Confessions of an Auto Finance Manager

Introduction

"Congratulations, you're getting a great deal!" the car salesman says, pumping your hand. "Let's sign the paperwork and you'll be on your way in your new car!"

At first you're relieved — the negotiating is over. But then the salesman walks you down a back hallway to a stark, cramped office with "Finance and Insurance" on the door. Inside, a man in a suit sits behind the desk. He greets you with a faint smile on his face. An hour later you walk out in a daze: The whole deal was reworked, your monthly payment soared and you bought products you didn't really want.

What happened to your great deal?

You just got hit by the "F&I Man," also called the finance officer. He waits in the back of every dealership for unsuspecting customers so he can increase the profit for the dealership and boost his commission.

In this four-part series, written by veteran auto finance manager Nick James, you will learn the F&I man's tricks and how to avoid them. When you're done, you'll be ready to safely navigate this crucial part of the car buying process, and the F&I man will never work his "magic" on you again.

— The Editors at Edmunds.com

Part I

From Selling Vacuum Cleaners to Selling Cars

In the Saturday morning sales meeting, the general manager treated this F&I guy like a hero for making so much money for the dealership. But I remember sitting there, thinking, "This isn't right — he just stole $6,000 from those people."

Believe me, I never set out to be an automotive finance manager. I was just looking for a good job with decent money so I could finish my education. But thanks to a few strange twists and turns, I went from selling vacuum cleaners door to door to being a used car salesman for two months to becoming an F&I manager for six years.

In that time, I made serious money while closing 6,000 new and used car sales and leases. I sat across the desk from hundreds of people as they nervously signed the contract on their first car, or upgraded to that shiny new truck or SUV they had wanted for years. I advised them on which loans to take and persuaded them to buy extended warranties, paint protection and undercoating. While doing this, I peered into the most intimate details of their finances and their lives: their salaries, savings and investments. Their mistakes were revealed to me, too: overdue bills, bounced checks, foreclosures and repossessions. In fact, I probably knew more about my customer after 15 minutes than their friends knew about them in a lifetime.

During my time on the job, I never knowingly lied to my customers or cheated them. Of course, I did make a commission on the items I sold and the loans I wrote. And the dealership made a profit, too — what I considered a fair profit.

But I can't always say the same for the other people I worked with. There was this one guy called the "Shredder." A couple came in and wanted to use their trade-in as a down payment on a lease. They were told they were receiving an $8,000 credit for their trade-in. In actuality, they were only given $2,000. The next day, at the Saturday sales meeting, the general manager brought doughnuts, as he always did. On this day he brought a huge doughnut for the Shredder and treated him like a hero because he had made so much money for the dealership. But I remember thinking, "This isn't right — he just stole $6,000 from those people."

But the real point is simple: If you don't know what to watch out for and you run into someone like the Shredder, you can lose your shirt. If you have a complicated deal — with a trade-in, manufacturer financing and extra products — thousands of dollars are at stake. But with a little bit of knowledge and some preparation, the auto finance manager won't be able to lay a glove on you. How?

Before I get to that, I'd like to tell you a little bit about how I came to work in F&I. Then you'll have a better understanding of my world, and my advice will make a lot more sense.

The Worst Sales Job Ever

My father runs an accounting firm in Europe, and I could have worked for him and made an easy living there. But I wanted to be a self-made man, so I moved to the United States and completed an undergraduate degree at a small college in the Midwest. Before going to grad school, I decided to get a part-time job — anything that would give me the maximum amount of money for the minimum amount of time. I began job hunting and landed a position as a vacuum cleaner salesman. I figured if I could succeed at a tough sales job like this, I could succeed at anything else I tried later in life.

I received a few days of training and then was given a demonstration model vacuum cleaner to lug from door to door. This was in the middle of winter, in the Midwest, with the temperature sometimes 20 below zero. I remember a few times that, when someone answered the door, my face was so frozen I couldn't even speak.

In my first week on the job, I was actually able to make five sales, so the company gave me my own vacuum cleaner, which they told me was a huge honor. I needed a better car to carry my samples around in, so I went to the local dealership. When I picked out a car and we reached an agreement on the price, I was told that I would be sent into the F&I office. I'd never heard of this before but I assumed this was someplace where I would sign papers.

While I was waiting, I overheard some of the car salesmen talking to each other. One guy said, "I made a grand on my last sale. That was sweet."

This was music to my ears. I mean, here I was dragging this vacuum cleaner from door to door, hoping to find buyers. But at the dealership, I realized the buyers came to you! I asked the sales manager if there were any openings at the dealership and he gave me a job in the used car side of the dealership — which was where the real money was. Most people don't realize it, but the profit is much higher in used cars than in new cars.

Ex-Con Car Salesman

In my new job, I became a member of a four-man sales team, and made a surprising discovery about them — they were all ex-convicts. One guy robbed a bank and got arrested a few weeks later. Surprisingly, he was a really nice guy. You almost felt you could trust him with your life, which you probably could at this point because he was so afraid of going back to prison.

Another guy on the team had robbed a convenience store with two other guys. After serving four years in state prison he was left with this lingering hatred for the sound of a guard's keys jingling as he walked through the cell block. He really jumped whenever he heard that sound. That was a real problem for a guy working in a car dealership.

The last guy in my team had been in prison for making pornographic movies. Oddly enough, he was the best salesman of the group. He could walk right up to anyone on the lot, strike up a conversation and make them trust him and feel completely relaxed.

It took me a few days to finish my training and then I started selling cars. Right away, I found that my vacuum cleaner selling was good preparation for this job because I'd learned the importance of isolating objections. If a customer said, "It's too expensive," I would say, "OK. But other than the price, is there any other reason you don't want to buy it?" This approach worked really well on the car lot.

F&I First Impressions

After I'd been selling cars for awhile, I became aware that right after I sold a car my customers disappeared into the finance and insurance offices. I began to wonder what went on in the three finance offices we had in the back hallway of our dealership. The F&I guys looked like banker types to me since they always wore nice suits. A lot of them had the condescending attitude of a loan officer interviewing a person who is probably not going to qualify for the loan.

While I was annoyed with the arrogant attitude the F&I guys had, I was kind of fascinated by what they did. It was obvious they made a lot of money because my commission slips clearly stated how much their slice of the pie was. One deal I saw had a "back-end" profit (i.e., what was made in the F&I room) of $8,000! If the F&I guy got 15 percent of that, it was $1,200 — a lot of money for a half hour of signing papers. I began to think I might angle for a job in the F&I room since I was good with numbers and my sales skills were strong.

After only two months of selling cars I heard about a position in the F&I office of another dealership nearby. It was only an assistant position, with a minimum salary. But I decided it was just what I wanted. I was young, ambitious and wanted to make as much money as I could. I applied and got the job. My first thought was, now I'll find out what goes on in the F&I room — and how auto finance managers make so much money back there.