By Jay Howard
Compliance & Administrative Services Manager
last eight years auto dealerships have undergone a marked shift in their
revenue sources. Since the end of the financial crisis in 2009, dealers across
the industry have become increasingly dependent on F&I aftermarket sales to
drive gross profits. According to NADA, in 2010, service contracts and other
aftermarket products accounted for 15% of gross profits, and by 2016 that
number was 23%.
of increasing profits from aftermarket products, innovative profit-sharing and reinsurance
arrangements, and an ever-changing regulatory landscape has led to a need for
dealers to become more actively engaged in managing the various products sold
in their F&I departments.
dealers have entered into, or at least considered, one or more of the myriad
arrangements that allow them to participate in the back-end profits depending
on the loss ratios and expenses associated with the service contracts and
insurance products sold in their F&I office. However, far fewer have
considered their need and ability to manage those books of business and their
place to start in any risk management plan is establishing open and clear
communication with product partners. A regularly scheduled service contract
claims review with the product administrator, for example, can help dealer principals
gain valuable insight into the practices of their service department. A provider
or administrator with a robust risk management department can then make
recommendations that, if implemented correctly, could reduce losses and
increase dealer profits.
to managing losses at the claim level, a product provider with an experienced
risk management team can analyze a dealer’s loss history along with their
profit-sharing or reinsurance arrangement, and create a modified rate structure
customized to that dealer’s specific situation.
and reserves aren’t the only pieces to the risk puzzle. Also looming is a
complex web of state and federal regulations governing the wide range of
products offered. The alphabet soup of regulatory authorities (OCCC, FTC, CFPB,
etc.) carry the threat of fines and enforcement actions that will impact a
dealer’s bottom line and reputation. It has therefore become critical that
dealers focus on choosing partner providers with dedicated compliance
departments. Leveraging the compliance departments of a product provider to
navigate issues such as licensing, audits, and legal issues can save
dealerships time and money.
of any size it has become clear that, given the increased volume and complexity
of F&I products, a comprehensive risk management plan is no longer a