Keeping track of F&I chargebacks

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As dealers work to bolster F&I profits, it’s vital they keep a close watch on chargebacks.

Dealerships can be charged back, or asked to repay, commissions received for performing two F&I functions: negotiating car loans that end prematurely, such as through refinancing or default; and selling F&I products that customers later cancel.

While dealers can’t prevent all chargebacks, they can adopt protocols that limit occurrences, especially those related to F&I product sales. Those protocols include the careful monitoring of not only all F&I sales practices but all metrics, too, not just the figures generated by F&I service providers, dealers say.

Dealers who routinely absorb significant chargebacks “are defeating the purpose of the profit center,” said second-generation dealer Eric Obaugh of Charlie Obaugh Chevrolet in Waynesboro, Va. “Percentages do spike from time to time, but you don’t want to see them pop up [regularly], and you don’t want to see 30-, 60- or 90-day cancellations.” He added: “We track and look at chargebacks every day.”

Software and performance metrics are important tools to track F&I performance, but dealers also must invest their own time and resources in working to limit chargebacks, dealers say. Menu selling, advanced F&I staff training and frequent F&I reviews with product providers are critical to steady F&I income.

Corder: Lower chargeback rates reflect customers who felt no pressure to buy.

No-pressure sales

Tyler Corder, CFO of Findlay Automotive Group in Henderson, Nev., which has 28 stores in five states, said lower chargeback rates reflect satisfied customers who did not feel pressured to buy add-on products and a sales team that works well with the F&I office.

“If I buy something and feel it was presented properly, I won’t change my mind,” Corder said. “If I was pressured or didn’t really understand what I was buying, I might cancel.” How do you prevent that? “It’s a whole package,” he said, that involves various steps and tools.

Corder said chargeback rates vary among Findlay’s dealerships but individual stores rarely exceed 10 to 12 percent a month in chargebacks for financing and F&I products combined. The average rate of chargebacks among dealerships nationwide isn’t readily available, but insiders say privately that 10 to 12 percent a month is well within the norm.

Dealer Keith McKinzie of Sonju Two Harbors in Two Harbors, Minn., said meticulous attention to numbers can save dealers from swift financial downturns. He tracks figures generated by vendors and in-house, including paper records, to assess how F&I staffers are performing.

“We keep a log, and we have immediate conversations, saying, “Your customer canceled [within] 20 days or 30 days. Let’s find out what happened,'” McKinzie said.

Although chargebacks often can be chalked up to subjective customer decisions that a dealership can’t control — such as rapid-fire refinancing — it’s important to investigate each case, using the F&I service provider as a partner.

“I always use [my provider] as a partner, but it’s important I independently track my numbers,” McKinzie said. “You can’t just set it and forget it.”

That sentiment extends to F&I training, too. “There’s nothing more important than making sure finance office [staff] continually attend advanced training,” he said. “I want to safeguard the dealership and our customers.”

Taking charge

Dealerships can help limit chargebacks of F&I product sales by adopting these key practices.
• Menu selling
• Advanced F&I training
• Having frequent analytical sessions with F&I providers
• Rigorously tracking and investigating chargebacks

The turnover factor

A singular approach doesn’t fit all stores, though; each store has its own challenges. For example, Corder said, employee turnover “can be a big issue” in chargebacks because it’s not unusual for new F&I staffers still honing their sales presentations to rack up chargebacks in the first few months on as much as 20 to 25 percent of the F&I products they have sold.

“But if you have someone experienced and well-trained in selling products, who has a good presentation, it shouldn’t be an issue. The real issue comes when there is turnover and the new F&I person hasn’t settled in.”

Obaugh agreed, saying: “Once you get the machine rolling, you don’t have a lot of issues.” That’s especially true if dealers use menu selling. “We don’t experience many product cancellations due to buyers’ remorse because of menu selling,” he said. “Menu selling in the F&I process needs to be nonnegotiable.”

That gives dealers room to set more challenging benchmarks, introduce new products and analyze how to reclaim some lost revenue.

“We are regularly meeting with our F&I provider,” Obaugh said. “They come in every two months for benchmark meetings. We are continually discussing how we can improve, how we can do better on the floor. That type of communication is key.”

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Keeping track of F&I chargebacks