How to Keep the F and I Office out of Trouble

by Jamie LaReau
for Automotive News
August 2015

Dealers' goals and those of finance and insurance managers tend to be at odds. 

Dealers seek high customer satisfaction and loyalty and long-term revenue. F&I managers are inclined to focus on short-term profits and maximizing opportunities to generate them. 

If F&I managers prioritize their aims instead of dealers', it could lead to serious problems in the F&I office, such as a slew of chargebacks on F&I products or even illegal practices, industry insiders say. To minimize that risk and ensure customers have a positive F&I experience, they say, dealers should: 

•  Design a process that prevents bad F&I practices and enforces consequences. 

•  Boost F&I education and training. 

• Scout top-notch hires who manage their own credit well.

•  Devise pay plans that shift the focus from commissions to customer satisfaction. 

Bad behavior in the F&I office happens less frequently than in the past because of heightened law enforcement and increased demands by manufacturers for high customer satisfaction scores, said George Angus, president of F&I consulting firm Team One Group in Scottsdale, Ariz. 

But it does happen. Take Serra Nissan in Birmingham, Ala., where eight former managers and salespeople pleaded guilty to criminal charges in a scheme to falsify loan documents. The dealership also faces a civil suit charging its F&I and sales offices with a pervasive scheme to defraud customers. 

Illegal F&I practices include slipping products into deals without customers' knowledge, called jamming, and power booking, which is submitting false information to lenders about a vehicle's features -- such as listing leather seats when the seats are cloth -- to inflate the vehicle's value so the lender will increase the loan amount. 

To prevent such practices, a dealer has to spell out the rules on conduct and enforce the consequences if those rules are broken, Angus said. "Dealers have to create pro-cesses that make that enforcement happen and weed out the bad apples," he said.

Curbing chargebacks

At Johnson Automotive in Raleigh, N.C., committing any such act is grounds for termination, said Greg Kostern, the company's business director. 

Nearly 10 months ago, Johnson Automotive changed its F&I selling process to prevent jamming. The result, Kostern said, is improved profits and far fewer chargebacks -- that is, refunds of commissions received on F&I products that later were canceled by customers. 

The eight-store group's new style is called conversational selling: Products are described to customers conversationally, and the menu is shown at the end of the presentation. 

"Our conversation technique eliminates jamming because we are full disclosure," Kostern said. "They hear everything about every product, it's consistent, and they will hear and see the price of each." 

Each of his 16 F&I managers does about 65 deals a month, 15 of which are audited. The group's customer satisfaction scores are consistently near 100 percent, and the average F&I revenue per vehicle retailed is up 35 percent vs. where it was before conversational selling was adopted. Chargebacks have been reduced by nearly half. 

Bay Ridge Honda in New York City reduced its number of chargebacks by switching from a paper menu to a computerized one about 18 months ago. 

The dealership also increased its F&I training and now requires sales managers to vet every single deal for appropriate signatures and figures. 

There are still chargebacks, but a lot fewer, said Harry Potamianos, Bay Ridge Honda's general sales manager. "Chargebacks generally happen when the products sold are not properly presented to the customer and the benefits of the product are not properly explained," he said. "This eliminates it. You definitely feel more secure with a computerized and customized menu." 

Bay Ridge Honda also does in-house training three times a week and uses an outside trainer twice a month to ensure finance staff is compliant and competent, Potamianos said. "If that training happens, chargebacks get greatly reduced," he said.

New menu, more training

Mercedes-Benz of Brooklyn, also in New York, heavily monitors most deals to eliminate unethical practices and ensure customer satisfaction, said Finance Director John Skiadas. 

"Every week, we take five or six deals and set them aside and review them and learn from that," Skiadas said. "Do we make a few mistakes? Sure. Not big mistakes, but we learn from it." 

Also, in October, the dealership redesigned its F&I menu. The F&I manager now presents just five of the most identifiable products the customer might use, Skiadas said. It streamlines the time spent with customers. 

"All the products are presented in a precise way, and there is no overly high markup. We try to tailor it to their driving style," Skiadas said. "Therefore, we have to work within the grid of what is important to each and every customer. If you sign on to work at our dealership, that's part of what we expect." 

The dealership also requires finance managers to complete Mercedes-Benz training twice a year. Store managers hold weekly meetings to review processes, too. 

Neither Bay Ridge Honda nor Mercedes-Benz of Brooklyn requires finance staff to be certified by the Association of Finance & Insurance Professionals. But Skiadas said his store would consider it to "add to our resume that we're doing the right thing."

Good people, pay plans

The best way to avoid finance office problems is to hire good people and train them right, F&I consultant Angus said. That sometimes means looking outside the industry, such as for bank employees or title clerks, he said. He also recommends running a credit check on all applicants. 

"A credit check tells you about their character," he said. "Somebody who doesn't pay their bills probably isn't responsible, so do I want that person handling my business? If they couldn't get a loan on a new car, how do I know they can understand the lending process?" 

He also advises dealers to design a pay plan that inspires the behavior the dealership values. "A salary-based pay plan in F&I is good, but you don't want to remove incentive," Angus said. He recommends an F&I pay plan that combines salary and commission. 

"Another thing that is popular is sharing the profits between the F&I and sales departments," he added. "It builds cooperation between those two departments." 

Ultimately, he said, if a dealer does not cultivate a culture in which customer happiness trumps profits and commission, everybody loses. 

"Today, it doesn't matter how much money you make. If you're not in compliance, with top customer satisfaction scores, you're a dinosaur."