Confessions of an Auto Finance Manager
Part 2: Tricks of the Trade
Tricks of the Trade
F&I guys know that our customers are already in the "yes mode." They've just agreed to buy a car so it's our job to keep them saying yes to other things like extended warranties, fabric protection and additional alarm systems.
The office for my new job was in a mobile home parked at the back of the car lot. In most other dealerships where I worked the F&I room was usually in the back somewhere, away from the excitement of the showroom and the noise of the service bays. But what goes on in the F&I office is the lifeblood of the car business — deals are closed. Before you enter the finance office, a car deal has really just been a lot of talk. But in F&I, all the verbal promises are put in writing, the customer signs and the contract legally binds the buyer to make all the payments. So there's a lot of money on the line.
Dave, the guy who ran the finance office at my new job, wasn't the stereotype of the sneaky F&I guy. He had a good sense of humor and was very relaxed with his customers — a little too relaxed, I thought. If he just pushed a little harder it seemed he could've sold a lot more products. I was anxious to finish my training and be in charge so I could do things my way. And see how much more money I could make.
In the beginning, I just sat in the back of the room while Dave handled the customers. He usually introduced me to the people by saying, "This is James. I'm training him for this position. Do you mind if he sits in with us?" No one ever objected, and soon they forgot I was there. Meanwhile, I got to observe Dave's sales techniques, such as the way he started the F&I process.
Setting the Tone
Dave would casually glance down at the contract and then look up at the people as if he was surprised and say, "Oh! So you're the folks who bought that black Suburban. Man, that's such an awesome car! You're going to have a great time taking it on vacation this summer. And the four-wheel drive is good in the snow, too." What he was doing was showing the customer that he cared about their purchase and shared their excitement, like they were on the same team.
This opening set the right tone, which was important since most of the customers we got were pretty worn out by this point. Often they had been test-driving and negotiating all afternoon and, basically, they just wanted to get the hell out of there. Dave had to get them refocused on the excitement of the new car because he was about to try to sell them a whole slew of additional things.
Most salesmen know that once a customer starts saying yes, it's easy to keep them saying yes to other things. The customers we got in the F&I room had just agreed to buy a car. So there was a good chance they would keep saying yes to other add-ons. We called this being in the "yes mode," and we tried our best to exploit it.
Here's how Dave did it. He would start by asking the customer a question he knew they would say yes to. So he'd say, "Do you like this car?"
Obviously, they would say yes since they had just agreed to buy it.
"I bet you'll really enjoy taking this car on vacation."
Of course they said, "Yes."
So then he'd ask, "So I'm sure you'll want to buy an extended warranty to protect your investment?"
And they often said, "Yes."
Sitting in the back of that room I took a lot of notes, wrote out lists of forms that were needed and details I had to complete. Dave taught me the tricks of the trade mainly by just letting me observe how he worked with the customers. It was a psychological game that was partly a carefully scripted technique and partly just plain old salesman's intuition.
Running F&I on My Own
After only 10 days of training me, Dave went on vacation and I was left in complete charge of all the finance work for the entire dealership. I was excited to know I could do things my way. But there was a problem that worried me, a secret that only I knew. Sure, I was good with numbers. And by now I was a pretty good salesman. But I'm not detail-oriented. And this was a job that definitely needed strict attention to the fine points. It wasn't unusual for a car deal to involve as many as a dozen different documents, all of which needed to be signed in multiple places in just the right way. Plus, the dealership could get really busy; sometimes we sold a dozen cars on a Saturday afternoon. A straight cash deal could be wrapped up in only 15 minutes. But other transactions, particularly leases, could take an hour or more. If you didn't get everything right it would be rejected by the DMV.
Naturally, I didn't admit my lack of attention to detail. Instead, I made endless checklists to remind me to dot all the i's and cross the t's. But as I gained experience I became more confident. I even decorated my office to make customers more comfortable. I put up pictures of the beach and some inspirational sayings — fun stuff to relax people.
The Flow of the Deal
The F&I process actually started before I even met the customer. I would be given the credit application to run while they were still negotiating with the salesman. At this point, I'd go out and take a look at the people to get a feel for them. That way, when I met them in the F&I room I could break the ice by making some small talk. For example, if I saw one of them wearing a Green Bay Packers hat, the first thing I'd say to them was, "How about those Packers?" In my time in F&I I talked about all kinds of things I had no real interest in: deer hunting, football, hockey — even cooking.
