Overcoming a Fear of Margin Compression with F&I Sales
Like it or not, margin compression is alive and well in the auto industry. Sure, it’s unpleasant to think about, even downright frightening at times, but you can either face the facts and do something about shrinking profits, or ignore the problem entirely. The choice is up to you, but if you’re looking for a way to overcome a fear of margin compression, your existing customers may hold the keys to unlocking hidden profit in other areas of your business.
F&I Sales as a Solution to Margin Compression
Your dealership’s Finance and Insurance (F&I) is the best way to build retention and secure future relationships with your existing customers. Think about it. Your customers thought highly enough of your business to buy a car. And, while they’re still experiencing the euphoria from being the proud owner of a brand new vehicle, your F&I office has the opportunity to offer even more. By selling prepaid maintenance plans and other service agreements, your F&I office can increase the transaction amount, retain more profits, and all but reassure that your customers will make multiple return visits to your dealership.
Tony Troussov, a specialist in advising dealerships about the importance of F&I sales during times of margin compression, says that a dealership’s best business opportunities come through F&I, especially when margins are slim. In fact, according to his research, a dealership retains 70 to 80 cents for every dollar it generates through F&I, a much greater profit than through the sale of a car.
“Focus has shifted to improving (F&I),” Troussov said. “In the wake of margin compression, the vast majority of stores are paying attention to F&I. Five years ago, it was the other way around … Typically, dealers know how to make money by selling a car, new or used, but they have struggled in F&I and service areas. Now, there’s a lot more discipline and dealerships are paying attention to numbers. In the past, that wasn’t the case. It’s a good trend.”
Don’t let the fear of margin compression prevent you from finding profit in other areas of your business, especially when it’s is as apparent as putting a little extra emphasis on F&I sales and customer retention.
If you’d like to learn more about generating profit through F&I and other ways to combat margin compression, download our free guide, 7 Solutions to Margin Compression, Strategies for Preserving Dealership Profit Margin.