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All posts by Myril Shaw

Maximize Reserves To Maximize Profits

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How do you make money in your Finance Deapartment?

You sell Products!

Some of the products are obvious.  Extended warranties are one kind of product, interior/exterior protection is another product.  Tire and Road Hazard is a product.  Prepaid maintenance is a product.  GAP Waiver is a product – for finance buyers.

Well, guess what, Funding Reserve is a product.

Sometimes people wrongly believe that F&I is an administrative function with a sales component.  In reality, F&I is a sales function with a very important administrative component.

Now, the guiding principle in Finance is, “First, do no harm” – not selling a unit means that no one makes any money anywhere.  The second principle (and this is very close second) is, “You will never make more that what you ask for initially.”

If F&I is going to contribute 50% of your store’s net profit, and it should, you have to successful with both of those principles.

Funding reserves, the amount that the lender pays you based strictly on the contract terms provided to the buyer relative to the contract terms provided by the lender to the dealer, should make up roughly 50% of your total F&I profit.  They are presented as a percentage of the amount financed.

Reserves today range from 0% on contracts presented to customers at the buy rate to as much as 7% (and in some special cases even higher) for good credit customers presented with the maximum permissible contract rate.  For example, when going through a lender who generally caps the maximum reserve at 6%, if the offered Buy Rate is 3.99% and the contract rate is 5.49%, the reserve would be 6% of the amount financed.  If the amount financed was $50,000 that would mean a reserve payment of $3,000 (if the dealer could add just $2,000 of additional backend product profit, they would receive $5,000 of total F&I profit – 10% of the amount financed – not a bad gig if you can get it.)

We sometimes hear that customers get offended because they feel like the first rate that was offered was too high, and then they feel lied to if the second rate is lower.  So, first, imagine what the customer would feel like if that sequence were reversed – it would never happen, right?  Second, we never hear about a customer being offended because they managed to negotiate a better price on any other Finance product.  Reserve is just a product.  First do no harm.  You never get more than what you ask for initially.

Maximum Funding Reserves are a function of several things:

  • Unless the customer has already indicated a specific rate sensitivity, always reach for stars (quickly…if you can let a customer know their contract rate inside the first hour, and they balk, it is easy to let them know that additional lenders may come in with better rates)
  • Understand the lender’s rules for Reserves…most prime lenders will give 1% of Reserve for each quarter point increase over Buy Rate, to a maximum of 6% or 7% (during boat show season and for some special reasons, lenders may give an additional bonus); near prime lenders allow for buy rate bumps, but often are close to “point for point” reserve, so high reserves get expensive for the customer; non-prime lenders generally give flat rate Reserves, meaning that they will give a 2% or 3% reserve and do not allow the Buy Rate to be bumped
  • Be able to quickly recognize the impact and trade-off of a higher reserve versus the ability to sell additional backend products for higher profits than 1% or 2% of the amount financed

Across all lenders, all inventory types and all credit profiles, First Approval Source is seeing average reserves in the 4.75% and 5% range.  Results may vary among local credit profile demographics.  That said, target 5% average reserve and you’ll be targeting great F&I results.

The Secret To Absolute F&I Success

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telephone_shhhShhh! Want to know the magic secret to driving F&I profits to levels that you have not seen before and to levels that can dramatically increase Net Profit at your store?

Listen carefully…and don’t tell anyone else…we don’t want this to get out.

The secret to F&I success is that there is no secret. F&I success comes from solid, consistent execution built on a sound infrastructure. No magic pixie dust! No secret lenders that make all the difference! No special words or mythical sales techniques.

It makes me chuckle when people talk about getting great rates or having special abilities to address credit challenged customers. Everyone can get great rates and everyone can service non-prime buyers…there is no secret.

I was asked recently, at a Dealer’s Meeting, what is the best rate you are seeing? That question, in part inspired by some Service Providers, is academically interesting, but practically not very useful.

