Posted on Sep 1, 2016


Do you consider the finance and insurance (F&I) department to be a profit center or bottleneck? Some dealers have eliminated the F&I department to save overhead and expedite the car buying experience. But F&I and service contracts are often an auto dealer’s bread and butter, especially as increasing buyer awareness and market competition squeeze new and used car margins.

Should your dealership cut F&I? Or will the strategy backfire over the long run?

Merging F&I with Sales

When a dealership eliminates the F&I department, those duties are handed over to the sales department. So, in addition to regular sales tasks — demonstrating vehicles, locating buyers’ dream cars and negotiating deals — salespeople are also expected to:

  • Finance deals;
  • Sell leases,
  • Prepare credit insurance and service contracts;
  • Complete the paperwork; and
  • Disclose all F&I terms and conditions.

The idea of eliminating F&I processes appeals to many buyers, especially younger ones, who dislike being shuffled among several dealership employees during the car-buying experience. They want one-stop shopping and full disclosure.

But can you simply cut the F&I manager out of the equation? Old-fashioned dealers question how a merger between F&I and sales will affect their dealership’s long-term performance.

Testing the Merged Approach

Team One, a research and training company for the U.S. and Canadian auto industries, conducted a limited study to evaluate the effects of eliminating F&I. The test group consisted of top performing salespeople who were trained about F&I products, interest rates, full disclosure rules and legal issues. The control group was an effective, up-and-running F&I department at a similar dealership.

Comparisons between these two groups showed that properly trained salespeople were initially able to produce comparable F&I sales volume and penetration levels using pricing menus. But these levels dropped off in a matter of weeks. Retraining and follow-up helped keep salespeople focused on F&I, but they generally reverted to doing what they know best — selling new and used vehicles.

More serious were the adverse effects the test group had on customer service scores and contract cancellations. Many customers were frustrated and confused when the salespeople completed the paperwork and explained financing terms. Even well-trained, honest salespeople had a hard time providing full disclosure.

Retooling F&I

Team One’s study suggests that merging F&I and sales can work if you have a strong, competent sales team and if you are committed to training them on a regular basis. It’s also helpful to create a consistent F&I pricing menu if you plan to merge F&I with sales.

A less radical move might be to keep the F&I department and, instead, overhaul the selling process from start to finish.

Here are three tips to make transactions go more smoothly:

1. Involve your F&I manager early on to improve workflow, build rapport and bring F&I into the purchase price equation.

2. Send your F&I manager to ongoing training courses to stay on top of the latest F&I technology, product and regulatory trends.

3. Create a non-threatening, full-disclosure environment inside the F&I office. If the F&I manager is slow, disorganized or grouchy, it may be time to retrain him or her — or reassign your old manager and start using a new one.

The process of buying and financing a car should be low-pressure and streamlined. Consumers need an F&I manager who has the knowledge and patience to help them understand and evaluate their options before signing on the dotted line.

Is Your Dealership Handling these Issues Effectively?

Your F&I manager must comply with the latest rules and regulations, governing these credit-related issues:

Identity theft. Federal and state governments expect auto dealerships to help them fight consumer identity theft. The F&I manager must comply with the federal Privacy Rule, Safeguards Rule and the Red Flags Rule. Are you using the most updated version of the SEC’s Privacy Notice? Are you conducting regular safeguard audits? When is the last time you updated your written Red Flags policy? Owners may not know these answers, but F&I managers should.

Deceptive practices. F&I managers also should know what’s required and prohibited under the Deceptive Trade Practices Act. If not, your dealership could face a class action lawsuit for items such as payment packing or discriminatory pricing.

Bank fraud. Banks are required to file Suspicious Activity Reports (SARs) anytime they suspect misleading or altered loan applications. Dealers must be careful how they enter information from a customer’s handwritten application into credit aggregation systems. For example, F&I managers can’t overstate or combine an applicant’s income or misstate a job title. SARs can tarnish your reputation and lead to credit application denials.

Disclosures. Consumers also can file complaints or sue your dealership if the F&I department omits or inaccurately states the disclosures required under the Truth in Lending Act, Consumer Leasing Act, Privacy Rule, Used Car Rule, Risk-Based Pricing Rule, and other applicable federal and state laws and rules.

Dealerships must comply with more than 85 different federal regulations and states have additional requirements, according to the National Association of Automobile Dealers. A knowledgeable, efficient F&I department protects your dealership against credit-related fraud and lawsuits.