Coping with Rising Interest Rates: Navigating the Impact of Monthly Payments on F&I Success

Impact of Rising Interest Rates on F&I

In a challenging financial landscape, the impact of rising interest rates on F&I (Finance and Insurance) departments of dealerships cannot be overstated. Recent data from the first quarter of 2023 paints a mixed picture for publicly traded dealership groups. As per automotive news report, four of the six major groups experienced a year-over-year decrease in their average F&I gross profit per vehicle retailed. To emphasize, these fluctuations underscore the complex relationship between higher interest rates, vehicle affordability, and F&I sales.
In the past year, there has been a noticeable increase in interest rates, affecting various sectors of the economy. For our dealership customers, this surge has translated into unexpected increases in their monthly payments. Meanwhile, behind the scenes, our F&I department has found itself navigating a complex and challenging terrain.
Amidst the backdrop of soaring interest rates and lingering economic uncertainties, car buyers find themselves at a crossroads, carefully weighing the pros and cons of their purchasing decisions. Some are considering full cash payments for cars to avoid finance charges. Simultaneously, doubts surface regarding the necessity and value of purchasing Vehicle Protection Products, leading some to question their worth.
As we navigate these complex dynamics towards the close of the year, F&I professionals are presented with a unique set of challenges and opportunities that demand strategic adaptability and a forward-thinking approach. This involves preparing and training your F&I teams to meet the demands of changing market conditions and collaborating with F&I agent partners to address the evolving landscape of vehicle protection needs effectively.

Effective F&I Conversations

Given the high costs associated with vehicles and their maintenance, it’s crucial to approach this conversation thoughtfully. This empowers F&I teams to efficiently guide customers in identifying their specific needs within the F&I realm while highlighting the substantial value these products offer. Furthermore, F&I products serve as a protective shield, guarding their investments against costly repairs and potential financial setbacks in the future. This approach enables shoppers to grasp the significance of F&I products better, making them more inclined to explore these offerings for purchase.

Going Beyond Margin Expansion

In the face of the challenges posed by soaring prices and sluggish sales, the path to enhanced profitability does not solely lie in margin expansion, which could limit your earnings to a small portion of customers. Instead, consider the principle of earning 1% from 100 customers rather than relying on 100% from just one. This means, diversifying your revenue sources across a more extensive customer base and reducing your reliance on a few high-margin sales. Therefore, by offering added value and introducing new products, you can tap into a broader customer pool, diversify revenue streams, and foster a more sustainable business for higher profitability.

Training as a Cornerstone

Comprehensive training is crucial for helping your team develop the skills to understand customer needs beyond basic communication techniques. Training fosters a consultative approach, empowering your team to effectively convey the value of F&I products and to identify and address each customer’s unique needs and challenges by asking the right questions. This approach ensures customers fully comprehend the benefits and advantages of these products. Additionally, by instilling this awareness and knowledge, your team can expertly guide customers in making informed decisions to safeguard their valuable investments against increasing repairs. Furthermore, training that creates realistic role-play scenarios within a safe environment offers your team valuable skill enhancement opportunities and bolsters their confidence, enabling them to become more effective sellers.

Industry Collaboration to Mitigate Impact of Rising Interest Rates on F&I

In the ever-evolving automotive industry landscape, F&I stands as a critical tool for sustaining dealer profitability. The year 2023 presents a complex and shifting scenario marked by competitive trends. The potential for an economic slowdown and rising interest rates underscores the necessity of F&I playing a more prominent role once again. Yet, this indispensable profit center faces another formidable adversary — inflation and high monthly payments.
In these times of economic turbulence, where profitability hinges on every decision, it becomes paramount to distinguish between mere vendors and genuine partners. You want a partner who cares about your business and wants to help grow it as much as you do. This is where a consultant partner comes into play. Having traversed every department within dealerships and weathered numerous industry cycles, they understand how to navigate these turbulent waters. Their insights, honed over years of experience, serve as a reliable compass to steer through challenges and harness the opportunities that lie ahead.

At PRO, we embody this commitment to dealership success. Our tailored F&I programs are designed with your profitability in mind. Contact us today to discover how our partnership can help reduce the impact of rising interest rates on F&I and significantly enhance your bottom line.


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