Finance & insurance (F&I) are a critical source of revenue in auto and other industries. Brett Davis, president of the construction and agriculture division with Trnsact, thinks it should be a significant revenue stream for commercial trucking and equipment dealers too.
In the second part of its Q&A series, Trnsact dives further into the F&I opportunity with Davis, who has a lengthy career working with equipment dealers and helping them grow and increase profitability.
During his 25-year tenure at CNH Industrial, Davis 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.
In his time there, he was often struck by the commitment of equipment dealers to their customers. However, he also was struck by the missed opportunity to maximize revenue streams through a more formal F&I department that adds points to financing and taking advantage of selling insurance, gap insurance, extended warranties, and other valuable aftermarket products.
In part 1 of the conversation, Davis discussed how the opportunity can drive revenue for dealers. In part 2, he explores how a dealership can adjust its mindset to take advantage of this new revenue stream.
Moderator: So obviously we see finance and insurance in other industries, but describe the state of F&I within equipment and commercial trucking.
Davis: So in terms of the products — the straight financing from the lenders and the insurance providers, the warranty providers, etrc. — they're out there. They exist.
There are several big companies that have really been very dominant in the space, while there's quite a few lenders, and there are some captive lenders. Also, there are some white-label lenders where an OEM will engage with several funding sources and offer them as a preferred funding source to their dealers and their customers. So there's a bunch of different options [in the marketplace].
There are also companies offering the full gamut of physical damage insurance out there. That's pretty well evolved [in the marketplace]. In the maintenance and the warranty plans, [it is] a little less … but still pretty well developed.
What I have seen [in the equipment industry] compared to other industries is that — what they call in insurance "the attachment rate" — is actually pretty low. This means that for some reason, compared to other industries, the percentage of deals that either have an extended warranty or maintenance plan, or physical damage insurance is very low. [This] obviously means we have a large amount of untapped revenue and opportunity for dealers.
So we are trying to explore that: Why is that attachment rate low when we know everything is financed has to be or 90 percent of all equipment is going to be financed in some form? Why aren't the other products being readily attached as part of the sales process? I think fundamentally what we've had is probably a loose configuration of systems and providers, which are not well organized to be able to provide something that simple and easy [for dealers] to use at the point of sale.
Unlike some other similar businesses, [equipment dealers] don't have a true F&I department. The salesperson often is responsible for not only securing the sale of the whole good but the financing insurance and everything else and I think after the financing is done it typically stops there and the work is done by the salesperson and completed and really doesn't follow through on the physical damage insurance or any of the other potential products could add value to the customer and to the dealership.
I think that's the unique challenge a lot of it is probably based on just the inability to get [execute F&I] all done in one place. They have to toggle to multiple systems to enter more information multiple times. It's a burdensome process, and we often have the salesperson [selling products but] not they don't appreciate those products. They have not seen the added value in their time to go ahead and make those things part of the sales process and they just close it after the financing [is finalized].
Moderator: Just getting a deal closed is often a priority for every sales rep, as well as for there for their equipment dealer and for their truck dealership. So can you discuss maybe how [the sales process] would change? Financing itself could be back and forth, so maybe we could cover [what it means to also sell additional products].
Davis: It's a challenge depending on the industry you're in and the type of equipment you are selling. There are certainly going to be challenged.
I mean, there are funding resources readily available fortunately for the industry, but it's not always easy. It's just using one lender sometimes. Other times you have a portfolio where you'll have a primary lender, then a couple of sub-lenders that have a specialty or a niche that they can fill when your primary lender can't. So a lot of times you have to work with multiple lenders.
I'd say on average most dealerships regularly work with three to five lenders and one or two primary lenders. That all depends on what their major lines are as well. But that's just a general comment from my research that tells me three to five lenders is sort of The Sweet Spot for most lenders out there to that most dealers today.
And then, you know again the ability to earn from the finance and sources is clearly an opportunity for the dealership and then also the whole array of the other products and it comes in two-fold, you make direct commissions from the product itself, whether that's physical damage extended warranty maintenance plans, but beyond that is often though. There is definitely a tie back to absorption meaning how much more parts and service revenue.
Can you generate if you have your customers buying new or used equipment and driving them back to the dealership making sure that they're getting all the services at your dealership is definitely going to help drive your absorption up? Unfortunately, I've seen in many cases, you know, people are dealers are satisfied with absorption in the 70-percent range, plus or minus. I think a lot of the averages that I had seen over the years.
To view part one of the interview, click here. To view the entire webinar, register here.
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