The automotive industry has enjoyed healthy profits overall during the last few years, particularly with F&I. Profitability may ease slightly in 2023. But as dealers and their F&I offices better understand what today’s car shopper expects during the buying process, they may keep production levels high. An October J.P. Morgan report shed light on F&I sales forecasts, with analysts showing that this year’s average F&I gross profit of $2,300 for the largest dealership groups would drop about 8.7% to $2,100 at the end of next year — but still above the $1,700 shown in 2019. J.P. Morgan projected further deterioration to $2,050 in 2024 and $2,000 in 2025.

F&I Sales Erosion Can Be Reduced

A lot of this profit erosion coincides with the slowing of auto sales stemming from higher interest rates and an overall slowdown of the economy over the last year. However, even with decreasing auto sales, dealers could preserve much of their F&I business simply by better understanding what consumers are looking for with F&I products today, as well as a better understanding of the experience in selecting F&I products.

In 2022, consumers selected a handful of F&I products along with their vehicle purchases. Among the most popular were GAP insurance (74%), windshield repair (73%), tire and wheel protection (72%), exterior appearance and protection (69%), and vehicle service contracts (51%). Additionally, 59% of people said the biggest reason they consider F&I products is to offset the cost of a total loss, e.g. (Gap Insurance), and 55% said they are highly interested in prepaid maintenance options. (Source: Online survey of consumer F&I shopping preferences; Protective Asset Protection; July 2022)

Make F&I Product Options More Researchable Online

Often dealerships overlook the up-front research phase of F&I products. The majority of consumers said they plan to research protection products (51%) for their next vehicle purchase, followed by schedule a test drive (43%), purchase their vehicle online (42%), and research finance options and loan applications online (41%).

Making more of the research and selection process easier in an online setting is crucial today. When asked what they need to purchase more F&I products online, the majority of consumers said they need the ability to select product and coverage options (52%), followed by the ability to complete forms and paperwork online (39%), and see pricing options online (36%).

For many car shoppers, they feel a lack of confidence in making purchases online, especially for buying F&I product options for their vehicle. Forty-five percent said they would like more online education content for F&I products. Another 40% said they would like more coverage focusing specifically on technology features for their vehicle. Thirty-seven percent said they want F&I products that cover and protect electric vehicles and other alternative power vehicles.

The In-Store Pressure Tactics No Longer Work

For other car shoppers, other barriers remain from selecting F&I product options, no matter whether the transaction takes place online or in-store. Sixty percent of car shoppers listed the pressure and experience of everything simply coming off as an upsell while in the F&I manager’s office. Another 50% said the salesperson doesn’t truly explain the benefits of each product. In addition, 36% of people said even when the salesperson does explain the benefits, they simply want more time with their thoughts to properly think through what is best for them. This could be a key reason to expand the F&I product options further online so people can think through all the information from the comfort of their living room.

While giving customers more time for consideration and selection options at home may be contrary to traditional sales methods, dealerships must consider a more significant opportunity. After all, there was a time when electronics retailers would never invite an environment for someone to purchase an expensive television online. Yet millions of units are now sold this way each year, which can include service contracts too.

This change in mindset and philosophy will best serve those dealerships that embrace a more modern way of retailing. And they will be in a better position to preserve F&I success in the long run.