Confessions of an Auto Finance Manager

A Former F&I Guy Explains How He Did



"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 hallway to an office with "Finance and Insurance" on the door. Inside, the finance manager greets you and begins to review the sales contract. An hour later you walk out in a daze: You've bought several new items and had them added to the contract. Now your monthly payment has increased.

What just happened? Are you still getting a great deal?

This three-part story, told by veteran auto finance manager Nick James to Senior Consumer Advice Editor Philip Reed, teaches you how to safely navigate this crucial part of the car-buying process.

Part 1: From Selling Used Cars to Becoming a Finance Manager

Believe me, I never set out to be an automotive finance manager. I was just looking for a good job that paid decent money so I could finish my education. But thanks to a few unexpected twists I wound up being a used car salesman for two months and then became a finance and insurance manager: the F&I guy. I did that job for six years.

In that time, I made serious money while closing hundreds of new and used car sales and leases. I sat across the desk from countless people as they nervously signed the contract on their cars. I advised them on which loans to take and persuaded them to buy extended warranties and other extras. I also peered into their finances — their salaries and, yes, their foreclosures and repossessions too. In fact, I probably knew more about my customers 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. But I can't always say the same for the other people I worked with. There was this one guy they called the "Shredder," who took a couple's trade-in as a down payment on a lease. He said he was giving them an $8,000 credit for their trade-in but really only gave them $2,000. At that Saturday's sales meeting, they treated the Shredder like a hero for making so much money. But I remember thinking, "This isn't right; he just stole $6,000 from those people."

The lesson for you, as a car buyer, 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, there are thousands of dollars at stake. But if you have a little bit of knowledge and some preparation, an unscrupulous auto finance manager won't be able to hurt you.

The Guys in the Nice Suits
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 got a job selling used cars. It took me a few days to finish my training, a lot of which was about 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.

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 finance offices in the back hallway of our dealership. The F&I guys looked like banker types to me, since they always wore nice suits. Obviously, 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 $1,200 commission on it. That's a lot of money for a half hour of signing papers.

After only two months of selling cars I heard about a position in the F&I office of another dealership nearby. I applied and got the job. My first thought was that now I'd find out what goes on in the F&I room, and how auto finance managers make so much money.


Part 2: Tricks of the Trade

The office for my new job was in a mobile home parked at the back of the car lot. It can look inconspicuous, but what goes on in the F&I office is the lifeblood of the car business. 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.

Dave, 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.

In the beginning, I just sat in the back of the room while Dave handled the customers. Meanwhile, I got to observe Dave's sales techniques, such as the way he started the F&I process.

Setting the Tone
Dave would usually glance down at the contract and then look up at the customer and say, "Oh! So you're the folks who bought that black Suburban. Man, that's such an awesome car!"

What he was doing was showing the customer that he cared about their purchase and shared their excitement, as if they were on the same team.

This opening was important because it set the right tone. Often they had been test-driving and negotiating all afternoon and, basically, they just wanted to get the hell out of there. So Dave had to refocus them on the excitement of the new car so he could sell them a 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. We called this being in the "yes mode," and we tried our best to exploit it.

Dave would start by asking the customer a question he knew they would say yes to, like: "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."

Running F&I on My Own
After only 10 days of training, Dave went on vacation and left me in complete charge of all the finance work for the dealership. I was nervous because I wasn't detail-oriented. And a car deal involved dozens of documents, which I needed to get the customer to sign correctly in multiple places. And if you didn't get everything right, the DMV would reject it.

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. The salesman gave me the credit application to run while they were still negotiating. Often, 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 the bank formally approved the loan.

On the other hand, if the customer 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.

Dealership Financing
Most 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 was about 50 percent of the commissions I earned.

Bumping up the interest rate was easy to do because most of our customers didn't know what rate they qualified for. If I sensed that they were uninformed, I could offer them, say, two points over and they would agree to it. If a customer had good credit but didn't know it I could say, "We ran your credit report and, well, I guess you've had a few problems. But I'll do my best to help you out."

A Lucrative Sales Pitch
After the loan was arranged, I tried to sell the customer extra products and services. This was a grueling process but it was where a lot of my commissions came from. 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 could easily sell them an extended warranty. But if they said they always traded in after three years I was screwed.

I found a little detail that helped me sell extended warranties. I'd say, "Did you know that your new car has more computer chips in it than the space shuttle?" People were amazed. Then I'd continue, "It's a sophisticated piece of machinery and it's expensive to repair. A transmission problem could be $3,000 or higher."

The other way to sell the extended warranty was to say, "It's cheaper if you buy it now and you can always cancel it if you change your mind." But most people never cancel, because they simply forget about it.


