When Howard Hughes designed and built airplanes, including the so-called “Spruce Goose,” he paid attention to every last detail. The author advises dealers to do the same for the F&I process.
PVR and penetration are the fuel that put the F&I office in motion and keeps it in the air. A robust F&I office pumps extra revenue throughout the dealership. However, many little things are adding up to slow you down and waste your efforts.
Wealthy, eccentric inventor and pilot Howard Hughes famously worked to slim down and streamline all the small rivets that he felt were slowing down his aircraft. Each little piece was making his airplanes work harder and wasting valuable fuel. He knew he could do better and, with each iteration, he reduced the drag and improved the lift so he could go faster, higher and further than his competitors.
Put yourself in Hughes’ shoes for a moment and ask yourself how well your F&I department is doing. The public dealership groups’ results can provide a useful comparison: Collectively, their new-car PVR for late 2015 ranged from $1,189 to $1,556. How do you measure up?
Perhaps it’s unfair to compare your results to those of the large groups. More heavily resourced enterprises can more easily fund F&I training and technology to push results beyond the typical. But they are also very likely examining F&I results in depth, analyzing what the data tells them and where opportunity leaks that erode PVR and product penetration are occurring.
As for product penetration, the National Automobile Dealers Association (NADA) reports member service contract penetration is about 40% of new-car sales. How are you doing against that metric?
In 2015, my company analyzed about 1.5 million vehicle transactions and looked at several important F&I performance indicators, including:
- Menu utilization
- Dealer PVR
- Product penetration
- Vehicle gross
- F&I gross
- F&I reserve
- F&I product gross
We published the full results in a white paper, but for now, we’ll focus on just three: menu utilization, PVR and penetration. The data helps us understand how these metrics vary between transactions in which the F&I department used a robust menu — or did not.
We pulled data from 270 Fiat Chrysler Automobiles (FCA) dealers using leading menu software. This digital menu engages customers using interactive devices such as tablets, touchscreens and televisions to give a comprehensive and customized product presentation quickly. Digital menu platforms should also provide management with details about everything that happens between the buyer and F&I presenter — a media-rich experience that promotes transparency and ensures compliance. The most advanced systems will have a survey built in that synthesizes critical data to create product recommendations and allow for maximum customer control. All this leads to a better buying experience for the customer and more profits for the dealer.
As a snapshot, the numbers told us that dealers using a digital menu system were realizing $538 more new-car PVR and 12% and 10% lifts in VSC and GAP penetration, respectively.
Broader Menu, More Sales
As significant as these increases are, what’s most telling is that these stores achieved these lifts by using a top-of-the line digital menu for just slightly more than half of their total deals; they used no menu on the other 48%. Imagine how much more profitable those stores would have been had high-end menu technology been applied to all sales.
Now let’s look at some other numbers. Below are January 2016 digital menu results for two other dealerships, in Hawaii and Missouri. It appears the Ford dealer focuses on presenting and selling a broader product menu than the FCA dealer:
Consistent use of menus helps F&I deliver four other core promises, as well:
1. Save time: Digital menus use can shorten a consumer’s time in F&I by an average of 15 minutes. That’s an enormous savings for individuals eager to be done and on their way.
2. Consumer control: Customers are already using touch technology in their daily lives. The best systems will fully integrate the front-end and the back-end to create an F&I experience that is an extension of the dealership, brand and lifestyle of the customer.
3. Give clarity: Paper processes only leave customers wondering if they got the whole story. An interactive menu helps customers better understand the value of the products, which in turn builds trust in your dealership.
4. Protect customer data: Paper processes risk misplaced deal jackets and other documents that can put private customer data at risk. Digital menu systems keep F&I processes compliant with the Gramm-Leach-Bliley Act.
Most sold customers are eager to hit the road. Maxim believes a streamlined, technology-driven process can shorten time to delivery while boosting product sales.
As you discover where profitability is lagging because of the continued use of old methods of approaching F&I, consider how digital menus and related innovations can lift your results to new levels of efficiency and customer engagement:
- Interactive sales tools, including tablets, videos, customer surveys, kiosks and game technologies, help explain product features and benefits in powerfully compelling ways. Their use helps customers better connect the value of each product to their lifestyle.
- When correctly implemented, digital rating systems simplify and speed up how quickly F&I can build successful menu presentations. It also eliminates the chance that F&I managers will make pricing errors on the products they present.
- Digital contract remittance speeds up the contracting process. According to J.D. Power, “Process innovations such as econtracting, combined with improvements in dealer support and a robust product offering, contribute to satisfaction increases.”
- Finally, digital signatures speed up document completion. However, be sure the vendor you work with complies with both the Electronic Transactions Act and the Electronic Signature in Global and National Commerce Act.
Removing every element down to the rivet increases your flight time, speed and agility; so too does the use of smart F&I technologies. You might have been able to get by with bulky F&I practices in other eras, but no more. Stop your profit drag and lift your PVR and penetration volume.
Jim Maxim Jr. is president of MaximTrak Technologies, a leading provider of dealer software solutions. [email protected]