January 2010, Auto Dealer Today - WebXclusive
As we approach year’s end, now is a good time to examine your processes and procedures in all areas of the dealership including sales and F&I. The interaction between these two areas of the dealership is the life blood for future growth.
Market conditions in 2009 have tested the boundaries of commitment for everyone associated with the automobile industry. By all indications, the worst appears to be over and many are looking forward to better days. Will you be prepared to capitalize on the opportunities 2010 will offer?
High-performing F&I departments have three key elements:
1. Their coordination with the sales desk is well-defined and strategic.
2. The product mix and markups are reviewed and analyzed on a frequent basis for maximum efficiency.
3. The sales and presentation skills of the F&I producers are honed to the highest level by testing and measuring them regularly.
The transition and coordination of the hand-off between the sales desk and the F&I office often determines the final outcome of any sale. Desk managers must monitor the sales process to ensure that customer expectations are managed properly. In order for the F&I manager to maximize product sales and penetrations, terms of purchase must be taken into consideration when negotiating the sale.
All too often, salespeople and desk managers are under such intense pressure to just deliver units that they neglect to take into consideration that everything they do will affect the F&I process. To achieve optimal outcomes for both departments, an agreement must be established on how payments and down payments will be handled. Today’s consumer as well as standards for disclosure and compliance mandate transparency.
By establishing procedures that start all deals at slightly shorter terms (48 months) and working second-pencil options at 60 months, a large percentage of deals can then be handed off at 60-, 63-, or 66-month terms. While finance companies are far more restrictive on advances and more demanding of better credit and higher down payments, the 72–month term still appears to be an option for many buyers. Mathematics favors those who acknowledge both its abilities and limitations.
Creating a written guideline that reflects the strategy to work both the term and down payment figures consistently is paramount to increasing your PVR. Like most things in life, setting the standards will not in and of itself produce the desired result. Checks and balances are needed to ensure adherence to the strategy. Daily save-a-deal meetings must be conducted to keep everyone honest to how each deal is being handled by auditing the previous day’s activities.
The original design of the F&I menu has evolved over the years. Some aspects have represented advancements, while others have just created more distractions. The transformation from the paper menu to an electronic template is nearly complete. Today, most F&I menus are generated by computer and then presented to the consumer. This has allowed managers to tailor product offerings and personalize presentations to include the customer’s name and vehicle information—all positive attributes made possible through technology.
The original paper format was intended to simplify the consumer’s choice. The current format at times has created unnecessary sales resistance by presenting too many options. This occurs by presenting six or more products on the menu as well offering too many packages. The menu presentation should be more about simplicity of design and flawless execution than how many trick plays you have in the bag.
Advertisers have long understood the power of odd numbers (3, 5, 7 and 9). These numbers increase recall and make a more lasting impression. Based on this principle and the concept of “good-better-best,” the original menu offered consumers three choices. The reason for the three choices was ease of decision. Most people gravitate towards the center. This is true in politics and life. Vilfredo Pareto’s numbers ring true. Eighty percent of people act in a similar fashion, while 20 percent (10 percent on each extreme) will act differently.
For all these reasons, streamlining your F&I menu as you gear up for 2010 represents time well spent. The three-column layout with a format of five products, three products and two products represents a clean and efficient approach. Too often there are either an inadequate number of products offered or circuit overload with seven, eight or nine products.
The question to ask yourself is if you are going to offer a package with a maximum of 5 (on a real push, six) products, what should you include in addition to your vehicle service contract? GAP makes sense for the vast majority of your customers based on the low down payments most buyers agree to during the sales negotiation. The other products will require some analysis.
Obviously, the beauty of the electronic menu is the flexibility to remove and add products as appropriate for lease and cash transactions. The key is to identify which products to keep and drop. Key-replacement protection has increased in popularity due to the rising cost of electronic keys, while by comparison many credit life products have declined. The important thing to examine when considering what to keep is to look at the market. Any products with single digit penetrations (less than 10 percent) should be scrutinized closely for actual potential. Pursue market standards for reference from product vendors and 20 group partners. If few dealerships are achieving success selling a particular F&I product, then it might be best to listen to the data.
The last piece of the puzzle is to make certain your F&I staff regularly works on their presentation skills. When was the last time they attended any formal training? Do they video tape product presentations in the store to review their performance? Does a third party, either a product vendor or an independent third party come in to coach your players two to three times per year to keep them sharp?
The important thing to remember is that all of the strategies listed above could be implemented at little to no cost at your dealership tomorrow. However, many of us left to our own initiatives fall short at times. The solution can often be to just ask for help, whether that is from your product suppliers or an independent third party.
Good luck and good selling.
Vol. 6, Issue 12