There are three or four national prime lenders available to marine dealers and a handfull of regional prime dealers. Once you are affiliated with those lenders, and once you fully understand their underwriting guidelines, you will get the best buy rate for your customer based on their credit profile – every time.

Now, that said, the best buy rate for a specific customer may actually not be what is best for you or the customer. Some lenders let you bump to 7% reserve, some 6%, in some cases, depending on loan amount and LTV, you may get capped at 4% or even 2% or 3%. In some cases you may get a bonus on deal, and if you use the auto-approve programs, you may get an additional 0.25% off the base buy rate.

The “best rate” and more importantly the reserve, are based on the credit profile of the consumer and the underwriting guidelines of the lender – every time, all the time. You have no practical ability to influence either of these (although there are rapid rescore, credit improvement programs available that can change a shoppers credit profile favorably in as few as five days.) Your job, and the thing that you absolutely control is getting established with these lenders and fully understanding their programs, so that you can reliably put your prime shoppers in front of the right lenders, without wasting the other lenders time.

You can influence your look-to-loan ratio…and that can be important. If that ratio gets too out of line, you could lose a lender…so the “throw mud at a wall and see what sticks” approach to application submission in an effort to capture rate can be counter-productive. Remember, when you submit an application to four lenders, in the best case, you are not going to give the deal to three of them. That adds up over time.

The other thing that you can do is work hard at establishing good, personal working relationships with your rep and with the underwriters at those lenders. They are the people who you need. If you are the person who is always begging or harrangueing the underwriter, you may be hurting yourself. No underwriter has the authority to change a program…if you can have developed and maintained good solid relationships and work hard to put good deals in front of them, they might waive a stipulation for you, or even tell you how to restructure a deal to make it work. Keep those relationships.

So…no secrets there. Knowledge and relationships will get you the best rates and the best reserves.

Okay, so what about credit challenged buyers? The answer here is exactly the same.

There are a couple of national near prime lenders and about three national (or near national) non-prime lenders. The work that needs to be put in here is identifying local banks and credit unions which offer indirect lending programs.

Once you have identified the pool of lenders, you have to understand their programs and underwriting guidelines.

I would exercise caution here. There is no benefit whatsoever in having two available lenders with identical programs…so having ten local banks and credit unions may be no better than having three. You do gain leverage through loyalty and volume – spreading the wealth among lenders is a losing strategy. Look to book matters among the non-prime lenders too.

Relationships matter a lot in this category. There are virtually always going to more stipulations and more areas where your friendly underwriter can help you.

The basics of blocking and tackling on backend sales are the topic for another blog, but the fundamental truth remains the same.

F&I Profit potential is a level playing field. Execute the basics; equip your team with the right relationships; be educated and consistent! There are no secrets!

Is Your Online Credit Application Working For You?

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As important as it is to advertise your Finance capabilities, that is not the role of an online Credit Application. I have consistently been a strong advocate for very explicit website messaging that makes it clear that customers can obtain highly competitive financing through your store. That messaging needs to be home page and above the fold.Credit_Application

That messaging should not include an invitation to complete a Credit Application.

There are some terrific short form “pre-approval” products available. These products allow the customer visiting your website to provide just their name, address, phone number and email address to see if they can be pre-approved for financing. These take less than a minute to complete, provide you with a credit score and enough information to understand the full credit profile and generate a lead that you can follow up on. If the customer meets your criteria, you can offer them pre-approval that is only good at your store. This does not have any impact on the customer’s credit score.

That is great advertisement for your finance capabilities.

Your customer should never see a credit application (online or otherwise) until they are ready to actually apply for a loan.

If you have a Credit Application generally available on your site, it is probably creating more issues than it is solving. The only good news is that most people think that the full application is too much trouble to complete. The bad news is that, generally, people who know that they have good credit will wait till they are with you to fill out an application, which means that the people who do complete your online application are actually just checking to see if they can qualify for a loan…and in most cases there will not be an unequivocally positive response.

Moreover, once you receive a Credit Application, you are legally obligated to handle in in full compliance will all CFRA and CFPB rules and regulations. Your regulatory burdens start for a customer who may never even show up at your store.

