The cost of sticking with the Status Quo in your F&I department

By Don Ray, Portfolio Reinsurance

Several years ago, I wrote an article in which I quoted that famous “philosopher” David Bowie. He must have had the retail automobile business in mind when he wrote the following in 1971…

Ch‑ch‑ch‑ch‑Changes

(Turn and face the strain)

Ch‑ch‑Changes

Just gonna have to be a different man

Time may change me

But I can’t trace time”

The antithesis of Ch‑ch‑Changes is St-st-Status Quo. If we, in the retail car business, insist on the status quo are we in fact missing out on opportunities for ourselves, our families and our dealership personnel?

Have you maximized the value of your dealership with the effective use of the internet, digital marketing, web-based used vehicle acquisition and pricing tools? If so, by embracing these opportunities dealers have had to “turn and face the strain.” However, those with the courage to persevere have reaped the benefits of making the “ch‑ch‑ch‑ch‑changes.” Among those benefits is increased valuations in the event of a sale. What opportunities are available to you that require necessary changes that you are resisting due to the strain of change?

One such opportunity is the use of reinsurance of your F&I products. I have written previously about the different structures available to today’s retailer using an Affiliated Reinsurance Company (ARC). Two things to remember are 1) the use of an ARC does not negatively impact the profitability of your dealership’s F&I department (although certain aspects of a reinsurance structure may enhance your store’s profitability and thus its value) and 2) while the tax structures available are generic, the policies of the administrator are not.

These administrative differences include items such as which F&I products are allowed to be reinsured; can you choose your own trust account manager; who has control over the reinsurance company; can you borrow cash against your unearned reserves without a letter of credit or personal guarantee; are there add-on fees in addition to the upfront administration fee; is there a penalty if you stop using that administrator; and do the service contracts encourage the consumer to have all needed repairs done in your service department? The list goes on but you get the point…there are major differences among product providers/administrators. The key here is…how important are these differences to you?

Having reviewed some differences, I think the most important point is to realize the financial opportunity available to all but the very smallest auto dealers. Consider the chart below:

So what would you do with this new found additional wealth? Would you want all or part of it to go to your children and/or your grandchildren? Would you use some of it to provide a wealth building tool for key members of management? Perhaps upgrade your current facility? How about a new boat or plane? Gee, some of you may want make larger charitable donations. And how about the purchase of an additional dealership…would it help fund the acquisition?

The possibilities are endless…are you willing to face the strain to make the ch-ch-ch change? It is said that most of us fear change to some degree, but most of us also realize that change is necessary for kaizen or continuous improvement…and a greater valuation in the event you sell your dealership.

Yes, David was surely thinking of the retail automobile business when he said…