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Is your F&I ‘Power Rating’ on the rise?

Brian Gallmeier, Columnist
March 3, 2014
Filed under Columns

To your 40-something neighbors with a cabin and a couple driving teenagers, Power Ratings carry bragging rights, and anything over 40 would be a good score.

Using 1 point per cylinder, that’s 8 for the SUV or pickup, 4 for the hybrid, 6 for the 1995 LeSabre, 4 for the 1999 Civic, 2 for the lawn mower and 2 for the snow blower.

Then, of course, the toys: 8 more points for the two ATVs, 8 for the two PWC, 4 for the pontoon, and of course, the cruiser counts as double, making a total power rating of 46.

So yes, your neighbors can be considered powersports enthusiasts!

Power Ratings can also be used as a conversation starter on the show floor.  Rather than “Can I help you?” and getting the standard “Just looking for now” response, how about trying some type of interest-drawing catch phrase that relates to the number of members in their family, their lifestyle and, of course, their toys.

Once your sales representative explains the phrase, most powersports enthusiasts will be proud of their Power Rating. Give your customer a nudge for next season, with a goal of trying to get their Power Rating over 50!

To F&I departments, Power Ratings will also carry bragging rights, though the term refers to something quite different. Your F&I managers should be just as proud of their Power Ratings as your powersports enthusiast customers are of theirs.

For your F&I department:

– Power Rating = # of F&I products sold per vehicle retail (PVR)
– Long-term Power Ratings drive PVR

Let’s take a look at an example:

Finance Manager A:
• 40 deals
• 20 finance/20 cash
• $200 average finance revenue per finance deal, or $4,000 total
• 28 products sold at $600 average, or $16,800
• Reserve revenue for finance deals is $17,000
• Revenue for cash deals is $3,800
• Total income excluding chargebacks was $20,800
• Chargebacks were $800, for two product cancellations, none for finance
• Department gross income less chargebacks is $20,000
• PVR on 40 deals is $500

Finance Manager B:
• 40 deals
• 20 finance/20 cash
• $500 average finance revenue per finance deal, or $10,000 total
• 20 products sold at $600 average, or $12,000
• Reserve revenue for finance deals is $17,000
• Revenue for cash deals is $3,800
• Total income excluding chargebacks was $20,800
• Chargebacks were $800 for two product cancellations, and $5,000 for finance
• Department gross income less chargebacks is $15,000
• PVR on 40 deals is $375

Summary:
– Manager A grossed the same as Manager B, however sold 40 percent more products that may be valuable to the dealership’s customer retention and future service revenues.
– Manager B had higher finance reserve, however in the end, it created 25 percent in chargebacks to the department.
– Both managers saw significantly more revenue on finance deals vs. cash deals.
– Prior to chargebacks, both managers show the same PVR at $520.

So, what’s the Power Rating of each finance manager? A perfect power rating score is 100. That’s one product sold on average PVR.

Manager A in the example above sold 28 products on 40 deals for a Power Rating of 70. Manager B sold 20 products on 40 deals for a Power Rating of 50.

In the Manager B example with chargebacks at 25 percent of total department revenue, a couple things can be assumed — either reserve revenue is too high as a percent of total revenue (not enough products sold), or total revenue is significantly lower than previous months or years.

Finance reserve has been significantly higher in the not-too-distant past. Only the best F&I managers are able to create reserve without chargebacks. Less than 20 years ago, finance reserve was as much as 80 percent of F&I revenue. What is your reserve as a percent of your F&I income today?

A compensation plan based on Power Ratings

Most dealerships have their own set of targets and objectives that are most important to them. If the F&I manager can achieve some specific results for the dealership, then place them at the higher end.

Using the examples of Managers A and B above, 20-25 percent for Manager A would have been $4,000-$5,000 after chargebacks. Manager B would have been the same if you didn’t look at the chargebacks; however counting the chargebacks of $5,000 would give Manager B compensation of $3,000-$3,750.

Brian Gallmeier, founder of Income Development Partners, trains F&I departments. He can be reached at bgallmeier@charter.net or 612/616-8611.

 

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