Why F&I? How F&I Departments Began
by: Jan Kelly
The F&I department is a pivotal position in every dealership.With
the passing of 2009, and the dawn of a new year, we must visit the
reasons why the F&I process is necessary at every dealership
desiring to maximize every opportunity. Before getting into why you need
an F&I department, let’s look at how F&I departments
THE HISTORY OF F&I
The reason F&I began back in the late 60s was to ensure compliance
with the new Truth in Lending Act (TILA). TILA meant full disclosure
prior to obtaining the customer’s signature on any contract or
purchase order. The issue was accountability, and holding one person
accountable seemed simple enough.
In the beginning, finance managers were only managers, because they
signed the contracts as a representative for the dealership. For the
most part, others viewed them as secretaries who sold something. Their
first profit center was finance reserve.
Since banks sold credit insurance on the loans made in the branches,
the very same representatives the lenders did business with began to
call on the dealerships and the dealers looked for someone who had an
insurance license to work the F&I office.
It did not take long before dealers discovered that the change of
face in the documentation of the sale made all the difference in the
world to the bottom line. They saw additional income, customers were
happy, and the sales representatives were relieved of doing what they
saw as endless paperwork to secure the sale. The advent of the F&I
process was a lighting rod for a new income stream.
The first service agreements started appearing in the early 70s. In
the beginning, the policies paid everything and everybody, except they
did not pay claims. Thank goodness, time passed and the states and
departments of insurance made the industry improve. Currently, many of
the policies that you sell have backing from insurance companies, and a
high commitment to customer satisfaction.
WHY F&I TODAY?
So, why F&I in today’s market? The primary mission of
the F&I process is to secure the sale and to protect the sales
department’s gross profit. Increasing the dealership’s
profitability runs a very close secondary mission.
Proper documentation and disclosure is essential to any sale. The job
is not complete until the money is in the bank. F&I is instrumental
in increasing cash flow by efficient loan documentation and following
the contract through to funding. The F&I suite of products and
services is designed to increase the profit of the deal today, in
addition to building customer retention.
For those of you who need better cash flow, or find yourself in need
of higher profits, my words of counsel are simply to improve your
F&I process. Some of you reading this may still need to begin an
F&I process, and that is OK.
WHERE DO YOU BEGIN?
Find the right person who fits into your dealership’s
culture. F&I seminars can teach the mechanics of running a
department, selling products, documentation, and compliance issues.What
they cannot teach is work ethic, and moral standards. So, for those who
are in search of a finance professional, seek someone with like values.
The ideal candidate will be someone who is well grounded, and who wants
to work. They must like to talk with people, and they need to pay
attention to detail without getting lost in the paper shuffle
While most of us have some sort of debt, you do not want someone
hounded by debt collectors as your F&I person. The prudent things
will be to have an independent company do a credit and background check
on the applicant.
Remember, F&I is a place where you make money, and every place
that makes money, money can disappear. The wise business owner inspects
what they expect.