DEALERS #1 PROFIT GENERATING SF: FINANCE OFFICE!

Car Dealer finance office #1 in Profit

DEALER FINANCE: The #1 profit producing Square footage in a Car Dealership

The finance office in a dealership is considered a significant profit center for several reasons:

• Finance and Insurance (F&I) Products: The finance office offers a range of finance and insurance products to customers, including extended warranties, gap insurance, tire and wheel protection, and more. These products often have a high profit margin, and the finance manager earns a commission for selling them. Finance offices are well known for using phrases with their customers like “The Bank wants you to have this.” or “This is what MOST of my customers go with.” Both lines are fabrications, and are typically not true. Dealership Finance offices make money by marking up the prices of these products and selling them to customers during the vehicle sign-out process.
• Interest Rates and Financing: Dealerships work with various lending institutions to offer financing options to customers. They can often mark up the interest rate offered by the lender, converting the banks offered “Buy Rate” into a marked up “Sell Rate,” allowing them to earn additional profit. This is also known as “dealer reserve.” The difference between the interest rate set by the lender and the rate offered to the customer has been known for years to be a significant source of profit for the dealership.
• Selling Add-Ons: Finance managers are skilled at upselling customers on various add-on products and services, such as paint protection, interior protection, or security systems. These add-ons can significantly increase the overall purchase price and profitability to the dealer on your car deal.
• F&I Menu Selling: Many dealerships use F&I menu selling techniques, where finance managers present customers with a menu of finance and insurance options. This can create a sense of “good” choices for the customer, but it also allows the dealership to steer customers towards their highest-profit options.
• Ancillary Fees: Dealerships Finance offices often charge various fees, such as documentation fees or dealer preparation fees. These fees are often negotiable but if successfully charged, can add to the dealership’s overall profit.
• Leasing: For customers who prefer to lease a vehicle, the finance office can structure leases in ways that generate additional income for the dealership, such as by setting favorable residual values or by including optional insurance products.
• Trade-In and Used Vehicle Sales: When a customer trades in their old vehicle, the finance office can determine its value and may resell it as a used vehicle, potentially making a profit on the resale.
• Customer Financing and Credit Scores: Finance managers evaluate customers’ credit scores and financial situations to secure financing. They may offer financing options with higher interest rates for customers with lower credit scores, which can lead to higher profits.

All of these things contribute to what is known as “Back-end” profits. The actual money made on the sale of the car is known as “Front-end” profits, and they are tracked separately. It’s essential to note that while the finance office is a profit center for dealerships, the profitability can vary widely depending on factors such as the dealership’s pricing strategies, the types of vehicles sold, the overall effectiveness of the finance manager, and how many years he or she has in the business, and of course, market conditions. 

Additionally, savvy car buying customers (like people who watch The Homework Guy) can often negotiate terms and prices, so not all profit opportunities are realized in every transaction.