws.  You should consult with your attorney(s) when developing programs and policies for your business.

Vol 4, Issue 6