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F&I office more important to new-car dealership profits

One of the ways to rate a salesperson's effectiveness in any car dealership is how many customers he or she can get “into the box” in a day. That simple phrase – “getting them into the box” – is the final step in any car deal. It actually stands for getting the customer to the finance and insurance department (F&I).

You can't drive out without it

To be honest, you can't complete any deal with any dealer unless you get your customer “into the box,” even if it seems like the deal is done. The “box” is where the bill of sale is generated; where alternative money sources are found; where the dealership sells extended warranties (why you would want one on some cars that have 100,000-mile warranties is beyond us), and where the dealership sells a host of items such as wheel care products, new wheels, upgraded sound systems, and so on.

It may seem as if it is just a paperwork office, but it is key to getting the deal completed. It is also a source of revenue, just as the showroom and new/used car lots are sources of revenue.

Some have speculated that with the growth of the Internet and the ability to find just about any item you might want that the F&I office may be going the way of the passenger pigeon and dodo bird – they are heading toward extinction.

Not very likely

Even with the Internet and Internet sales departments and companies that are dedicated not only to parting you from you money, but also to provide many of the services that F&I departments provide, Jim Henry, a special correspondent for Automotive News, recently observed.

Quote a report from McKinney and Co., Henry noted there are times when customers need the resources of “brick and mortar” F&I departments. For example, the report points out, there are times when online sources just cannot provide the type of information on credit, for example, that the F&I manager can provide.

Pointing to the real estate market, Hans-Werner Kaas, senior partner of McKinsey's Detroit office noted: "You can shop for home mortgages online and find out from a lot of sites what the rates are."

Very different animal

Car deals are a very different type of animal, Kaas noted. He told this week's edition of Automotive News that car deals:

  • There are many more elements to the finance piece of the picture

  • If it's a lease, there's the residual value

  • If it's a sales, there's the APR

  • If it's a sale, how much should the downpayment be

  • If it's a sales, how much money should you take from your pocket

“Not every consumer is well-versed in how auto finance works or trusts the online information,” Kaas indicated.

Another McKinsey executive, Himanshu Singh, an associate principal in McKinsey's New York office, noted that car sales are not like home sales in that there's established procedure for a 15-year deal or a 30-year deal, the types of transactions you run into in real estate. Instead, he noted, each car deal is unique.

Important to bottom line

With the amount of information available to a consumer online, dealerships are finding that amount of profit generated by each deal is “thin and getting thinner,” Henry wrote in his Automotive New piece. The result is that the profit that is generated by the F&I office is becoming more and more important to the dealership's profitability.

With new-car sales today generating less than 20 percent of a dealership's profit, every penny that can be squeezed from every department is important. The reason is simple today's new-car deal generates very little and may even go negative, the McKinsey report indicated. That's why “financing and warranties are becoming ever more important as sources of income," the report noted.

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