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 began.

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.