Digital Retail: The Solution for F&I Profitability

With front-end margin compression continuing, interest rates rising, and the SAAR cooling, agents play a pivotal role in the development of today’s dealerships. F&I income is paramount to dealership profitability and driving results in the F&Idepartment is the cornerstone of modern dealership strategy. 

The challenge that agents face in the near future is the spread of F&I outside of the F&I office. F&I is moving upstream in the customer buying process, and with the increasing adoption of digital retail, people who were neverallowed to discuss F&I are now becomingintegral in the F&I sales process. 

Threat of Outside Financing  

The real threat to F&I profitably is not digitalretailing; it is outside financing.

According to a recent study released by FICO, on a pool of 2,000 customers analyzed, dealership financing dropped a whopping 10 percentage points in one year from 2017 to 2018. Only 40% of customers said dealership financing would be their first choice for their next automotive loan.

Even more ominous is the shift in consumerperceptions. 

The study noted the following: 

• 60% of customers will look for financing through online sources and outside banks before visiting a dealership for their next purchase.
• 78% of U.S. consumers are initiating automotive loan discussions (versus responding to offers).
• 95% said they only consider between one to three lenders before making their loan selection. 
• 91% of U.S. consumers would accept (or at least consider) an instant vehicle loan offer if it meant avoiding dealing with a bank or doing extra paperwork. 

Having customers finance their car through the dealership is critical to maximizing F&I profit. It’s dangerous to leave that profit up to chance and only addressing it during the last stage of the F&I sales process. When a customer arrives at the dealership with outside financing, the F&I best practice is to convert them to a captive customer before trying to upsell products. 

However, it’s too late. 

Doing this ensures an opportunity to sell F&I products, but it erodes customer satisfaction, burns up critical sales capital, and slows down deal momentum. Everyone wins when the dealership sharply focuses on attracting customers to internal financing. Make it a goal to take back control of the financing process. 

Remove Barriers

This should not come as a surprise. Customers have been telling us for years through CSI surveys that the single worst part of vehicle purchasing is the time it takes to transact. We live in a world of instant gratification. The companies that win are those that remove every barrier between a customer and their purchase. 

Let’s consider Amazon for a moment. Some would say they trained generations of online shoppers. It’s not always the cheapest, but millions of users continually purchase through them due to the ease of use. Have you ever bought something online and halfway through the checkout process thought, “I don’t really want this that bad” and closed the page? Well, Amazon solved that. “One-Click” checkout is a game-changer. 

How do we take that example and bring it to auto?

Payment calculators on dealer websites are a step in the right direction, but let’s think bigger. A growing number of customers are looking for ways to speed up the dealership purchase process by locking in their financing before they arrive instore. This means a higher proportion of customers showing up with financing arrangements already secured, reducing the opportunity to sell them value-added protection and forfeiting F&I gross.

The Big Idea: Provide an Online Channel

Financing a car is not a one-time transaction. It’s a pivotal moment in the sales process where dealers can start or seamlessly continue a longer-term, mutually beneficial relationship. 

Fueled by the Amazon shopper mindset, the trend toward “online everything” continues. The same holds true for cars. A recent study from Cox Automotive showed that 83% of customers want to do one or more steps of the purchasing process online.

Customers want a one-stop online shopping experience where they can evaluate lending options and customize based on their objectives. They want the flexibility to include a down payment, pick their loan term, and determine options before entering a showroom. They want to shop at their pace. 

The same Cox study reported that 85% of customers are more likely to buy from a particular dealership that allows them to start or complete nearly all of the vehicle purchase online. 

However, here’s the catch: To complete a digital showroom experience, your dealers must enable and promote online credit decisions, turning their website into a vertical marketplace! 

Agents Play a Critical Role 

This presents an opportunity for the modern F&I agent. Today, F&I training is table stakes; it’s now commonly expected as part of doing business with an F&I company. As F&I consideration happens earlier in the process, digital retail presents an opportunity to expand the scope of an agent’s influence within a dealership. 

By providing F&I focused training to sales, BDC, internet, and management, agents can increase their value, further cement their relationship, and reduce the risk of losing a dealer partner. They can also leverage this angle to present a unique suite of services to prospective clients that are critically aligned with the current movement in the marketplace. 

Historically, this hasn’t been an area agents have played in, and it now creates a unique moment to prove value. By developing expertise in this rapidly expanding area of importance that is related to traditional F&I, the modern F&I agent can generate increased relevance in this rapidly developing digital marketplace.

Agents Get Creative

Proactive agents are getting creative helping dealers navigate these changes. Agents like Rick Bailey, principal of Benchmark Dealer Services, addresses the shift by supporting his dealers and paying AFIP to certify the BDC reps. He empowers frontline employees to discuss knowledgeably and ethically, F&I protection products, with customers. 

This legitimizes protection options in customer’s minds. It moves F&I from an afterthought to a normal consideration in their buying process. 

Other agents, like Mike Klass of Associated Dealer Services, leveraged a partnership with AutoFi to present quality thought leadership and training to their dealers to help them navigate the transformation.

They help their dealers select a reliable digital retail partner. Their agency support and training through the different phases of digital retailing ensure that F&I conversations happening outside the F&I office are managed in a compliant and professional manner. 

Mike Moses, president of Global Dealer Services, is taking it a step further by providing digital retailing technology to his dealer partners as part of his agency’s core suite of services. This presents an excellent opportunity to increase their influence by providing technology and training that weaves F&I through the entire customer purchase journey. 

Their goal is to create a unified voice supporting the value of F&I products throughout each level of the dealership.

When dealers transition to digital, they are often unaware of the need to find a partner that can ensure they provide a secure and legally compliant solution. 

As a trusted partner, agents have an opportunity to help dealers navigate the technology side and market shifts. Agents become an even more valuable resource by having in-depth knowledge about best practices, reliable technology, and the pitfalls dealers must avoid. They can also leverage their expertise as a value-add to sell new potential dealers.

Become a Trusted Advisor

Dealers often overlook the most critical piece of digital retail as they are bombarded with many potential solutions. However, most solutions have not solved the actual financing side. 

It is critical to ensure that, when your dealers choose a partner, they find one who has done the extremely challenging and complex work of building out the security and integrations, to power a multilender online credit decisionmaking engine that lives where customers are shopping: the dealership website.

Dealers focused on keeping profits within their walls will need to look for a partner that can power a 24/7 ecommerce solution on their website. 

This is how you convert digital shoppers to dealer finance customers and neutralize the risk of them getting outside financing. It’s why dealers get incredible F&I results when they have a great digital retailing tool and world-class training and support.

Joe St. John is head of digital retail at AutoFi and an experienced F&I professional and trainer.