By Neil Pascale
With the effect the shaky U.S. consumer confidence is having on the industry’s new unit sales, it won’t be surprising to see dealers look harder at other profit centers.
F&I could be one of those more scrutinized areas as dealers weigh the idea of putting more personnel expense in F&I in return for the potential of more back-end profit.
Last summer, a national dealership survey by Powersports Business found full-time F&I staff are largely the minority in the industry. Dealerships making less than $10 million annually on average did not have one full-time F&I staff member, according to the survey of 500 dealerships.
Even dealerships that made between $5 million-$10 million annually with an average staff of 20 employees did not have a full-time F&I salesperson. To dealers that do employ a full-time F&I person, that seems like a glaring omission.
“I can’t imagine not having one, even if I was doing 30 units a month,” said Greg Mackey, president of Cycle Central Inc., which has eight powersports locations. “I would have to have one because of the dollar value they bring into the store.”
Although at what point a dealer should have a full-time F&I person is debated — should it be at 360 units annually or closer to 1,000? — the idea of adding a full-time F&I staff member presents several questions: How much should they be paid? Should it be more or less than the new unit sales staff? What should their workload be? What qualifications should that full-time F&I salesperson have?
Of course, the first step, the one Mackey preaches, is making the leap to add the full-time F&I salesperson.
“You can put one person in an office with a pen and a computer and make double the income of your service department,” he said. “It’s been tried and true over and over again.”
Irv Fosaaen, the owner of five dealerships in Wisconsin, Iowa and Minnesota, has similar feelings.
“I personally believe if you’re doing 200 (new and used) units a year, especially Harley-Davidsons, you can afford a full-time F&I person and they can make a good living,” said Fosaaen, the current vice president of the Harley-Davidson Dealer Advisory Council. “In the import business, if you’re a 300 new and used unit dealer, a guy should be able to make a living out of it.”
Others in the industry point out it’s more common for dealers to look at staffing full-time F&I personnel only when a dealership approaches 500-1,000 new units sold per year.
How much is enough?
Most dealers interviewed said their F&I full-time salespeople were paid more than their new unit salespeople on the showroom floor.
“That’s typical,” said Steve Jones, general manager of Gart Sutton & Associates, a dealer training consultant company.
That’s certainly the case at Fosaaen’s five stores, which include separate Harley-Davidson and metric locations.
“We generally feel an F&I person — a successful one — should make twice as much as a regular salesperson,” he said.
Although his metric and Harley-Davidson stores have slightly different pay plans, generally Fosaaen’s F&I sales staff gets a small base salary, around minimum wage, plus a commission. The commission is around 15 percent of the total F&I products the person sells.
That pay plan changed a couple of years ago when Fosaaen went to more of a commission-based salary.
“The good F&I people make more money,” he said of his reasoning for making the salary more dependant on commission. “The dealership makes more and if you have somebody who really shouldn’t be in that job, then it forces you to make a change.”
Part of the change also incentivized the F&I salesperson to concentrate less on charging additional interest on consumer loans and to sell more prepaid maintenance and warranty packages.
“We feel those are things that build value for the customer and the dealership where simply marking up the interest rate really doesn’t provide any value,” Fosaaen said. “The customer only has so many dollars he can put into a monthly payment and I would see his payment include prepaid maintenance and be two points lower. I know a lot of dealers routinely mark up paper 2-3 percent. We feel that gets you a lot of charge-backs plus it doesn’t build any customer loyalty.”
Like at Fosaaen’s stores, Cycle Central’s F&I salespeople make more than their counterparts on the showroom floor.
“It’s probably the most coveted job in all of our stores,” Mackey said of the F&I positions.
Cycle Central also has made adjustments to its F&I staff pay plan, which is also heavily dependent on commissions. Rather than a flat percentage, the commissions are now determined by the total amount of F&I sales and a salesperson’s percentage in key penetration targets, like extended warranty and prepaid maintenance.
The F&I salary plan is significantly different at Beaverton Honda-Yamaha, a metric dealership located near Portland, Ore. F&I salespeople’s total salaries are similar to the new unit sales staff, said Jerry Lenz, the store’s general manager. There, the F&I pay plan consists of a small hourly wage, which equates to around one-third to one-fourth of the total salary, and a commission. That commission is based upon a team approach where all the commission money is pooled in a single pot and then distributed to the different parties.
Pay plans, of course, differ significantly by region, Jones of Gart Sutton & Associates pointed out.
“If you’re in a highly competitive F&I market, either powersports or automobile dealers, you’re going to have to pay what it takes to keep them,” he said.
“If you’re surrounded with very savvy, highly competitive automotive dealers with good F&I departments, that’s going to be the measure of what it’s going to cost to keep the guy.”
As with salaries, the expected workload for one F&I salesperson can vary dramatically. Some dealers believe more than 100 deals per month per salesperson is not excessive while others shoot for half that much. Much of the workload question revolves around whether that one salesperson will have assistance from clerks that can handle or finalize credit applications and other paperwork.
Lenz tries to have each F&I salesperson handle around 100 deals per month. “I try to get it to where 35-40 minutes is the longest consumers are in the finance department,”
Fosaaen believes if F&I sales staff are “doing much over 30 deals per month, they need a clerk to help them.”
Mackey said that Cycle Central shoots for F&I salespeople to handle between 50-75 units per month.
“You get much over that, you start losing penetration points and you start losing PUS (per unit sold) numbers,” he said.
What should an F&I candidate possess in terms of qualifications? Is it better to get an experienced F&I person perhaps from the auto industry or start with an inexperienced person you can train?
Again, the answers vary.
Mackey said “we try to graduate our people from the sales floor to the F&I office because they have a strong understanding of how we operate and how we expect our deals to be closed and handled. If we pull somebody from outside, we want somebody with zero experience because we want to train them. No bad habits to break.”
Lenz of Beaverton Honda recently hired a new college graduate with a finance background.
“The ones who I don’t like anymore are those coming from the credit unions or bank people because they’re not really good at closing the deal,” he said. “Even though they are great at reading the credit application, they don’t have good penetration on service contracts and maintenance programs.”
Fosaaen doesn’t look for any particular experience on a resume.
“Sales ability and people skills, that’s 95 percent of it,” he said.
Jones of Gart Sutton & Associates advises dealers to look for candidates that have “a special blend of salesperson and analytical,” he said, noting the paperwork and compliance requirements that often come with the territory.
Jones says the candidate should be extremely customer friendly and laid-back. Believe it or not, he says that description could fit someone coming from the auto industry.
“In the current environment, you don’t find a lot of high-pressure F&I automotive people. Not like it was,” he said. “There are a lot more warm and fuzzy types than in the past.”
Fosaaen notes an ironic twist to having full-time F&I staff, something dealers interested in such an approach could find interesting.
“If a guy is really good,” he said, “he’ll probably make enough money to where you probably won’t be able to keep him.”