So, make the link to your online Credit Application private so that you only give it out when a customer is ready to actually apply. Do not have the Credit Application as part of your finance capability marketing message.

Get a Pre-Approval capability. Get your finance message front and center on your website. Do it without a Credit Application…your success will go up and your burdens will go down!



F&I False Advertising – Easier and Worse Than You Think

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measure-false-advertisingHave you ever used “As low as…” or “For the low payment of…” and then used an asterisk and lots of very tiny print to try and lure customers?

Okay, maybe you haven’t – but you know someone who has (wink, wink)!

Well, it is time start being very, very careful.  It is illegal.  The Feds are watching.  This practice will catch up with you!

The following story pertains to car dealerships, but it is only a matter of time, and not much time before the FTC starts trickling enforcement down the recreational vehicle line.


United States: Las Vegas Auto Dealers Settle FTC Deceptive Advertising Claims

Last Updated: July 6 2015

Article by Justin M. Brandt, Chad R. Fuller and Alan D. Wingfield

The allegations against Planet Hyundai and Planet Nissan involved similar misleading advertisements in which big, bold claims such as “$0 DOWN AVAILABLE” or “PURCHASE! NOT A LEASE!” were paired with asterisks and small fine print that was contradictory, disingenuous, and/or only applicable to a small segment of the population.  Additionally, the dealerships were targeted for allegedly misleading by omission, such as failing to disclose whether a security deposit was required.

No penalties were imposed on either company, and there were no public admissions of wrongdoing, but both dealerships signed consent orders placing the dealerships under heightened scrutiny for twenty years and imposing hefty fines for future violations.  The FTC unanimously approved the consent orders with a 5-0 vote, and there will be a thirty-day public comment period on the proposed settlements before they are finalized.

At a press briefing last year, FTC Bureau of Consumer Protection Director Jessica Rich stated, “Dealers think that if they put the real price of something in really fine print, that’s not deceptive.  That is deceptive, and it violates the law.”  From January through March 2014, the FTC announced settlements with ten dealerships throughout the country as part of “Operation Steer Clear,” which involved similar allegations.  Although the two Las Vegas settlements were not part of that operation, they demonstrate a continued focus by the FTC on auto dealership advertising practices.


So, what happened here?  Look very carefully at the wording of the violations.

The “fine print” was “contradictory, disingenuous, and/or only applicable to a small segment of the population” and the dealers were also charged with “misleading by omission, such as failing to disclose whether a security deposit was required”.

When you put your signs on the wall or hang them off your vehicles, and you offer “the low payment of…” and then put fine print that says, “Based on qualifying credit” you do put yourself at risk.

Take a look at the credit profiles of the customers buying from you.  Is your average customer’s credit score a 700?  Is the rate and payment based on needing a 750, or qualifying for an “auto-approval” that 80% of your customer’s credit profiles would not achieve?  You are now making an offer that is”applicable to a small segment of the population.”  If the rate and payment requires 10% or 20% down and you don’t disclose that, you are “misleading by omission.”

Your signage needs to reflect what is possible for your average buyer.  If you have competitors that are pushing the envelope and you aren’t, just remember, “karma is a bitch.”  The law, and social media reputation will catch up with the cheaters.

Be honest and forthright!  Do the right thing by your customers, no matter how painful it may seem at the moment.  Not only will it keep you out of the FTC spotlight, it is the right thing to do…and it will pay off!

The Worst Way To Sell F&I

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This week we are doing something a little unusual…we are referring everyone to an article written by Mr. Jim Ziegler and published in F&I Magazine.Ziegler

For those of you who don’t have the good fortune to know Jim (and I am honored to call him a friend), he is a legend in the automotive space.  He knows more about selling, desking and consummating deals that are good for dealer and buyer alike than most other trainers, consultants and advisors alike.  His knowledge comes from doing, having spent years in dealerships before launching his own enterprise.

