Quoting and Setting Interest Rates

by George Angus
How much finance reserve should I be making?
This has become a more and more common question from F&I managers around the country. Much of the reason for this
heightened interest in the area of finance reserve is because of the change in customer attitude and awareness
regarding rate.
The constant advertising of subvented rates has helped sell more cars but has also caused a keen awareness on the
part of your customer regarding interest rates. They use the interest rate as their primary guide in choosing a finance
source and are willing to shop for the best rate. While the old considerations of convenience and dealer control of the
customer still have an impact on the customer’s decision, they are aware that they have choices and are more interest
rate conscious than ever before.
For the professional F&I manager to address this issue some priorities need to be examined.
One obvious goal of the F&I department is to make money. Logic would suggest that the more finance reserve we make,
the more money we will make in F&I, right?
Well, as logical as that may sound, the facts tend to prove just the opposite. In examining hundreds of F&I departments
around the country, we find that the top performers in income per retail unit, percentage of chargebacks, and customer
satisfaction all have one thing in common. These F&I departments have a relatively even balance of income from all of
their products and tend to concentrate on product sales and percentage of deals financed rather than finance reserve.
The top performers tend to average under two points in rate spread and have a finance reserve percentage of income
under thirty percent.
One possible reason for this fact is the customer attitudes. We have found that negotiating rate with the customer tends
to create a loss of credibility and affects not only reserve income but the customers willingness to consider F&I products.
It seems to be much more effective to set the rate, up front, and then deal with the rate issue only as an objection put
forth by the customer. While this difference seems subtle, it seems to have an impact on customer response.
The other reason may be in increased finance penetration. The fastest way to increase F&I income is to increase the
number of deals financed. We make almost all of our money on finance deals. The only way to increase the percentage
of deals financed is to convert buyers to our financing from another source of repayment. Interest rate speaks directly to
In the example below you can see the impact of this philosophy on one particular Toyota dealership that started setting
rates as part of the F&I process we installed.
As you can see, the percentage of income from finance reserve dropped markedly, while at the same time the income
per retail unit went from $483 to $1186. During this same period this dealer’s finance penetration went from 46% to 67%.
These changes were a direct result of:
1. Setting a standard for points of interest over buy rate.
2. Presenting Package Option™ method to every customer.
3. Proper introduction, turn over, and attempted conversion of every customer.
4. No preexposure of F&I products by sales department.
These results were accomplished without any change in personnel. Initial cancellations of products sold stayed under 2%.
Why did more customers choose to finance with this dealership? The only explanation has to do with the handling of rate
quotes. By addressing the issue of rate in an honest and open manner the F&I managers were able to keep a good
income from reserve while converting more customers and selling more product.
There are some dealers who are even posting their rates based on the tier system.
However you do it, it is clear that setting the rate and telling that rate to the customer without any dancing around the
issue is, by far, the most effective way of dealing with the rate question.
Trying to make your living on finance reserve costs you income, credibility, and sets you up for frustration.
Make a reasonable amount of finance reserve income and concentrate on product sales and conversions. The rate will
take care of itself.
Make sure you train the salespeople in the areas of preexposure, proper introduction, and the importance of seeing
every customer at the point of sale.
Get some training in the Package Option presentation method.
Present a reasonable rate, up front, to every customer.
Do whatever it takes to convert them to your financing.
Do these things and you will get results. Guaranteed.

George Angus is with Team One Research and Training, a research and training company that specializes in scientific,
research based program development and training programs for the automobile industry. George has trained thousands
of F&I professionals and develops programs and techniques with the top performing F&I departments in the country.
Team One can be reached at 1-800-928-1923 or on the web at www.teamoneamerica.com
George Angus has had over 100 articles published in news and trade publications. This
article is a recent example of George's reporting of information derived from researching,
training,  and working with the leading F&I managers in the US and Canada.