Overview: A Utah-based dealership, Action Auto, with 700 cars in its inventory managed to reach an impressive 50% placement rate on warranty products by focusing on customer education, bundling strategies, and strengthening lender relationships. This approach not only boosted backend profit but also helped maintain high customer satisfaction, creating a win-win for both the dealership and its customers.
The Challenge: Selling finance and insurance (F&I) products like warranties and gap insurance can be challenging, especially for cash buyers. These customers tend to view warranties as unnecessary add-ons, making it harder for a dealership to increase backend profit. Additionally, the dealership faced the issue of maintaining lender-approved loan-to-value ratios while still offering these products. Lastly, educating customers about the value of F&I products required overcoming their skepticism.
The Approach: Bundling, Education, and Lender Collaboration
- Bundling products: Instead of overwhelming customers with multiple separate pitches, the dealership used a menu system to bundle F&I products into simple packages. This allowed the finance team to offer three clear options rather than pitching individual products, which created a smoother customer experience and increased product penetration.
- Customer education: The dealership invested time in educating customers about the benefits of its F&I products. For example, finance managers would explain that warranties function as “life insurance for your car.” Customers appreciated that they could prorate any unused portion of the warranty if they sold the car before the warranty period expired. Additionally, real-life examples, such as explaining how gap insurance saved customers thousands of dollars, helped to build trust.
- Lender relationships: The dealership worked closely with a variety of lenders to ensure it could offer flexible financing options, allowing more customers to include warranties and other products in their financing package. By building strong relationships, the dealership was able to secure better lending terms for its customers, increasing the likelihood of product purchases.
The Results: Thanks to its strategic bundling and customer-centric approach, the dealership achieved a 50% placement rate on its service contracts. On average, 40-50% of its deals included warranties, with similar penetration for gap insurance. The dealership’s backend products also generated an average of $2,011 in gross revenue per deal, significantly contributing to its overall profitability.
The dealership’s success with F&I products wasn’t just about selling more – it was about ensuring customers understood the value of these products. By positioning warranties and service contracts as essential coverage and emphasizing the affordability of bundled packages, the dealership was able to increase customer satisfaction while boosting its bottom line.
Key Takeaways:
- Bundling increases success: Offering F&I products as part of bundled packages simplifies the decision-making process for customers, leading to higher penetration rates.
- Customer education is crucial: Clearly explaining the benefits of products, using real-life examples, and emphasizing prorating options helps overcome customer skepticism.
- Lender relationships matter: Strong relationships with lenders can open up more flexible financing options, increasing the likelihood of F&I product placement.
By adopting a strategic and customer-first approach, this dealership has not only achieved impressive placement rates for its warranty products but has also created a positive experience for its customers, setting the foundation for long-term success.