I recognize that the marine and RV industries are not the same as the automotive space…however, in this article, Jim discusses the practice of packing payments – bundling products into the payment quoted to the buyer, without necessarily quoting a base payment and base rate.  He also discusses the practice of adjusting the base rate when backend products are included.  These practices occur, sadly, wherever F&I is sold…automotive, marine, RV, Powersports, etc.

He is very clear about these practices … don’t!

Please, this will only take you a few minutes to read, but it could save you a lot of pain and maybe even your career.

Read it here …

Let me know what you think!

It’s Report Card Time For F&I At Your Store

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APlusSchools are closed or closing for the summer. Most graduations are complete.

It is time to take a look at the grades for your F&I activity.

We have analyzed deals approved for financing in 2015 and generated benchmarks that you can use to see just how effective your F&I activities have been this year. Now, these results are blended across makes, dealership size and geography, so your results may vary – but probably not by much.

Why do this? It is never to late to do better.

One other note – if your store is falling short, you can’t just blame your F&I Manager, or whoever does the desking. F&I success is a team sport and the results don’t start when the Finance Manager gets the deal. Once you see how you are doing, you need to see what the entire, cradle-to-grave environment for F&I is in your store.

Let’s begin with contract buy rates. Across most stores we are seeing buy rates that range from 2.49% to 17.99%.

Subprime Customers

We are categorizing subprime as those customers, with approvals, who have Credit Scores that average 650, as high 695 and as low as 595. The other factor that puts these customers into our Subprime category is their Available Balance.

The actual Available Balance (how much of their total revolving credit is available for use) is a very predictive number. It is far more telling than Available Percent. If the Available Balance is low (less than about $20,000) they either do not have a lot of credit experience, or they have have a lot of debt…neither of these conditions is great for getting loans.

The average Available Balance for these Subprime customers is right around $10,000.

When buyers are approved in this category, the average Buy Rate is 15.4% (remember that this is the average, we have never seen a 15.4% Buy Rate.) The Average Contract Rate is 17%. These deals, when they close, yield, on average 2.9% reserve.

The average amount financed for this group, including backend, is $10,500.

The challenge with these customers is that even with the approval, the deals actually close only 40% of the time. There has been a considerable effort put into a deal that closes less than half the time.

So, how does your store do here?

Deals with Buy Rates of 12%+:

Benchmark Your Store
Average Reserve 2.9%
Close Rate 41%

Near-prime Customers

If we were selling cars, these would be solid prime – but we are not!

These customers have Credit Scores that average 719 and an Available Balance that averages $33,630. For these buyers, scores can range into the high 700’s and as low as 655, but you will see a pattern that a high score is offset by a low Available Balance and vice-versa.

You will know these customers because their Buy Rates will range from 4.9 to 9.95 and will average 6.62. You contract these customers at just over 10% for an average reserve of 3.4%.

These deals close at only a 50% rate, with the buyer’s discouraged by the interest rate.

For both these and your Subprime buyers, your contract rate options are generally very limited. There is little that you could do, in most cases to make the customers feel better about the rate – except to having started preparing them from the second that they started shopping. Going for reserve and negotiating is worthwhile.

This category triples the average amount financed to $33,600.  Again, this average is blended across all makes, so if you are focused on high-line inventory, this number may be higher – although the customer’s credit will still restrict what they can finance.

Expectation setting is the key to moving these close rates above 50%.

How is your store?

Deals with Buy Rates of 4.9%+:

Benchmark Your Store
Average Reserve 3.4%
Close Rate 50%%

Prime Customers

Now we are talking!

These customers average Credit Scores of 725 (which doesn’t sound like a big change from Near-Prime) and an average Available Balance of $48,930 (which is a big difference – these buyers have solid credit established.)

The high end of Buy Rates offered for these consumers is 6.99%…and they can also get exceptionally low Buy Rates. You are able to contract these buyers for an average of 7.43% and get 4.32% reserve.

At these rates, you should be closing 85% of these deals.

As we look at Prime customers, the amount financed varies based on franchise, with our blended average showing $48,900.

So, what your grade for Prime Customers?

