Finance and Insurance: More Important Than Ever
F&I is an important source of dealership income. According to NADA, nearly 37 percent of a dealership's gross profit comes from the sale of F&I products and service contracts on new and used cars. And while the gross margin on the sale of new cars and trucks fell to 4.2 percent in 2012 from 4.6 percent in 2011, aftermarket income rose "because of increasing F&I and service contract dollars," according to NADA.
The average profit on a new car from F&I products was $804 in 2011, according to a 2012 survey of 800 subscribers to F&I and Showroom magazine. With increased training for the F&I staff, that figure can go up to $1,200 per car, according to Zurich, a company that conducts F&I sales training. In short, F&I sales are critical for a dealership's success.
The dealership's F&I manager is primarily there to present the dealership's pitch for financing. It's worth listening because sometimes the interest rates are lower. But you also should arrange independent financing first. Then you'll be able to know for sure how good the deal is.
In addition to offering dealer financing, the F&I manager typically offers extended warranties, also known as extended service contracts. The pitch for extended service contracts appears to be a winning one with car buyers. In 2012, customers bought extended service contracts on 42 percent of new vehicles. That's the highest rate in the past two decades, according to Automotive News, citing NADA data.
If you do want to buy a product such as an extended warranty, it's important to remember that the price is negotiable. To get some tips on arriving at a better deal, read "How to Get the Best Price on an Extended Car Warranty."