Part 3: Lessons From the Other Side of the Desk

Over the years, I put together a checklist of advice for my friends and family when they were going to buy cars. In most cases, my advice was simply what not to do. If you follow these 10 "don'ts," you should get out of the F&I room unscathed:

1. Don't agree to be a monthly payment buyer. If you do, you'll quickly lose control of negotiations and won't be able to see the real cost of the car.
2. Don't buy a car without first checking pricing guides such as's True Market Value (TMV®). Print out this information and take it with you to the dealership.
3. Don't buy the extended warranty. The bumper-to-bumper warranty will last for at least three years or 36,000 miles. The powertrain warranty will then cover all the things that make the car go down the road, often for up to 75,000 miles.
4. If you really want the extended warranty, don't buy it for the first price they offer. Markup is about 100 percent, so there is plenty of room for negotiating.
5. Don't enter the F&I room unless you have independent financing or you have recently checked your credit report and investigated what interest rate your bank or credit union offers.
6. Don't buy paint protection (it's basically just a wax job) or fabric protection or VIN etching. These add-ons are high-profit items for the dealership and you can buy them elsewhere if you decide you really want them.
7. Don't pass up GAP insurance (the term stands for Guaranteed Auto Protection) if you're leasing, unless it's already in the contract. And buy GAP insurance if you are making a low down payment. Remember, though, that the cost for GAP is negotiable.
8. Don't forget to run your monthly payment numbers using an online calculator to get a rough idea of what your car payment will be.
9. Don't believe the F&I guy if he tells you that you have to buy the extended warranty to qualify for low- or no-interest financing. It's not true.
10. Don't sign the contract because you "just want to get it over with." Take the time to verify all the essential numbers in the contract.


Part 4: New Job, Same Issues for Shoppers

Ordering From the Menu
After a while, I heard about an opening at a larger dealership across town. I landed a job there and hit the F&I jackpot. At my new dealership, I used a new sales technique called "menu selling," which revolutionized the process. I grouped all the products I sold into packages and gave them fancy names like the Platinum, Gold or Bronze package. I would pitch it by saying, "I understand your salesman quoted you a payment of $400 a month. But, let me take five minutes to go through a few options, and you can choose which one works best for you."

Then I'd say, "The first option is the Platinum plan, a five-year loan at 8 percent, which has a seven-year/70,000-mile extended warranty. It includes life and disability insurance and also offers paint protection and undercoating. That only raises your payment to $480 a month." Then I'd describe the Gold package with a payment of $440, and the Bronze at $420.

Here's the funny thing: Half of the customers would pick one of the plans without asking any further questions. That means I just sold three things with a five-minute spiel, whereas previously it took half an hour and I wound up sounding like a broken record. The power of menu selling is you are focusing people on which of three things they want and they don't realize they don't have to choose any of them.

Wrong Price Point
After a few years of closing deals in the finance and insurance office, I began to realize that 90 percent of my customers made the same mistake when buying a new car: They didn't know the price they should be paying for the car itself.

As the Internet has come of age, there are all kinds of ways to research price, including TMV and Edmunds Forums, where buyers share pricing information. If buyers know the invoice price of the car, as well as any incentives available at the time and allow the dealer a profit above that, they can estimate what they should pay.

Packing Payments
Another big mistake I saw customers make was agreeing to be a "monthly payment buyer." The majority of car buyers are going to finance the car instead of paying cash, and they want a payment that will fit in their budget. The salesman knows this and works with the sales manager and F&I guy to leverage their power against the customer.

Let's say the customer has asked for a $400 a month payment. The salesman will ask, "Up to?" and the customer often says, "Well, maybe $450." The salesman takes this information to the F&I guy and the sales manager.

Assuming the customer has good credit, the sales manager will say, "OK, tell Mr. Customer that $500 will make a deal." If the customer agrees to this higher price, the salesman turns this information over to me in F&I. I knew all I needed to do was find products and services to fill up that extra $100. I just needed to justify the extra expense by selling them an extended warranty, inflating the interest rate or juggling the numbers to add up to the total payment. That's "payment packing."

The Most Dreaded Phone Call
I don't want to imply that things always went smoothly in the F&I room or that the customers were easy to deal with. There was one type of scenario I always dreaded because it led to some horrible situations.

As I mentioned earlier, we had some customers whose credit was weak but who might still qualify for financing. However, it could easily take a few days to shop all the banks and get a solid answer. We didn't want to let customers get away, so we made a "spot delivery" and let them drive off in the car while we continued shopping for a loan. But if we were unsuccessful, things got sticky.

We had to call the customer and tell him to bring the car back to us. If he protested, we reminded him that he had signed a form for "acknowledgment of conditional delivery." This was a document we always had customers sign that said if we couldn't get the car financed at the terms we agreed on, then they would bring the car back. The customers usually said, "Sure, sure, whatever" and signed it, but later they seemed to forget about this form.

The most dreaded phone call in my business was when you had to call the customer and tell him to bring the car back. Customers often became really emotional when they had to return cars. They had already shown the car to their friends and family and had developed an attachment to it. Now the dealership was taking it away from them.

Parting Advice
After about six years, I became restless and decided to go into another line of work. Looking back, I feel funny about all the mistakes I saw my customers make: mistakes that stretched their household budgets thin and put stress on their lives and relationships. While it struck me that the F&I office is a necessary part of dealerships, it's up to car buyers to educate themselves about how to safely navigate the tricks and sales pitches they might encounter.

I can't change the car business and I know that the F&I room will be a part of the process for a long time. But I do hope that my story has better prepared you for your next car buying experience.

Here's one piece of advice that will head off all other problems. While being educated on the process is important, it's also essential that you pick your dealership and salesperson carefully, and pay close attention as your F&I officer presents your contracts. There are good people in the car industry. Find them and give them your business.