Deals with Buy Rates less than 7% but generally over 4.49%:

Benchmark Your Store
Average Reserve 4.32%
Close Rate 85%

Super-prime Customers

This is the shopper everyone dreams about.

The average Credit Score is 778. They can go all the way to the top. Their average Available Balance is $62,230. There can be a lot of variability, but the fundamentals remain true, lower credit scores mean that they have huge available balances or the other way.

For these customers, you’ll be getting Buy Rates of less than 4.2% on average. You will still some 4.9% rates, but will see the lowest rates available.

You have to be going for the points with these buyers – and when you do, you will average about 4.9% reserve – and you will close 88% of these deals.

As with Prime buyers, we see amounts financed with huge variations largely based on the customer’s appetite for how much they want to finance.  In general, this group is approved for almost whatever they want.  If you are seeing amounts financed averaging above $62,200 you should be feeling pretty good.    You’ll be adding an average of $3,050.00 in funding reserve straight to your bottom line plus whatever backend profits you are driving and whatever margin you are making on the unit itself.

Once again, what does your store do with these Super-Prime buyers?

Deals with Buy Rates less than 4.49%:

Benchmark Your Store
Average Reserve 4.89%
Close Rate 88%


 There is no judgment in grades. These are just measures that can help you improve – or be content.

One other question – how easy is it for you to actually measure your results against these benchmarks? If you can’t just push a couple of buttons and know where you stand, you need to get your systems to a place where you can.

Keep in mind that this is generally absent the ever-present challenge of backend sales. Those are all additive to the reserves mentioned above and, as a benchmark, should be adding about 30% to your F&I profit.

Making F&I work as a profit center for your store is a full store experience. Understanding your customer is a function of your tools and screening. Putting them together makes you efficient and effective – and profitable.

What was your grade?

What Customers Really Want!

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You know what your customers want, right?

They want outstanding, delightful customer service – whether that is on your sales floor, in your service drive, at your Pro Shop – everywhere.

Well, prepare to be surprised…shocked actually!

The following infographic, with research by The Corporate Executive Board Company (CEB) shows that your customers are not seeking delight, they are seeking quick and easy.

Trying to exceed a customer’s expectations does not drive loyalty.  Ensuring customer satisfaction does not drive loyalty.  Exceeding expectation is rare, only 16% of the time, and expensive, increasing operating costs by 10% to 20%.  More customer service interactions increase the odds of driving disloyalty.

There is one big “gotcha” though – a negative customer experience is 65% more likely to drive negative Word of Mouth, while a great customer experience is only 25% more likely to drive positive Word of Mouth.


customer service infographic
Please include attribution to with this graphic.

So what does all this mean?

It means that you should make your customer interactions as simple, quick and seamless as possible.  You definitely don’t want customers to walk out feeling like they have been badly treated…but once you meet the hurdle of satisfactory customer service, don’t make any more investments there.  Make sure you maintain that level everywhere and make your investments in ensuring that all customer interactions are as simple, quick and few as are required to deliver whatever service is required.

“Keep it simple” trumps “make it delightful”!

Do You Look Like Your Website?

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It is often noted that people, over time, start to look their pets or their spouses. I suspect that in at least some cases, that may be a good thing.

The question here is, do you, or your dealership look like your website?

Your website, your online digital presence is every bit as real as your brick-and-mortar store. In fact, it gets a lot more visitors than your store does. (If that is not true, one of your immediate challenges is to make it true.)

Let’s look at some statistics:

  • 4 out of 5 people will visit the website before going to the store
  • Up to 60% of viewers are using mobile devices
  • 95% of online viewers expect that prices will be easily viewed
  • 76% of people looking at your site will use it’s appearance and a proxy for your credibility and trustworthiness
  • The majority of buyers, after shopping online will visit only one or two stores

What does this mean to you? It means that if your website is not crisp, clean, content and information rich and mobile responsive (meaning that your website can be viewed on a mobile device as clearly and as easily as it can on a PC or desktop) then you are losing business.

