Automotive industry veteran Paul McCarthy, vice president of sales at F&I leader AUL Corp (now part of Protective Asset Protection), has seen the industry evolve at a rapid clip as COVID-19 upended dealership operations. As the industry closes out 2022, McCarthy spoke with F&I Showroom to share his view on F&I trends today and for the future.

McCarthy touched on F&I technology, transparency, interest rates, vehicle prices, education, and profits dealers can expect in the months to come.

1. Drive into Digital. Digital is where it’s at, according to McCarthy. “Until the pandemic, most F&I transactions were done in person,” he says. “But because of COVID-19, more dealerships began handling transactions virtually.”

As the industry accelerated the pace toward digital, he says dealers learned a few things. One, greater transparency drives better attachment rates. Therefore, dealers need to “fully and properly explain the benefits of a particular product, whether a vehicle service contract (VSC) or a GAP protection,” he says.

Two, he cites a COX Automotive study that shows 67% of customers who learned of F&I products online were extremely interested in purchasing them once they came into the dealership or as they completed their transaction. 

2. Increase Transparency. One way for dealers to increase transparency is through enhanced websites that show the full scope of F&I products. Videos, consumer education pieces, and downloadable brochures all keep consumers informed of available F&I products. 

“An F&I page should have a short-form credit application, a payment calculator, and product information so that by the time customers arrive at dealerships, they come with questions or have already decided about the coverage they need,” he says. “Customers expect and look for greater transparency with every product they buy. It should be no different with F&I offerings.”

3. Emphasis on Economic Conditions. Most lenders have gradually increased auto loan rates while the industry continues to command record prices for new and used vehicles. Though some consumers dialed back their spending based on these market forces, an equal number purchased vehicles and invested in F&I products because they planned to keep them longer. 

“It’s the second largest purchase many people make in their lifetimes,” he says. “It’s vital to protect that investment in the event of a mechanical or electrical failure. Research shows that 60% of Americans cannot afford to pay cash for a $400 repair. These statistics show how paying a few extra dollars a month provides added peace of mind.” 

4. EV for the Win. Hybrid and battery-electric vehicles (BEVs) present an opportunity for F&I growth. Consumers will need policies that cover the technologies found in today’s modern vehicles. 

BEVs have fewer lubricated parts, so they need fewer oil changes. They are battery driven, so they demand battery protection. Coverage should address these new service requirements and parts, and even the charging stations owners put in their homes, he says.

“Administrators have to provide relevant products for dealerships. We need to evolve our products as vehicles evolve,” he says. “In addition to the new vehicles, we must develop new products that provide coverage for all of the new innovative technologies they introduce. At AUL, we go to great lengths ensure our agents have the correct portfolio of F&I products to choose from when they put products into a store.”

He stresses that, “it is imperative that we offer consumers the same peace of mind they would receive with a traditional fossil fuel vehicle.”

AUL has thoroughly researched the components of BEVs, hybrids and the additional innovative technologies they bring and has developed new products to cover them. “With BEVs, we cover the batteries and the various components that differ from fossil fuel vehicles,” he says. “While the industry’s experience is limited as far as their long-term usage, we can learn, and as we do, we will adapt and develop more appropriate coverages.”  

5. Check Into CPO Programs. McCarthy expects certified pre-owned (CPO) programs to increase in importance. He explains even with BEVs, CPO programs present a vital offering for F&I revenue growth. 

“CPO programs bring peace of mind to customers. These vehicles are more akin to a new vehicle than a used one because they undergo a rigorous inspection,” he says. “Often dealers make these inspections available to consumers so they can see the 100-plus items that were inspected and repaired to gain CPO status.” 

Also, consumers who purchase these vehicles now holding on to them longer because of inventory shortages and high vehicle costs, making them more apt to want added protection, he explains.

6. Reap the Benefits of Revenue Sharing. F&I revenue sharing presents another opportunity for dealership F&I programs. F&I managers sell protective products best when they collaborate with insurers and agents.  

“Dealers who run good campaigns to have customers do regular maintenance on their vehicles help them reap the benefits of fewer breakdowns,” he says. “Better running vehicles result in fewer claims. These dealers deserve to participate in the product's profitability at the time of sale and over the life of the product.”

7. Concentrate on Training. Talented and skilled F&I managers and agents drive PVR growth. This starts and ends with agents, who provide tools, processes, and training to dealership personnel. 

“The finance manager is a very important piece of every transaction,” he says. “They build relationships with customers, walk them through their options, sharing which ones are appropriate and why. Agents also are a critical piece of that because that’s where the training that helps finance managers comes from. Behind every great finance manager, there is a great agent.” 

8. Never Forget. COVID-19 propelled the automotive industry toward rapid change. Virtual sales and digital products became more important than ever. As the industry returns to a more normal environment, McCarthy advises not to forget the skills mastered during the pandemic. 

“Let’s not forget what we learned because these skills work. They drive high product attachment rates, and they are good for the long term,” he says.

“Introduce F&I products at an early stage so they become part of the customer’s purchase decision instead of a last-minute add on,” he says. “Vehicles are more expensive than ever. This has made protecting these investments even more important. An awareness of available products is paramount to F&I sales.” 

McCarthy reminds dealers to:

• Develop the F&I portion of their websites

• Create email campaigns that target customers who did not purchase protection products at the time of sale

• Create videos to educate customers about F&I products

ABOUT THE AUTHOR: Ronnie Wendt is an editor at F&I and Showroom.