sharing the profit - · pdf filesource: nada 2014 . sharing the profit: f&i and sales pay...

Sharing the Profit:

F&I and Sales Pay Plans

George Angus

President/Director of Training

Sharing the Profit: F&I and Sales Pay Plans

The Good News

The future looks bright for auto sales and leasing. New-vehicle sales were 15.5 million

units in 2013. In July, Edmunds estimated a Seasonally Adjusted Annual Rate (SAAR) for

2014 of 16.8 million new vehicle sales .

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Source: Edmunds


New-car sales were up 4.7 percent or 48.8 percent of new-vehicle sales from 2013.

Sales of light trucks increased 10.3 percent or 51.2 percent of total vehicle sales.

Overall, sales of new cars and trucks were up 7.5 percent.


Source: NADA 2014


The Challenge

The gross profit margin on new-vehicle sales continued downward, falling to 3.8 percent in

2013 from 4.2 percent the previous year.

Meanwhile…


Source: NADA 2014


F&I, service contracts and other products accounted for 38.8 percent of gross profit in the new- and used-vehicle departments in

2013, up from 36.9 percent the previous year.


Source: NADA 2014


Average pay nationally

F&I Managers $128,500

Sales Managers $122,500

Sales Consultants $63,800 Source: 2013 Nada Dealership Workforce Industry Report



Averages: Top Performing F&I Dealers



Sales Consultants $65,000 Source: 2014 Applied Research Study



Top Performing F&I Dealerships



Sales Consultants $65,000

General Managers $228,500


Source: 2014 Applied Research Study


This widening gap in profit sources is causing morale problems and affecting retention rates for

dealers.



Of total dealership employees,

one out of four new hires leaves within a year, and almost half are

gone before three years.


Source: NADA 2013


In the Sales department,

Six out of ten car sales consultants leave the dealership each year.


Source: NADA 2013


New hires in sales are terminated at a 90 day rate

of 40%.



41 percent of all dealership new hires are Gen Y

Yet the 90 day turnover rate among Gen Y is 54%.



Addressing this widening gap in compensation evokes the

most emotional responses of any issue we have studied.



From a Salesperson

“Listen, I work a phone prospect or internet lead for days to get them in the door. Then after 4 or 5 hours of test drives, switching cars, and negotiating a deal, we end up giving the car

away just to move a unit.

And for all of that I get a $100 mini.



“Then, the customer goes into F&I for 30 minutes and they bump the payment it took

me an hour to get them to agree to and make 1800.00 on the back while we make nothing

on the front”.



“That’s a deal I produced. If I hadn’t sold the car they wouldn’t have had a

chance to make that profit.

I should get some of that money”.



From a Sales Manager

“I manage a sales staff, control inventory, make sure the cars are ready for sale on the lot, train and hire new

people because I can’t hang on to the good ones because they aren’t making any money, and take the

heat for every customer problem”.



“Meanwhile, the F&I manager sits in there all day playing on the internet, waiting for us to put a deal together so they can do their 30 minutes

of work. And they get paid more than me? Something’s not right here”.



From an F&I Manager

“F&I is a separate department from sales. I have earned my position in F&I. I deserve what I

make. If you think I get paid too much, try to survive without the income F&I brings in. F&I makes more profit than the sales department with a 12 by 15 foot office and a computer…



“Why should I share what I generate in here with sales? I sold cars for years

and I had to live on commission. I still do. If sales people can’t sell cars and hold decent grosses, then that’s their

problem…



“Taking money from the highest net profit department in the dealership and giving it to people who aren’t

generating it makes no sense”.



From a Dealer Principal

“Certainly, F&I income is important. I can’t be profitable without it. But I can’t keep paying these F&I managers as much as my General Manager. And the salespeople are starving. I

have to do something to keep my good salespeople…



“My F&I manager is a bit of a Prima Donna but my service contract agent

says I would have trouble finding anyone as productive for any less

money. Plus, my CSI scores are good and the guy is honest and makes me

money…



“But how much of my gross profit can I pay out in commissions?

There has to be a way to balance our compensation without giving

away the dealership”.



Some Suggested Solutions




Give spiffs to Sales Department

Incentivize sales cooperation by giving some form of commission based on F&I performance.

Pro: Promotes cooperation between sales and F&I

Cons:

Salespeople may get too involved in selling F&I products and this can lead to preexposure and sales resistance during the F&I process

The dealer pays out more compensation if the F&I percentage stays the same

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Reduce the F&I Manager’s pay but at the same time cut their

hours.

Quotes from a recent Automotive News article:

The dealership switched from an all-commission pay plan for finance managers to salary plus bonuses. Finance managers now typically make $7,000 to $8,000 a month instead of the $12,000 or $13,000 a month previously paid in those positions. But they get more time off.

"What we're finding out is we don't have to pay the higher amounts to get the same production," he says. "And we've got happier people because they're not working 80 hours a week."




Pros:

Better quality of life for F&I Managers

Lower the amount of commission the dealer is paying

Cons:

Turnover. From the article, “There has been turnover -- some finance managers didn't like the new plan -- but that's not all bad”, the dealer says. “The turnover has allowed the dealership to promote good performers from the sales floor to finance”.

However, there is a risk of losing top F&I performers who can find better paying positions with competitors.

Increased training costs to train new F&I managers




Go to a shared percentage of total Gross or Net profit

Some dealers converted their pay plans for all staff to a percentage of the combined gross profit from both sales and F&I. The salesperson gets a percentage of the total income, as do the sales managers and F&I managers.




Go to a shared percentage of total Gross or Net profit

Pros:

Creates teamwork among the sales and F&I staffs.

Creates a fixed percentage of compensation for the dealer.

Cons:

May affect the motivational aspects of a individual performance based pay plan and reduce incentive to hold gross profits on the front and profit in F&I.

The argument over who should get what percent of the profit still exists.




• Eliminate the F&I position altogether and go to a “Hybrid” system where the salesperson also sells the financing and the F&I products.

• Pros:

• Salespeople have the chance to make more money.

• Reduced overall compensation for the dealer.

• Some claim Customer Satisfaction increases. (?)

• Cons:

• Compliance issues.

• Paperwork problems.

• Inevitable loss of F&I income

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What are your solutions?



George Angus

Team One Research and Training

1-800-928-1923

Website: www.teamonegroup.com

Email: [email protected]


http://www.teamonegroup.com/

mailto:[email protected]

sharing the profit - · pdf filesource: nada 2014 . sharing the profit: f&i and sales pay...

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