The fact that we still refer to F&I departments as “The Box” is archaic, but its nothing compared to the tactics we used to extract money from our customers.
When F&I first emerged, many dealers adopted a process called the “Chute and Box”. They’d promote ringers from sales to F&I and give them offices in an isolated part of their dealership. The walk to the office was considered the chute, the office itself was the box where F&I Managers would jam customers into over priced products that often time’s they didn’t even know they had purchased.
Ironically the “Chute and Box” which we’ve abbreviated to “the Box” comes to us from slaughterhouses. The chute is a narrow metal passage that animals pass through in single file. At the end of the shoot is the knocker box where the animals are shot is the head and rendered unconscious by a stun gun before having their throats slit. This is unpleasant to say the least, so why does our industry use such an offensive term to identify one of its most profitable departments?
The good news is that many of those aggressive sales tactics are gone; full disclosure and compliance have seen to that. The bad news is we’re still dragging customers into the box after subjecting them to a lengthy sales process that they hate. And for years customers didn’t have a choice that is until now.
Why hasn’t F&I evolved?
The argument that supports this process is that F&I is the last unencumbered profit centre that dealers have left and without it many would go out of business.
Plus, if you want to make enemies in an F&I department, all you have to do is suggest changing something. As a matter of fact, the mere mention of changing the F&I process to provide a better consumer experience is met with resistance the likes of which the world has not been seen since Kodak refused to purse digital photography.
Kodak invented the digital camera in back 1975, but chose not to pursue it for fear of cannibalizing their film business. Kodak was right, digital photography would kill film and their refusal to change allowed their competitors to crush them by providing user-friendly digital solutions.
At one time a “Kodak moment” defined a sentimental, charming or interesting point in time, worth capturing in a photograph. Today a Kodak moment describes businesses that fail to adapt to changes in their industry and fall from a dominant position into bankruptcy.
Will F&I have a Kodak moment or will it evolve?
Business managers love to trumpet the fact that their departments are amongst the most profitable in the dealership. NADA substantiated this in 2014 when they reported that while F&I only represent 3.6% of the average dealerships revenue, it generates 22.9% of their profit. No dealership can afford to lose this profit centre and since many F&I managers refuse to change, they continue to facilitate an antiquated, confrontational sales process.
The Traditional F&I Manager
Finding a capable F&I manager for the traditional role can be challenging. The job requires a person that has a duality to their personality and two distinct skill sets. I’ve often joked that to become a successful F&I manager one needs to have bi-polar disorder. The reason is simple; F&I managers have to be excellent sales people, well-organized, good administrators and proficient at paperwork.
Let’s face it salespeople often lack the administrative and organizational skills necessary to handle complex transactions, while many administrators lack the sales and people skills necessary to generate numbers that dealers need to remain profitable. Finding a person who is equally effective at both skill sets is a rarity indeed.
One person, two hats
In addition F&I managers have to switch from administrative hats to sales hats at a moments notice. They’re often mired in paperwork trying to make deadlines only to look up and find three people waiting outside their door for a T/O. Finding people that can effectively make these rapid transitions is a tough and it’s the primary reason F&I pay plans have exploded the way they have.
As a result F&I managers are usually amongst the highest paid individuals in their dealerships. The problem with this is not only the cost, but also the demoralizing effect it has on sales managers, administrators and sales consultants.
Consumers want change and if you don’t deliver, someone else will
- 99% of people expect a hassle while at a car dealership.
Driving Sales 2015
- 84% want to spend less time in dealerships and would prefer a more transactional experience online.
Source: Trust Factor Study About.com
- 87% want the buying process to be more transparent.
Source: CDK Global
- 71% of Millennials would prefer to do F&I research at home before they purchase.
Digital Disruption: Be the disruptor or be disrupted
Tesla, Carvana, Vroom and GoGoCar listened to the negative feedback and responded with customer centric, digital sales models that promote the fact that you no longer have to visit a dealership or an F&I department to buy a car. These companies are giving people choices that are disrupting the traditional sales model and forcing conventional dealerships to adapt to remain competitive.
The Sonic-One Experience is another bold, disruptive strategy that employs a hybrid sales/F&I process where one person called an Experience Guide handles the entire sales transaction, with an iPad.
They are one price stores with sticker prices that are below market value so there is no negotiation, no manager intervention and most importantly, no turn over. To facilitate these transactions, Sonic seeks out non-traditional salespeople for the position of Experience Guide. They target those that have a capacity to learn, excellent communication skills and function well in a team environment as opposed to sales experience.
Experience Guides receive a $40,000.00 base salary, plus bonuses for achieving sales and F&I targets. The pay plan provides offers the Experience Guides an opportunity to earn well above the industry average, which attracts higher quality applicants and lowers turnover, HR and retraining costs. As a result Sonics hybrid stores are no longer the last bastions of the unemployable as they made car sales a go to position with a clear path for growth.
Sonic hasn’t eliminated F&I mangers. They simply split the process in two. Experience Guides handle the vehicle and F&I product sales; Finance Directors handle the approval process and paperwork.
Typically the Finance Directors are former F&I managers that are well equipped to get even the most challenging deals approved. They also act as coaches that provide on going training and leadership to the Experience Guides.
Town and Country Toyotas 2015 Numbers speak for themselves
Town and Country Sonics flagship hybrid store delivered a record 3,152 units in 2015. Their new car market share grew from 12 percent in 2014 to 23 percent since implementing the process. Plus their F&I profit is higher than ever!
Sonic sold 138,129 vehicle in 2015, which means the Sonics-One Experience will reach thousand’s of buyers when it goes national. This will prompt a lot of your customers to question why they should tolerate a lengthy, outdated process when they can choose a customer centric experience that shortens the transaction time and eliminates aggravation.
Integrate F&I into the Sales Process and Digitize it
A simple solution is to split the sales and administrative function between two individuals each of which possesses the skill set to master their craft. One person handles the sale of the vehicle and the F&I products with an iPad based F&I menu. An iPad will allow them to sit next to their customers so they can screen share and offer complete transparency. An iPad will also eliminate showrooming as the likely hood of a customer pulling out their mobile device and placing it in front of the iPad has proven slim.
An hourly or salaried administrator handles the approvals, compliance and the paperwork just like a bank.
A recent article in F&I magazine claimed that average F&I managers sell 1.8 products per delivery. Are we to believe that as an industry we can’t attract sales professionals that can sell a car and 1.8 F&I products?
If we offered salespeople flexible hours, a base salary and an opportunity to earn $60,000.00 to $70,000.00 in their first year, we’d could attract a new breed of college educated, career-minded individuals that look at automotive sales as a go to position as opposed to a fall back position. This would also mean that dealers would no longer have to pay select individuals $150,000.00 plus.
Hybrid F&I is the solution
I understand that making a wholesale switch is risky, labour intensive and time-consuming. It requires a change that disrupts an important profit centre and a long established model. But, our consumers have spoken and as a result are being given more and more choices by upstart companies. Ultimately they will choose a better experience and they will pay more for it that’s what they want. The only question is will your dealership or a competitor provide it?
Trust + Transparency + Saving Time = Sales
People are driving farther and visiting fewer dealerships to buy cars than ever before. They’re doing this for three reasons Trust, Transparency and Time. They buy from people they trust, they trust people that offer transparency and respect their time. The Hybrid model delivers all three. To survive leaders must think less about improving their F&I process and more about reinventing it. You have a choice, take your head out of the box and fix your broken model or wait until a competitor force you to. The Hybrids are coming and they won’t go away.