20 Dec 3 Tips for Successful Upfront F&I Pricing
Many years ago, Carmax stormed into the automotive space with the ‘no haggle’ price. What you see on the window sticker is it…no negotiation, take it or leave it. That sent a shudder down the spine of every used dealer in America.
After all, the negotiation back-and-forth is what so many car salespeople live for. Customers would walk onto the lot ready to do battle and make a game of how low they can get the dealer to go on the car they want.
If the successful model Carmax ran with showing the price upfront worked, could the argument be made for doing the same in F&I?
The concept of showing the price upfront is foreign to nearly all dealers. F&I managers have always kept their back-end buy rates and cost a mystery to customers in service of holding a good rate or margin on a VSC.
Upfront Pricing? Good or Bad?
There are dealers who actively set the prices for popular F&I products on their website and treat it the same as a ‘no haggle’ price. Here it is, pay for it or don’t. Some give a flat price and others may offer it as a monthly payment addition example to the car payment.
Either way, the customer now has the information they need to make a qualified financial decision. They won’t have to go through the negotiation process and the stress associated with it disappears. All good.
The bad news is that locking your F&I department into a set price also locks up PRU. With no flexibility to charge more, you are not necessarily moving the needle fast enough for higher profits. It could be stagnant unless you raise the advertised price per product.
This may not matter that much if your store is rolling in a sustained high volume of sales. Statistically the numbers could shake out in your favor every month assuming a solid average sales percentage. Good consultative sales skills among the F&I managers can help with that.
Is Upfront Pricing a Sign of Things to Come?
Customers in today’s car buying environment have a lot to consider before making the decision to come in and choose a car. They are worried about the safety of car shopping during the pandemic that seems to have no close end. They are economically stressed and looking at both record high prices and record high payments for vehicles. Millennials and Gen Z are demanding more transparency in pricing and car information before they ever reach out to the dealership. It’s an evolving selling environment for sure and one where upfront pricing may have finally made it worth trying.
If your store is considering a switch to upfront disclosure on F&I products, consider the following tips to make this successful for your customer and your store…
- Price needs to be reasonable. Hitting too high will turn off online car shoppers. Take a close look at your backend costs (consider a move to a provider that may offer a less expensive cost that doesn’t sacrifice stellar claims support and administration…like TruWarranty hint-hint) when considering your price. It’s good to have a solid PRU but if it’s too high, you risk scaring off online shoppers.
- Education is key. Even when offering an upfront price, it’s important to educate the buyer by backing up the need for the product or protection. Explain the features and benefits clearly with an explainer video that is engaging and clear. That resonates with all buyers.
- Use Powerful Marketing Language. Dealers who use clever or interesting branding for their packages/bundles can leverage that to brand it closely to the dealership.
For example, a dealer may offer a special lease bundle calling it something like ‘Total Lease Protection’ that may include all the appearance products they need to escape high reconditioning fees at turn-in. Even lease customers know they may need F&I products to help keep the car in good shape for return at the end of the term and a well-priced flat rate can make the customer feel compelled to buy it with the right messaging built around it online.
If your current F&I provider doesn’t offer a suite of private label branding for your store, TruWarranty can help. We understand how important it can be when offering upfront pricing to make sure it’s properly branding to your store.
Click here to learn more about how TruWarranty can help you keep costs down so that upfront pricing can be easy and profitable. Your customers want price transparency and we can help make that a lot easier for them and for you.