It can be the industry’s version of the old question: what came first, the chicken or the egg?
In this case, the question pondered by dealers is what do I sell in addition to a new vehicle on a limited loan amount: A) parts, garments and accessories or B) finance and insurance products?
Because consumers often are approved with strict loan amounts, the answer to that dealer question can’t be “A” and “B.”
Jerry Lenz, general manager of Bob Lamphere's Beaverton Honda-Yamaha, Tigard, Ore., first choose option A. That wound up backfiring and he has since gone with option B, a decision he’s now content with.
“I believe that people will still buy a helmet after” the initial sale of the new vehicle, Lenz said. “Or they’ll buy a jacket or boots or something. That’s an item they have to have.
“They won’t come back after the sale and ask to buy a pit pass or ask to buy a service contract or ask to buy tire protection. They can’t come back and get Gap on the loan.”
The short window of opportunity that F&I products can have wound up swaying Lenz to option “B.” But he did not start with that idea. Lenz originally wanted to capture the additional PG&A sales opportunities that financing provides. So about two years ago, Lenz asked his staff to take customers to the PG&A department after they selected their new vehicle.
After picking out parts and accessories, the customer would then be routed to the F&I department. But what Lenz found was that most consumers’ approved financing, often 120 percent above the MSRP of the vehicle, would be capped out after their parts purchases, meaning their loan amount would have nothing left for F&I sales.
As a result, Lenz’s F&I department would be left with an unpopular option: ask the customer to get approved for a second loan. Even if that occurred, banks would often ask a down payment for the second loan.
“Some had (cash) and some didn’t,” Lenz said. “It just wasn’t a great process. Then, my F&I (department) kept yelling that we were starving them to death because they couldn’t sell anything.”
So this year, Lenz made the switch — asking his sales staff to route new vehicle buyers to the F&I department first before going to the parts departments. The result: F&I sales shot up from $78 per new unit to more than $250 per new unit.
At the same time, however, Lenz saw a 50 percent decrease in the amount of PG&A sales new vehicle buyers were making at the time of the purchase on their approved loans. That figure does not represent sales that consumers could make with their own credit cards on the same day as the initial sale. And, Lenz’s overall PG&A sales have not decreased with the new sales procedure.
“The gamble I’m playing is hopefully they come here and not go to the Internet or go someplace else,” Lenz said of new vehicle buyers and where they ultimately buy their PG&A for their new vehicles. “I guess my philosophy there is to make sure that my people are courteous enough and that I carry enough (PG&A) stuff, which I do. The stuff is still going out the door.”
Copyright 2006 Powersports Business