Becky's blog

How to Profit in Hard Times

Here are ways to keep the F&I department humming

By Rebecca Chernek

Ward’s Dealer Business, Oct 1, 2009 12:00 PM

It is possible to enjoy healthy finance and insurance profits even when the market is off kilter. Let’s look at ways to do that.

First, create a consistent pricing philosophy after deciding which F&I products to sell.

Each product should have a specific mark-up, and each should be presented to every customer with that mark-up in mind. Have in writing your return on investment on each product sold and at what percentage.

The mark-up is not achieved through a willy-nilly process; the banks you do business with have advance policies that affect such a decision. Consistency with product offering and pricing increases sales and profitability.

If you allow finance officers to pick and choose what products suit them or which ones to offer to the customer and at what price, it can sabotage results.

Pay Plans that Produce Results

Now is the time to review your pay plans.

Pay attention to the products on your menu and to your total department payout. Use the figures you’ve worked out for each product, including your expected units sold and at what price.

F&I management payment plans vary. Some dealers have veteran finance personnel who are skilled in presenting their products and produce a satisfying net result. Others need more training and encouragement.

For those who sell less product and hold more reserve, consider a pay plan that yields results through products sold that increase overall performance. Some dealers utilize a grid pay plan that supports volume, percentage of products and profit. A good pay plan motivates your F&I manager to perform to your initiatives. It drives products while still focusing on profit.

Benefits of Reinsurance

Reinsurance is another way to maximize your wealth through products sold. Many dealers who have been hit hard by the recession have managed to keep their doors open due, in part, to the reinsurance program they instituted years earlier.

A successful reinsurance program can add much to your bottom line. Some dealers use reinsurance as a part of their business, while others don’t fully understand how to make it profitable. Proper products that are pre-screened, priced adequately, and presented on a consistent basis will produce satisfying results.

While each dealership is unique, the basic principles of product sales and reinsurance can be used by each.

Increased sales and profits depend entirely on how each dealer defines current problems, new goals and solutions. Every dealer can succeed and grow, even in the current recession.

Perhaps you have read “Out of the Crisis” by W. Edwards Deming, the father of Japan’s post-war industrial revival.

In the book, he said, “There is no substitute for knowledge. Experience by itself teaches nothing. The problem is at the top; management is the problem.”

This is why active, hands-on decision-making and management by dealer principals are important.

Take stock of how your dealership is progressing. Get rid of the window-dressing and zero in on the best quality products that will serve your customers. Price them fairly and know your numbers, but retrain your managers and think about how each product and each benefit of your reinsurance program improves your entire business structure.

But remember. While the numbers are critical, pay even closer attention to your managers, the effectiveness of your procedures and your customers’ needs.

As Myron Tribus, a former director of the Center for Advanced Engineering Study at Massachusetts Institute of Technology, said:

“If you try to improve the performance of a system of people, machines, and procedures by setting numerical goals for the improvement of individual parts of the system, the system will defeat your efforts and you will pay a price where you least expect it.”

F&I trainer Rebecca Chernek is CEO of Chernek Consulting, LLC. She can be reached at 404-276-4026 and

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