Your website needs to be a digital property that you are every bit as proud of as your are of your physical presence. Your website is where people go first and pass judgement. If you lose them on your site…you will have virtually no chance of seeing them in your store.

Here are a few keys to making sure that your site is appealing, effective and will convert online shoppers to in-store buyers:

  • Ensure that your home page, the first thing people see, attractively provides the key information about what brands you have have available
  • Make searching for inventory easy and inuititive and make search available from multiple places in your site – not just the home page
  • Provide pricing – if people wanted to fill out a lead form to get pricing, they probably would have picked up the phone or sent an email; if you want to show payments, you can, but make it clear that those are based on qualifying credit and stay away from rates (stay legal though and make sure that the advertised payment is, in fact, one that a person with good credit could actually get with a standard term assumption)
  • Make all the benefits of your store clear – in-house financing, service, parts, pro-shop, etc.
  • Show others buyers reviews (and if you don’t have reviews, solicit them)
  • Introduce your staff – make it personal
  • Offer live chat – but only if you have someone watching the chat feed at all times during normal business hours
  • Don’t make your pages cluttered or visually jarring
  • Make navigation through your site easy and intuitive
  • NO BROKEN LINKS – when buyers see 401 errors or links that take them to unexpected places, they leave
  • Make sure that your site works and is effective on all platforms – the investment in making your site mobile responsive will more than pay for itself in just the first couple of months

One other tip, invest in retargeting. With retargeting, once someone visitis your site, you can place ads on other sites that they visit when they visit them. Since your website is not a general purpose or general information site, you can make the assumption that people hitting your site have the intention of buying at some point. The fact that they came to your site means that they believe that you at least could have a product that they are interested in. It is cost effective not to let their visit be a “one hit wonder”. Stay in front of your visitors with retargeting.

So, do you look like your website? Are you proud of the way it looks and acts? Make your digital presence as powerful as your physical presence and win those online shoppers.

Staying Legal – It Will Save Time and Money

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It is getting increasingly easy to run afoul of state and federal regulations while trying to run your dealership While the marine and RV industries have not received the scrutiny given to auto dealers, there has been a recent surge in reported cases of marine and RV dealer mis-steps.jail

In the vast majority of these cases, the issues were error by ignorance – but remember, ignorance is no excuse for the law.

Running a dealership today is more complicated than ever.  That said, you don’t want to simplify your day-to-day experience by taking an extended vacation in a federal hotel with bar covered windows where your wardrobe choices consist of which stripes to wear.

It can be that serious.  Regulatory Compliance is no joking matter.  Enforcement is getting tougher and the reach is extending to more and more businesses, even very small businesses.

In this post, we will review both specific F&I compliance issues as well as more general potential illegal practices. In all cases, engaging in any of these activities, or failing to comply with the law can result in consequential fines and financial liabilities and may land the dealer in jail.

Before we get to very specific finance and credit related practices, let’s look at other behaviors that can get you in trouble.

With websites now offering special “e-prices”, it is easy to fall into the “bait and switch” violation. If you offer a vehicle online at a given price, you have to offer that vehicle, and all equivalent vehicles, in your store at that price. Equivalent vehicles means just that – not VIN number equivalent, but Make, Model and option package equivalent. Beyond that, if you offer a vehicle online for $30,000 and then sell that in your store for $40,000, there had better be a legitimate $10,000 of additional options and accessories. If it can be demonstrated that your online price differs from you in-store price, the consumer is entitled to the difference and if it goes before a judge, punitive damages and legal fees.

Backend products can be very lucrative. In fact, the profit on those products can trump finance reserve profit. It is illegal to offer someone a better finance rate or a special rate if they purchase a particular backend profit. We do see dealers doing this and it is illegal.

In a recent case, several people at a dealership received significant fines and jail time for doing some or all of the following:

  • Altering documents to show inflated incomes (including altering proof of income documents)
  • Submitting false and or altered documents to “prove residency”
  • Listing accessories not on the vehicle to increase the loan amount

These were intentional acts. It should go without saying that these kinds of activities are always a very bad idea.

