Should you cut the F&I department?

You may have heard reports of some dealers lowering overhead and customer wait times by eliminating the finance and insurance (F&I) department. But not every dealer should make such a radical move. It’s important to carefully weigh the pros and cons before cutting F&I.

Having a new mindset

F&I has historically been one of the top profit centers for dealerships. So why eliminate it? Evolving consumer demands and dealership business models may force you to rethink the selling process.

About 40% of auto buyers belong to Generation Y, and 82% of these tech-savvy 19- to 31-year-olds don’t ever want to walk into an F&I office, according to a recent presentation at NADA’s annual conference.

Offering one-stop shopping

Some dealers have responded to Gen Y feedback by merging the sales and F&I departments, creating a one-stop shopping experience. The goals are to improve CSI, minimize wait times, boost sales and cut overhead. The biggest cost savings typically come from cutting the finance manager’s salary and benefits.

But you’ll need to offset those savings against the cost of training your salespeople on F&I products, options and menus. They’ll have to learn the latest financial disclosure requirements, potential legal pitfalls and how to navigate F&I software programs. Dealers with a strong, competent sales force are best suited to merge F&I and sales.

Avoiding pitfalls

Not every salesperson has what it takes to master F&I. They will need to juggle:

  • Vehicle demonstrations and test-drives,
  • Vehicle selection and procurement,
  • Lead follow-up,
  • Trade-in values and price negotiations,
  • Aftermarket and F&I product presentations, and
  • Financing, tax and legal paperwork completion.

When salespeople multitask sales and F&I duties, some important items could fall through the cracks. For example, F&I product penetration levels might drop if salespeople default to what they know best: demonstrating vehicles and negotiating deals.

Even well-trained, honest salespeople might not provide full disclosure on every deal, resulting in more customer cancellations, lower customer satisfaction scores and serious legal issues.

Instead of eliminating F&I, you might consider retooling the process to minimize bottlenecks. For instance, some dealers involve finance managers earlier in the sales process, so they play a more active role in negotiating and closing deals. Or you might consider outsourcing F&I functions to a third party.

Being prudent

Eliminating F&I might make sense if your sales team is strong and you are committed to ongoing training for salespeople regarding F&I products and regulatory requirements. But discuss all the pros and cons with your sales manager and factory representative before putting F&I on the chopping block.