You Can Still Make a Solid Profit with Fixed F&I Pricing. Here’s Why…

No one likes to haggle or negotiate for the things we have to buy. If we’re all being honest, most of us want to know what the price is and we expect to pay exactly that. In the dealership world, though, it’s never been quite that easy. 

‘Hit them high and peel them off the ceiling’ has been a common strategy for decades in the F&I office. It may seem tongue-in-cheek but it calls back to a common problem. The notion of throwing everything out there and seeing what sticks. When the customers complains they can’t  afford it, the negotiation starts and the price drops until there’s a ‘yes’.

Not to be confused with payment stuffing (another no-no), intentionally higher prices for products where there may be interest are almost always not necessary for solid PVR and can end up hurting CSI scores from customers who feel like they are being manipulated. 

A fixed price for F&I products is a better and more trustworthy approach for all customers yet it has not been widely adopted. Why? What are the benefits to offering set pricing and how can it reduce the friction between F&I and the buyer?

Let’s take a look….

Dangers of Inconsistent Pricing

Imagine yourself on the other side of the desk when buying a car. Would you want to have a $1800 VSC presented only to have the F&I manager start peeling back the price every time you said ‘No, I can’t afford that.’ What would go through your mind? You would likely feel like you’re being scammed or taken for a fool.

Buyers know that trick and if they sense that you are hitting them at the top end of pricing just to make more profit, 2 things will happen:

  1. trust is Gone - They are trusting F&I professionals to handle all the more delicate steps in the car buying process from loan approval to tags. And most car buyers already have a negative view of F&I to begin with. If a buyer sees that the price you FIRST quote has that much room for negotiation, you put yourself in a less than trustworthy position. Your reputation and the reputation of the dealership is in jeopardy. 

  1. Target for Regulators/Auditors - If enough people complain about this sales strategy, it will get the attention of state regulators. At a time when the top headlines for dealers have to do with new proposed FTC regulations on transparency for car buyers, this is NOT something you want your dealership to be known for. Just the mere volume of clearly overpriced VSC and GAP (unless it’s already capped in your state) will set off alarm bells. It will look obvious and could be fine-worthy especially if it’s more pervasive for minority or second chance buyers.

Why are dealers still doing this? The answer comes easier now than it did a few years ago. Low inventory means fewer deals but the ones you do get, you try to maximize the margins both in sales price and F&I with reserve being higher due to higher prices and product being priced higher as well. Buyers want the car bad enough and they were lucky enough to find or order one, then they won’t mind paying WAY over the reasonable cost for a VSC or Tire & Wheel. 

But like the ‘market adjustments’ to MSRP, wildly varied F&I pricing is also coming under more scrutiny.

Benefits of Set Pricing (Hint…It Will Set You Apart in a Good Way)

All generations of car buyers deserve to have more transparent and reasonable F&I pricing but Millennials and Gen Z in particular are expecting it. They research more about the entire car buying process than any other buying cohort. They know what F&I products are designed to do and how it can protect them but with that comes research into common prices…better to give them what they want right from the start.

Besides appealing to younger buyers, set pricing will allow the discussion with your buyer to be less about the cost of the protection and more about the value proposition. F&I staff can hit home on the benefits of their suggested products and can highlight that the prices are set for ALL buyers and therefore no shell game, no time wasted on negotiation.

Another benefit is that this forces your F&I staff to have deep knowledge of two things right away - the buyer’s needs and comprehensive product knowledge. They will know the products that fit the customer best and can easily justify a reasonable price. Better interviews and constant F&I product education makes this part easy.

If your buyer understands the pricing structure and the reason why this or that is perfect for THEM and their driving experience, you won’t have to negotiate and revert to the back-and-forth haggling. You instantly take away the time-sucking, trust eroding poison pill of F&I with a fair set price. Everyone is happy and penetration rates go up…as they should.

Car buyers will appreciate the transparency and if they understand that flat rate pricing is across the board, it could be the one thing that helps to set your store apart from everyone else in your market. Think about it…word gets out that your dealership offers a set price for all popular F&I products, making it an easier process, and suddenly more people want to buy from you. 

truWarranty can help your store construct the perfect mix of F&I products as margins that will keep PVR high and allow for easy set pricing to be created for all makes and models. Email or call us today for a quick demo and let us help you give your car buyers the stereotype-busting experience they deserve (and the steady and strong profits you need).

date published
August 5, 2022

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