Now we can move on to very specific F&I processes and procedures.

This is not just about Red Flag rules, although clearly they are a big part.  There is the Fair and Accurate Credit Transactions Act (FACTA), Risk-Based Pricing, Fair Credit Reporting Act (FCRA), Office of Foreign Assets Control (OFAC),  Gramm-Leach-Bliley Act (GLB Act), Equal Credit Opportunity Act (ECOA) and more.  So, with all these, just how bad can it get?

Well, the Consumer Financial Protection Bureau (CFPB, just to add another acronym), when enforcing the FCRA has the authority to impose fines of:

  • $5,000 per day for “negligent” violations
  • $25,000 per day for “reckless” violations
  • $1,000,000 per day for “knowing violation

Moreover, in cases of “unauthorized disclosure” of personal information, criminal penalties of up to two years in prison plus fines and penalties may be sought.

Violations of the Gramm-Leach-Bliley Financial Privacy Rule (what, you never heard of this?) could involve imprisonment for up to five years.  Similarly, failing to enforce the GLB Safeguards Rule might cost you as much as $100,000 and, perhaps, another five years behind bars.

You probably won’t end up in jail for failing to enforce the Red Flags Rule, but it could cost you $3,500 per violation, plus the potential for individual lawsuits from damaged individuals.

Of course, you are well versed with Form 8300, right?  If you receive cash in excess of $10,000 for a single or two or more related transactions, you have to file Form 8300 by the 15th day after the date of the transaction.  Don’t do it and, well, you guessed it, a fine of $250,000 dollars (or $500,000 for a corporation) and/or up to five years in the federal hoosegow.

How about this for a nightmare scenario (with credit to MicroBilt)?  A customer comes into your store looking at your top of the line vehicle fully loaded.  This particular customer is a highly paid and very successful attorney.  He is in a hurry to get the deal done, so he doesn’t negotiate very much on the price.  Oh, and he wants to finance through you.

Your Finance Manager is understandably excited.  The credit app looks great and the FICO comes in at 800+.  Instant approval, instant delivery – what a great day.

Sixty days later the other shoe drops.  Mr. In A Hurry Attorney turns out not to be who he said.  It was someone who had stolen his identity.  Now, whoever it really was, has elected not to make payments.  The bank sends the paper back to you because you violated the Red Flag Rules by not verifying the identity of the customer, which is a violation of your agreement with the bank.  Insurance doesn’t cover the loss.

Your prized vehicle is safely ensconced in South America.  You eat $100,000.  The actual attorney sues you with the help of the CFPB because you violated the Red Flag rules.

I assume you would think that this was a pretty bad run of luck…and it could have been avoided.

Every dealership has to have a written Identity Theft Prevention Program.  This program must be employed consistently for every non-cash transaction.  It can and should include items such as:

  • Asking for the physical production of items in the persons wallet (credit cards, Driver’s License, etc.
  • Careful scrutiny and the Credit Application and Credit Report, looking for suspicious gaps, mismatched addresses
  • Questions about personal information that go back beyond the seven year limit on credit reports

Whatever your program is, follow it.

It is so easy to run afoul of the regulations.  Let me count a few of the ways:

  • Failure to clearly define and enforce the processes for detecting “red flags” in identity verification
  • Failure to properly enforce privacy rules
  • Failure to have a written security plan, under the Safeguards Rule, to protect the confidentiality and integrity of customer and employee data
  • Failure to appoint and rely on a real Compliance Officer
  • Failure to identify and enforce processes regarding the disposal of information in consumer reports
  • Failure to provide proper notice to customers when their credit report is run and/or when adverse actions are taken (by the way, this also includes cases where your Finance Manager runs a credit report and makes an independent decision not to even try to finance the customer, or substantially change the terms of the deal
  • Failure to file Form 8300 on time or at all

I could go on, but I think you have the idea.

So, what can you do?  One option is to just throw up your hands and elect to never offer financing.  That will probably work from a regulatory perspective, but it is not a great business decision.

