Throw-Away Deals or Missed Opportunities? Selling and Bundling F&I Products for Lease and High Mileage Vehicles

In today’s post-recession era, instituting products and processes that add value for high mileage and lease vehicles is something that needs to be re-evaluated industry-wide. The agent, dealer and F&I manager have long viewed these deals, much like cash sales, as throw-away deals. High mileage vehicles are not usually financeable, unless they are being sold at a buy-here-pay-here lot. But, we don’t have to wait for the finance deal to come in to make a profit. If you really look at all of the available opportunities, by offering applicable products for these vehicles, and implementing appropriate training, high mileage and lease deals should be as profitable as any other deal.

As an agency working with dealerships, we need to help dealers and F&I Managers understand that there are several different products that can be sold when it comes to leasing and high mileage vehicles. From prepaid maintenance, windshield protection, dent protection, tire and wheel and paint products, to high mileage VSCs – there are plenty of options to be offered that do not come with vehicle age restrictions.

It is really a matter of presenting the products, because in most cases today, nothing is being presented to these customers. I have seen F&I managers print all the paperwork and hand it to the salespeople on these types of deliveries and never present the customer anything - because they don’t have to! The dealer is not telling them that it is part of their pay plan - there is no focus on it. The vehicles are being treated as if they were wholesale vehicles and don’t even count into their pay plan!

Obviously, it is important for F&I managers to learn the features and benefits of all applicable products and how they apply to a high mileage buyer or lease customer. In addition, it is prudent to have some product knowledge, along with some practice in making these presentations with the agent. The presentation itself is not much different than any other deal – it boils down to whether you believe that customer can be sold. It is the same mindset that someone selling to a cash buyer needs to have. You can go into it with the approach that a cash buyer is not going to buy anything. But if they walked in with $25,000 cash, then they have money – that isn’t their last $25,000. You have to find a way to sell to that consumer and let them see the value of each product.

The dealer should demand that there is a focus, process and menu that works for all deliveries. The agent’s responsibility is to look at the product line-up, make sure that the dealership has appropriate products available, and make sure the menu is properly structured. They also need to ensure that the F&I department is being well trained on how to present the many available products that benefit the lease or high mileage customer.

While it depends on the customer and agent as to what products are best for lease or high mileage vehicle customers to be presented, I believe the most effective way to present the products is through a menu or some sort of formal visual process. It is very important to give the same presentation to every customer, every time. This way, you do not run the risk of being discriminatory. To maximize profits on these deals, like any other, you have to get to know your client by interviewing them and understanding their needs, therefore allowing for a confident and impactful presentation. This also allows for a consultative approach versus trying to figure out during the delivery what the customer may or may not want.

The Value of Prepaid Maintenance

The main thing to focus on with dealers is getting the customer back into the service department through prepaid maintenance. If they don’t service with the selling dealer, then the chance of them buying from the same dealer in the future is very low - only 14%. But if they do service with the selling dealer, the likelihood that they will buy from them again dramatically increases to 76%! We administer a tremendous amount of prepaid maintenance because dealers understand the benefit of tying the customers back into the store. Products that are going to keep them as part of that dealership’s family for a long time are key to future sales.

One of the things a dealer often doesn’t look at is how to capture their used car customers. They spend so much time marketing used car sales and then do nothing to get those customers back into their service departments. I once had a service manager in a Honda dealer tell me that they didn’t want to service anything except Hondas. I asked, “So you are going to spend all this money to advertise selling used cars – you are selling cars that aren’t Hondas – but you are not going to service those customers? So really, you cut your foot off for your next sale, and then you get to spend all that same money going out to get that same customer back again in three or four years, when you could have kept him in the service department all along.”

Prepaid maintenance on pre-owned cars is almost as critical as it is on new cars, because if you can keep that customer coming back to your dealership, then you don’t have to advertise for them again. If 76% of the time they are going to come back to you naturally, why wouldn’t you keep them there to begin with?

When you get into prepaid maintenance for high mileage cars or any used car, it is such a powerful tool because even if you are only breaking even by offering it, you need to look at how much you are ultimately saving. You can do anything you want to do with that customer, as long as you service their vehicle. If you do that, they are going to buy from you again. No matter what the value of the car is, the customer still needs to have maintenance done. Sometimes service managers will even tell us what they are not willing to do, instead of being willing to service every customer that the dealership sells a car to! Dealers allow a mindset that it is alright to choose to only take care of a “portion” of the customers that buy a car from the dealer. This is really a crazy notion – and to everyone’s detriment. Why would you push a brand new customer away from your dealership just because it is an off-brand vehicle?

