Ongoing inventory shortages are continuing to prove why dealers need to remain nimble and look for new revenue opportunities across the dealership.
IHS Markit forecasts the chip shortage has resulted in the reduction of about 7.4 million production units since the beginning of 2021 alone – and growing. As the industry days’ supply has plummeted, so has brand loyalty, with IHS Markit finding significant correlation between the two metrics between April and September 2021.
While new vehicle sales are expected to remain constrained due to supply chain issues throughout most of 2022, there are optimistic signs on the horizon for dealers. Despite record high sales prices and inventory constraints, buyer demand has remained relatively high. According to IHS Markit, certified pre-owned (CPO) sales reached 1,218,255 units through July, reflecting an 11% year-to-date year-over-year increase.
Further, as brands expanded 84+ month terms to keep monthly payments low during the pandemic and recovery, accommodative financing will be critical to help customers adapt to rising vehicle costs. This unique combination of factors presents new opportunities for dealers who are willing to pivot their approach moving forward – namely in the Finance & Insurance (F&I) department.
hree dealership F&I strategies for success during inventory shortages, include:
- Rethinking the F&I department’s role
- Communicating effectively on F&I topics
- Personalizing F&I options for your customers
Rethink the F&I Department’s Role
According to NADA’s October sales report, as new light-vehicle transaction prices reached new record highs, average incentive spending per unit has reached a new record low during the month at $1,628.
As new and used vehicle prices continue to rise and brand incentives diminish, your dealership’s F&I department is likely feeling the impact the hardest. To maintain penetration rates and support overall dealership profitability looking ahead, dealers need to rethink how they manage and measure success inside the F&I department.
Define and Measure Success
To optimize your dealership’s F&I efforts, start by re-evaluating how you define and measure success, including your pay plans. Remember: Amid inventory shortages, contracts sold at a lower gross are better than no sale at all.
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3-Step Guide for Dealership F&I Success Amid Inventory Shortages
Adapt to Consumer Behaviors
Look for opportunities to adapt to changing consumer behaviors and buying trends. For example, as more buyers purchase pre-owned vehicles, focus on marketing consumer-oriented products more heavily, such as wrap coverage or service contracts.
Leverage the F&I Department
Finally, equip and leverage your dealership’s F&I department to support other mission critical efforts, such as your pre-owned acquisition efforts. Knowing customer demand has remained consistently high, encourage your team to go deeper on trades or offer customer lease buybacks earlier than in the past. To maximize your CPO program, consider expanding program eligibility or selling certifications at a reduced rate.
Communicate Effectively on F&I Topics
Amid diminished loyalty, increased competition and fewer opportunities to engage buyers in-person, dealers also need to rethink how their F&I department connects with buyers. This is especially true as auto buyers rank “securing F&I products” among the top five customer touchpoints they would like to find online, according to a consumer survey by IHS Markit.
Regardless of whether a customer is shopping online, in-person or likely a combination of both, it’s important dealers consistently communicate with buyers. This communication reduces friction and improves the customer experience at every step of the process, across channels and departments.
Communicate F&I Topics
Reducing friction in the F&I department starts with effectively communicating with customers about important F&I topics in the format and on the channel they prefer. Be sure to update your dealership marketing materials across channels to include F&I topics alongside sales and service information. Look for ways to include F&I discussions earlier in your sales process.
Create Video Content for Customers
To reach buyers online, consider creating short videos on topics customers often ask about to post on your dealership’s website and cross-utilize on social media. Focus on important topics like GAP contracts or frequently asked questions related to warranties.
Identify Customer Questions
Poll your staff, both sales and finance, to identify the topics that confuse customers the most or often present challenges. You can even develop a series on the most complex topics that can be broken down into simpler terms, such as first explaining what sub-prime means, then introducing how your dealership can assist sub-prime buyers at your store.
Ultimately, reducing friction in the F&I department means effectively communicating with customers earlier in the sales process. Look for opportunities to introduce F&I discussions earlier, even offering to include F&I options in your monthly pricing from the start.
Personalize F&I Options for Your Customers
Long before now, the old “300%” rule of selling 100% of your products to 100% of your customers, 100% of the time was largely out-of-date. But as inventory challenges push prices higher and force customers to shop around, it’s more important than ever to tailor your dealership’s approach at every step.
Take Personalized Selling Approach
While this may seem like a tall task, with the right tools and technology, dealers can empower their team to focus on selling only the most relevant and appropriate products for each customer, fueling their future success. According to one recent study, brands that offered a personalized customer experience increased customer satisfaction rates by 20%, sales conversion rates by 10-15% and employee engagement by 20-30%.
Empower F&I with Data
Using dealership marketing tools and data from your dealership’s CRM, DMS and sales platform, task your team to build personalized offers that speak directly to your customers’ wants, needs and lifestyles.
Use Relevant Customer Information
Look for ways to personalize your messaging to build trust with buyers, going beyond auto filling their name at the beginning of their email or letter. Instead, look for ways to tailor your marketing campaigns to include timely and actionable offers and targeted rates according to relevant datapoints like household financial records, estimated trade values and more.
Looking ahead, as inventory shortages continue into 2022, dealers across the country are being forced once again to pivot their approach to achieve sustainable success. Thankfully, there are plenty of opportunities available for dealers who can pivot their approach and adapt to changing consumer buying habits and retail trends.