If the customer's credit score came back over 700, we wanted to make sure they bought a car as quickly as possible and got them out of there. We would tell the salesman to "spot them" — let them take delivery on the spot — before their loan was even formally approved by the bank.
On the other hand, if the customer was a "deadbeat," meaning that they had really bad credit, we knew there was no way we could sell them a car. So the two ends of the spectrum — the really good and the really bad — were easy to deal with. But the vast majority of customers fell somewhere in between, and it required a lot of work to get them financed.
I'd say that three out of four people wanted to finance their car by taking out a loan or leasing it. The dealership had access to wholesale lending rates, called the "buy rate" and loaned this money to the customer at a few percentage points higher, which we called the "sell rate." This was a huge source of revenue for the dealership and it amounted to about 50 percent of the commissions I earned. So the incentive was high to inflate the interest rate and get the customer to agree to the loan at that rate.
Padding the interest rate was usually very easy to do because most of our customers had no idea what rate they qualified for. If I sensed that they were uninformed about their credit score, I knew I could offer them, say, two points over and they would agree to it. The customers I looked for were people who had good credit but didn't know it. Then I could say, "We ran your credit report and, well, we both know you've had a few problems. But you're nice people so here's what we're going to do for you."
A Lucrative Sales Pitch
After the loan was arranged and agreed to by the customer, I began to sell them an assortment of extra products and services. This was a grueling process but it was where a lot of my commissions came from so I had to summon my energy and give it my best shot. The biggest item for me to sell was the extended warranty.
Usually, I'd begin by asking, "How long do you folks plan on keeping your new car?" The answer I wanted was: "I'm going to keep it until the wheels fall off." If I heard this I knew I could easily sell them an extended warranty. But if they said they always traded in after three years I was pretty well screwed. Still, most people said "Five years plus."
I was reading an F&I magazine one day and I found a little detail that helped me make tens of thousands of dollars selling extended warranties. Here's how it worked. If the customer said they were going to keep their car a long time, I'd say, "Did you know that your new car has more computer chips in it than the first spaceship that went to the moon?" This had an amazing effect on people — they got goose bumps and leaned forward wanting to hear more.
Then I'd continue, "It's a sophisticated piece of machinery and it's expensive to repair. To give you an idea, a transmission problem could be $3,000 or higher. So if something were to go wrong — which we hope it doesn't — it could be very expensive to repair. Now, you have your factory warranty and then everything that happens after that is your responsibility.
By this point, a lot of people would be listening carefully, following along as I outlined the different warranty plans. I had a 50 percent sales record with extended warranties which was nice because the markup (the profit made by the dealer that contributed to my commission) was nearly double the actual cost of the warranty. The other thing that sold people on the extended warranty was when I told them, "It's cheaper if you buy it now and you can always cancel it if you change your mind. So you see there's really no risk." Of course, if they cancelled it, it became a "charge back" for me in my next month's paycheck, so I really hoped they didn't do this. But plenty of people never cancel something like an extended warranty once they buy it, often because they simply forget about it.
After about a year at this dealership I began to see something that really made me mad. Every month we got a statement that showed how much we made in the F&I office. And it also showed how many charge backs we had, which were things customers had purchased but then cancelled. Anything that we sold could be cancelled except for "hard-adds," things that were physically attached to the car like running boards or upgraded stereos.
The accounting was done by this weasely guy who worked in a dingy, windowless office in the back of the dealership. His desk was a complete mess, with papers strewn all over the place. I had no idea how he could find anything in there. But he generated a monthly report that showed how much was made in the F&I room. And he also reported the number of charge backs that were deducted from our commissions.
After awhile, I noticed that on the months that I sold a lot of add-ons there also tended to be a lot of charge backs. It was like having my paycheck cut in half. Was he ripping me off? I couldn't prove it. But I knew I would never make the kind of money I wanted working there. Not only that, but the owner's son had taken over running the place and I just didn't see eye to eye with him.
In retrospect, the way it turned out was a blessing in disguise. I heard about an opening at a larger dealership across town. I landed a job there and hit the F&I jackpot.