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Finding New Revenue Streams for Dealers: F&I Opportunity

Tue October 25, 2022 - National Edition
Trnsact


While dealers are always looking to increase sales and improve customer services, they do not always look for opportunities to find new revenue streams.

Brett Davis, president of the construction and agriculture division of Trnsact, thinks there is a clear missed opportunity for commercial trucking and equipment dealers looking to grow, and he would know. Prior to joining Trnsact, Davis held numerous leadership roles in his 25-year tenure at CNH Industrial. He served as a president and chairman of CNH Industrial Capital, president of CNH Latin America Financial Services, vice president of New Holland North America and president of Banco CNH Industrial Capital in Brazil. He directed the P&L of the North American division of the New Holland Brand (Agriculture & Construction equipment), leading a team of 500 direct and indirect employees, and guiding more than $1.5B in annual sales.

During his time at CNH, Davis learned many things, including how his dealer partners best worked with their customers, their manufacturers and their preferred lenders. Their efforts were often hyperfocused on meeting their customer's needs, but that focus would sometimes miss opportunities to drive new revenue. Most notably, few dealers prioritized finance & insurance (F&I) and structuring the offerings as a revenue generator.

Trnsact recently sat down with Davis to discuss how dealers could find new revenue, and he shared his thoughts on leveraging F&I.

Moderator: I know we've recently driven some discussion about navigating the recession, but really we're talking today about finding new revenue streams, which is always something our dealers are looking to do. Could you maybe address some of the things that our dealers and the dealers who you worked with over your many years have? Okay, what have you seen them do, and maybe what have you recommended for them to do to adapt and improve during this time?

Davis: You know one of the interesting areas in the equipment business has been the development - or really the minimal development - of true finance and insurance departments within the dealerships. There are some best-in-class standards that would show you that a well-organized finance and insurance group can actually add a significant amount of revenue to the bottom line of any dealer.

Unfortunately, what we have found and it's not size dependent. It doesn't just because you're big you have a finance department or just because you're small you don't it's just not why it's not a widespread practice in the industry yet. In other similarly situated industries, it's become entrenched and we're starting to see the development within our industry, and I think that is one of the things that have held us back in the equipment space and trucking. [One of the reasons this has been holding the industry back] is the lack of technology to help us bring it all together to make it easier for us to do business with our customers, and to do business internally by cutting through the red tape and things like that.

That's really what I want to talk about today at a high level: Where do we get started? How do we start this process of creating [F&I revenue] and going from what most of us perceive as a cost center to a profit center?

Quite frankly, it is a journey and it takes time and it, and it's going to take some minimal amounts of investment, but the rewards that can be gleaned from creating that department are numerous.

Moderator: That certainly would be a change in mindset for a lot of dealers. I think you already started to dive into this a little bit, so could you talk about how F&I could become a profit center instead of a cost center?

Davis: So, you know and the environment certainly helps today as well. One good example is, as you know, all financing is such an important component of every equipment transaction, whether it's lease or finance. There's lots of creative financing that I saw in the and worked a lot in the agricultural business.

So we saw all kinds of different types of payment streams, annual payments, and other things that you don't regularly see iIn other businesses. [In agriculture], you'd see consecutive payments lined up with the harvest and we also saw a lot [of similar models] in our utility and construction business, as well.

If you know, if [the customers] were landscapers with heavy income in the summer versus the winter for snow removal, we'd see putting together things like "snow leases." So it is really the financing that plays such an integral role in customer acquisition and customer retention.

The one thing that has not been completely exploited is the ability to, perhaps, make money for the dealership with the financing revenue, and, a lot of times, that's just adding a little bit extra onto the rate.

Quite frankly, in a very low [interest] rate environment, which we've had for a number of years – it's certainly changing now – it was kind of difficult to stash a quarter point here, a third of a point here, or whatever the case may be.

But in a rising rate environment, it actually becomes a lot easier to be able to generate a little extra revenue. And again, we're not saying add points and points and points. There may be opportunities for some dealers to do that, but what we're suggesting here is a very modest fee that goes into the interest rate and marks it up, and creates a little bit of a revenue stream for a dealer. [Trnsact editor's note: A common practice in auto and other industries as part of facilitating financing].

We'd be remiss if we didn't talk about insurance. With insurance, we often kind of miss out. When you use the word insurance [we mean], true Insurance that's sold at the point of sale at dealerships through the lenders or through the captives or even through the OEMs, which is physical damage insurance that is true insurance.

There is an opportunity for dealers to earn revenue from that insurance. It may require some licensing, so if there was an application and one person or a certain person inside the dealership that was licensed to be the insurance broker or salesperson, the dealership would be able to receive commissions from the insurance which are readily paid in other industries.

Additionally, you have products like an extended warranty. I like to see as a best practice for dealers, every piece of used equipment be advertised with some sort of extended plan, extended warranty plan, or even a maintenance plan – two different things but two different possibilities or sources of income as well.

So the importance of those and it not only is going to create additional profit for the dealer by driving more parts and services back to the dealer enhancing the absorption of a dealer, but you can also make commissions for lack of a better term from those products as well.

That's certainly something you see really across our society at this point with offers of warranties and maintenance packages on pretty much everything. When dealers take advantage, they can "stitch" a customer to my dealership, I think that into my brand I think that's really critical. So what I mean by stitched is you have them on the financing contract, you put it through the lender. You keep an eye on it, you know when the lease term is up. You're continuously communicating with the customer.

The same goes for the service contracts, the maintenance contracts, and the extended warranty. Having [customers]come back continuously for services is one of the best opportunities to re-engage with that customer by seeing them frequently. They're stitched to the dealer... and keeping them close to you.

When it's time for them to get a new piece of equipment or additional equipment you're there first and foremost and in front of that customer really again, I like to use that for stitching and back to the dealer. That's a really good analogy.

To view part one of the interview, click here. To view the entire webinar, register here.




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