Sharing the Profit: F&I and Sales Pay Plans George Angus President/Director of Training And the F&I Masters™ program of professional education

Sharing the Profit: F&I and Sales Pay Plans The Good News The future looks bright for auto sales and leasing. New-vehicle sales were 15.5 million units in 2013. In July, Edmunds estimated a Seasonally Adjusted Annual Rate (SAAR) for 2014 of 16.8 million new vehicle sales . 1 Team One Research and Training Source: Edmunds

Sharing the Profit: F&I and Sales Pay Plans New-car sales were up 4.7 percent or 48.8 percent of new-vehicle sales from 2013. Sales of light trucks increased 10.3 percent or 51.2 percent of total vehicle sales. Overall, sales of new cars and trucks were up 7.5 percent. 1 Team One Research and Training Source: NADA 2014

Sharing the Profit: F&I and Sales Pay Plans The Challenge The gross profit margin on new-vehicle sales continued downward, falling to 3.8 percent in 2013 from 4.2 percent the previous year. Meanwhile… 1 Team One Research and Training Source: NADA 2014

Sharing the Profit: F&I and Sales Pay Plans F&I, service contracts and other products accounted for 38.8 percent of gross profit in the new- and used-vehicle departments in 2013, up from 36.9 percent the previous year. 1 Team One Research and Training Source: NADA 2014

Sharing the Profit: F&I and Sales Pay Plans Average pay nationally F&I Managers $128,500 Sales Managers $122,500 Sales Consultants $63,800 Source: 2013 Nada Dealership Workforce Industry Report 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Averages: Top Performing F&I Dealers F&I Managers $206,600 Sales Managers $136,300 Sales Consultants $65,000 Source: 2014 Applied Research Study 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Top Performing F&I Dealerships F&I Managers $206,600 Sales Managers $136,300 Sales Consultants $65,000 General Managers $228,500 1 Team One Research and Training Source: 2014 Applied Research Study

Sharing the Profit: F&I and Sales Pay Plans This widening gap in profit sources is causing morale problems and affecting retention rates for dealers. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Of total dealership employees, one out of four new hires leaves within a year, and almost half are gone before three years. 1 Team One Research and Training Source: NADA 2013

Sharing the Profit: F&I and Sales Pay Plans In the Sales department, Six out of ten car sales consultants leave the dealership each year. 1 Team One Research and Training Source: NADA 2013

Sharing the Profit: F&I and Sales Pay Plans New hires in sales are terminated at a 90 day rate of 40%. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans 41 percent of all dealership new hires are Gen Y Yet the 90 day turnover rate among Gen Y is 54%. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Addressing this widening gap in compensation evokes the most emotional responses of any issue we have studied. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans From a Salesperson “Listen, I work a phone prospect or internet lead for days to get them in the door. Then after 4 or 5 hours of test drives, switching cars, and negotiating a deal, we end up giving the car away just to move a unit. And for all of that I get a $100 mini. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans “Then, the customer goes into F&I for 30 minutes and they bump the payment it took me an hour to get them to agree to and make 1800.00 on the back while we make nothing on the front”. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans “That’s a deal I produced. If I hadn’t sold the car they wouldn’t have had a chance to make that profit. I should get some of that money”. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans From a Sales Manager “I manage a sales staff, control inventory, make sure the cars are ready for sale on the lot, train and hire new people because I can’t hang on to the good ones because they aren’t making any money, and take the heat for every customer problem”. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans “Meanwhile, the F&I manager sits in there all day playing on the internet, waiting for us to put a deal together so they can do their 30 minutes of work. And they get paid more than me? Something’s not right here”. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans From an F&I Manager “F&I is a separate department from sales. I have earned my position in F&I. I deserve what I make. If you think I get paid too much, try to survive without the income F&I brings in. F&I makes more profit than the sales department with a 12 by 15 foot office and a computer… 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans “Why should I share what I generate in here with sales? I sold cars for years and I had to live on commission. I still do. If sales people can’t sell cars and hold decent grosses, then that’s their problem… 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans “Taking money from the highest net profit department in the dealership and giving it to people who aren’t generating it makes no sense”. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans From a Dealer Principal “Certainly, F&I income is important. I can’t be profitable without it. But I can’t keep paying these F&I managers as much as my General Manager. And the salespeople are starving. I have to do something to keep my good salespeople… 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans “My F&I manager is a bit of a Prima Donna but my service contract agent says I would have trouble finding anyone as productive for any less money. Plus, my CSI scores are good and the guy is honest and makes me money… 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans “But how much of my gross profit can I pay out in commissions? There has to be a way to balance our compensation without giving away the dealership”. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Some Suggested Solutions 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Some Suggested Solutions Give spiffs to Sales Department Incentivize sales cooperation by giving some form of commission based on F&I performance. Pro: Promotes cooperation between sales and F&I Cons: Salespeople may get too involved in selling F&I products and this can lead to preexposure and sales resistance during the F&I process The dealer pays out more compensation if the F&I percentage stays the same 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Some Suggested Solutions Reduce the F&I Manager’s pay but at the same time cut their hours. Quotes from a recent Automotive News article: The dealership switched from an all-commission pay plan for finance managers to salary plus bonuses. Finance managers now typically make $7,000 to $8,000 a month instead of the $12,000 or $13,000 a month previously paid in those positions. But they get more time off. "What we're finding out is we don't have to pay the higher amounts to get the same production," he says. "And we've got happier people because they're not working 80 hours a week." 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Some Suggested Solutions Pros: Better quality of life for F&I Managers Lower the amount of commission the dealer is paying Cons: Turnover. From the article, “There has been turnover -- some finance managers didn't like the new plan -- but that's not all bad”, the dealer says. “The turnover has allowed the dealership to promote good performers from the sales floor to finance”. However, there is a risk of losing top F&I performers who can find better paying positions with competitors. Increased training costs to train new F&I managers 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Some Suggested Solutions Go to a shared percentage of total Gross or Net profit Some dealers converted their pay plans for all staff to a percentage of the combined gross profit from both sales and F&I. The salesperson gets a percentage of the total income, as do the sales managers and F&I managers. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Some Suggested Solutions Go to a shared percentage of total Gross or Net profit Pros: Creates teamwork among the sales and F&I staffs. Creates a fixed percentage of compensation for the dealer. Cons: May affect the motivational aspects of a individual performance based pay plan and reduce incentive to hold gross profits on the front and profit in F&I. The argument over who should get what percent of the profit still exists. 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans Some Suggested Solutions Eliminate the F&I position altogether and go to a “Hybrid” system where the salesperson also sells the financing and the F&I products. Pros: Salespeople have the chance to make more money. Reduced overall compensation for the dealer. Some claim Customer Satisfaction increases. (?) Cons: Compliance issues. Paperwork problems. Inevitable loss of F&I income 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans What are your solutions? 1 Team One Research and Training

Sharing the Profit: F&I and Sales Pay Plans George Angus Team One Research and Training 1-800-928-1923 Website: www.teamonegroup.com Email: training@teamonegroup.com 1 Team One Research and Training