A second choice is to offer financing exclusively through a reputable third party financial services provider.  This will cost you some on the profit side of the equation, but you shift the regulatory compliance issues away from your dealership.  You also eliminate the risks associated with having consumer information sitting around on desks in your store that often may not be the most secure.

Your third choice is to take it all on yourself.  You definitely can do this…but don’t do it halfway.  Once you are committed, go all in.  Create all of your written policies and documentation and enforce them rigorously.  Hand-in-hand with this is the appointment of a Compliance Officer as a serious and senior position.

Finally, you can blend the second and third choices and use third party expertise to inform your in-store actions.  Contract your third party provider to serve as your Compliance Officer.  You still carry some risk, but you capitalize on external expertise to mitigate your exposure.

Or, you can do just some of what you are supposed to do and turn a blind eye to the gaps.  You can adopt the attitude that you are “not big enough” to care about, or that your violations are not really that consequential.  This is a fine choice too…just let me know when you would like me to bring you a cake for your federally imposed, striped attired vacation (oh…there won’t be a file in it-sorry.)

F&I Profits and Benchmarks – Is Your Store Underperforming?

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F&I should be a very consequential profit center for your store. Here are some benchmarks you can use to tell if you are underpforming – and some tips if it seems like you are.CoinData1-300x155

Key Benchmarks

  • Over 50% of your deals are financed in-house
  • For financed deals, your average funding/dealer reserve is 4.4% or more of the amount financed
  • Backend products should be sold on 35% – 50% of all financed deals and should add, on average, about 50% profit on those deals; across all financed deals, backend sales should add an additional 24% – 28% or more profit based on total dealer reserves


If your store is not seeing these results, it would be easy to blame your Finance Manager…and you might be right…but often, there is a much more insidious, and potentially more difficult to correct cause.

F&I success starts before the customer ever arrives at your store and the ultimate outcome is often determined before the finance manager ever has a chance to meet the customer.

Does your website advertise in-house financing? You don’t want to give the customer a reason to start shopping financing. Make it clear that you have multiple financing options available. Give your customers a chance to get pre-approved right on your site. (Dealers properly using using pre-approval tools like CreditMiner are seeing an incremental 15% – 20% financed sales per year.)

Once the customer arrives at your store, does your store environment encourage the right mindset for F&I? Are your salespeople trained to prepare that customer for the F&I conversations that are to come?

If you have signs advertising low rates, your have already mitigated your ability to maximize F&I success. If you feel compelled to display rates at all, and we would recommend that you advertise payments rather than rates, make sure that rates you advertise allow you to get at least 6% dealer reserve on prime consumers – and make sure that “on qualifying credit” is very visible.

Does your sales team truly sell your products? In general, territories are reasonably protected by franchise. If your sales person has really caused the customer to fall in love with your product, your prospects of F&I success go way up. Getting this product elsewhere will be inconvenient, at best. The customer can’t just go next door and get the same thing at a different price or rate.

Your sales people need to be stressing the convenience of being able to get product, service financing and all the optional products and services they may need at your location. Sell the value of ease.

The sales team should introduce the value of extended service agreements and other backend products, but should not give pricing. They will also make it clear that the customer can get their financing down at your store.

When the ugly question comes up, “Can I get 3.9% on this…I saw that advertised down the street?”, the general framwork of the answer should be, “Gee, that is something I just don’t have the answer to, but our Delivery Coordinators will be able to work with you on that once we have found exactly the piece of inventory you want. What kind of payment were you looking for? I can let our coordinator know.”

Until credit has been run, debt to income established and the overall credit profile reviewed, there is no good reason to make promises or establish expectations. Doing so just stands in the way of F&I success and makes your finance manager’s job nearly impossible.

Only after you have established the pre-F&I processes and procedures that maximize the probability of success are you able to judge your F&I department against the success benchmarks.

You maximize your F&I profits when you treat F&I as a full sales lifecycle event and not just a single point, isolated profit center