As a dealer, you have to be adaptable and have a general technician on staff who can do general maintenance on each and every car. If you aren’t going to service all the vehicles you sell, then at least take the car through the service department and sublet the service. This way the customer is still coming back to the selling dealer.

The Dilemma: High Cost Service Contract – Low Cost Vehicle

Obviously, there are many different types of coverage available for pre-owned, high mileage vehicles. There are some coverages you can sell that provide basic, everyday coverage, and others that cover just about anything that could go wrong. Think about it like auto insurance – when you purchase auto insurance, you may not insure the full limits of the policy, but you need to protect yourself on the basic components. If I were an F&I manager, I might present three different types of coverage, rather than three different terms of coverage.

The customer needs to be informed that their vehicle can be protected in a number of ways. The most basic and least expensive coverage to keep the car running is powertrain protection. There are also products that can protect the engine, powertrain, transmission and most of the everyday equipment. Another option is selling them complete protection from one end of the car to the other with an exclusionary coverage product. The F&I manager should share with the customer that their main goal is making sure the car is running – for this, they need engine, transmission and drive train protection. They may be able to go without AC and power windows, but presented correctly, a customer will likely want coverage that will prevent them from having to put a new transmission in the car they just bought.

Cost is a part of the equation, but the most important part of the sale is getting the customer to understand the value of the products. If a solid presentation is made, it isn’t about cost, it is about how they can pay for it. A proper presentation should result in the customer seeing the value of keeping their vehicle on the road. If F&I managers present it as, “Hey I can get you a cheap service contract.” – the customer will not see any value, which will result in the F&I managers having low penetration levels. If they don’t present the features, values and benefits, they are only presenting cost. You have to start with values and benefits first – cost will take care of itself.

Bundling Products

Bundling products on a menu versus bundling products on a contract are two totally different things. We do a lot of bundling right on the menu, so the customer does not perceive there are four or five different products. They see one product. Bundling it on a menu and printing three different forms allows you to pull one product out if needed. If you have one contract with five different products on it, the gross profit to the dealership and the agency are both reduced because you are only getting one contract sold. We offer both the agency and dealership the option of bundling several products on one contract, or separate products each on their own contract, grouped as a single option on the menu. How this is done depends on how an agent may want it all bundled together – we have paint, dent, windshield and rim protection products bundled together and we have them all separated. The actual number of contracts that are going to print out at the end is not relevant to a customer making a buying decision. We bundle a lot on the menu because we don’t want to overwhelm the customer by having 15 different products available for sale. A protection-type product bundle might consist of paint and fabric, windshield, and dent and ding products all presented together as one menu item. But at the same time, if the customer says they don’t have an interest in one product, or perhaps they have windshield coverage through their auto insurance or roadside assistance through AAA, then we can respond by customizing the bundle with the removal of a product. Originally the presentation should be made as a group for the best penetration.

It is also imperative to make sure you are selling to the customer’s needs. If you only have that bundled product available, then sometimes you will lose a sale because the customer is so caught up on the fact that they don’t need roadside assistance, that you could lose the whole sale because they think they are paying for something they don’t need. Depending upon the interview, the menu and the F&I Manager’s presentation can be adjusted.

Appearance Products for Lease Customers

The most important thing for lease customers to consider is that at the end of a lease, they will be held responsible for any damage to the vehicle. If you spill coffee and stain the seat, you are going to get charged for that at the end of the lease. Interior repair and replacement can be very costly. The interior appearance protection product covers damage occurring during the term of the lease, so at the end, the customer isn’t held responsible for any damage such as stains, rips, tears or punctures in the fabric or leather. Obviously, that is a huge advantage. For exterior appearance products, unless there is major damage to the exterior caused by the environment, they will make the car easier to keep clean and looking nice. Being able to eliminate the need to wax or treat the car consistently throughout the term of the lease is a great advantage. Interior and exterior appearance protection can be offered separately - so if a dealer wants to sell only interior or only exterior, they are able to do that.

Ultimately, if we want to maximize profitability, we must take the type of unit or the type of financing out of our F&I approach. Every customer and type of unit must be presented with the same passion of a finance opportunity. What worked in yesterday’s market is not always the best approach for today. The industry as a whole has to rethink the way high mileage vehicle and lease customers are treated in the F&I office. If we don’t adjust our mindset, then not only are we failing to offer our best to those customers, but we will be missing out on profit opportunities.