Dealers take a hard look at F&I mangers' pay

As expenses rise and front-end margins shrink, dealers are examining some of the personnel they pay the most: finance and insurance managers.

Eight-rooftop dealership group Friendship Automotive Enterprises in Bristol, Tenn., is re-evaluating how F&I managers are compensated after a spike in F&I profitability drastically altered the status quo in the stores.

"Don't get me wrong, the top producers should be compensated more than fairly, but it's just gotten out of whack a little bit," Friendship COO Dustin Walters told Automotive News.

In 2017, F&I managers made $142,048 on average nationally, a 3 percent increase from the year prior, according to National Automobile Dealers Association data obtained by Automotive News. That compares with an average salary of $134,625 for sales managers and $121,918 for service managers. The only dealership position earning more on average than the F&I manager is the general manager, at $328,150.

F&I manager compensation rises by thousands of dollars on average each year, according to the data. A drastic pay disparity between F&I managers and their management peers could disrupt the traditional career path and make dealers question the value of the F&I position. Still, slashing or minimizing F&I pay could drive away talent, particularly if managers know they can make more down the street.

At Friendship, depending on the store's sales volume, sales managers make 3 to 4 percent of the gross profit on all transactions. If a customer finances through the dealership and buys F&I products, the F&I manager typically makes 10 to 15 percent of the F&I gross profit. But if a dealer wanted total manager compensation to be around 30 percent, Walters said, there's only so much gross to go around.

"For there to be so much gap in relation to the F&I manager ... who ultimately owes all their opportunities to the sales team — I have a little bit of a problem with that. Nothing happens until you sell a car, right?"

Inflated F&I pay also dismantles Friendship's traditional career path of salesperson to F&I manager to new-car manager to used-car manager to general manager. Who wants to rise through the ranks, Walters argues, if it means taking a pay cut?

Paying one employee or department significantly more than every other damages dealership morale, but too much change in F&I pay, especially considering the significant amount of work that goes into the position, drives away talent, warns John Pappanastos, CEO of EFG Cos., an F&I training and products company in Irving, Texas.

"Those guys are really assassins. They're hired guns. They run such great numbers and create so much profitability for the dealer that if you drop their [compensation], you lose them," Pappanastos said. "It's a bad economic decision. As long as I'm getting richer as my team gets richer, why do I care?"

Adjusting F&I manager pay is easier if the position has been recently filled, said Adam Lee, chairman of Lee Auto Malls in Auburn, Maine, which has seven new-vehicle rooftops and 13 used-car stores. Lowering the pay of a tenured, talented F&I producer is difficult to do without them walking out the door.

"It's hard to take your best people and lower their pay, although we've done it. Sometimes you just have to," Lee said.

F&I compensation should generally be around 15 to 18 percent of the profit in the office, according to Lee. However, some of his F&I managers run as high as 20 percent of the office's profits, which are occasionally driven by factors outside the manager's control, he added.

"It's sometimes the nature of the business, not necessarily just the skill of the finance manager, that's generating the income," Lee said. "You can't do it without them, but sometimes they're the beneficiary of a change in the dynamics of where your income is coming from."

Friendship is experimenting with ways to tackle the pay problem. The group is working on a hybrid pay plan that includes both commission and salary with a draw system built in, which Walters says is more egalitarian for employees across the dealership than the traditional model.

"Pay plans drive behavior," Walters said. "Whatever you want to change, if you do it in a way that's not a de-motivator, that's the way to make the change."

Dealers have experimented with minimizing or removing the F&I position for years. The F&I manager remains a critical job, and downsizing the department is a mistake, said Mike Maroone, former COO of AutoNation Inc. and now CEO of Maroone USA, with four rooftops in Colorado Springs, Colo.

"It's the second-highest-paid job at our stores, right up with the general sales manager," Maroone said. "We pay our F&I people a significant amount of money, and they earn it."

Maroone has no interest in eliminating the F&I manager position. Those who have generally bring it back, he said.

Justin Gasman, financial services director at McCaddon Cadillac-Buick-GMC in Boulder, Colo., says the specialization of an F&I manager is invaluable to dealerships as a whole. Consolidating the position into that of a salesperson comes with compliance risks and likely a decline in F&I product sales, Gasman said.

"The only reason the dealership would still be in business today is because of F&I," Gasman said. "Without F&I, you have nothing."

However, some dealers see seismic shifts in how the F&I office fits into dealership operations. David Rosenberg, CEO of Prime Automotive Group, said at the Automotive News Retail Forum: NADA last month that a system that necessitates two or three people dealing with a customer stagnates relationships. More customers shopping online and spending less time in the physical store will eventually result in the removal or replacement of multiple dealership departments.

"Potentially, an F&I manager may be a thing of the past. The BDC agent may be a thing of the past. We will have salespeople potentially who handle a customer from A to Z," Rosenberg said.

Liza Borches, CEO of 13-rooftop Carter Myers Automotive Group in Charlottesville, Va., said major changes to the department will come only if they reflect consumer demand.

Borches believes F&I managers' large paychecks can only persist if their duties shift onto the sales floor. She envisions a hybrid manager integrated with the sales desk who will structure deals early on, she says. The hybrid manager would also train sales associates on compliance and F&I product sales.

"You cannot sit in an F&I office, simply present a menu and print paperwork and sell some product and still be around five years from now," Borches said, "maybe even two years from now."

There's no magic pill for aligning compensation the way it used to be, with the gap between F&I managers' pay and that of other managers not as large, Walters said. He plans to make small changes, one store at a time, to figure out what will work for Friendship.

Still, there are fewer compensation complaints at his group today than he would have expected.

"Bad finance managers don't normally stay around very long. You have to have clean paperwork; you have to work with the banks," Walters said. "If anything, the sales managers [say], 'If they want to take on that pressure, maybe [they] should make more than me.' I'm surprised I don't hear more about it."

Hannah Lutz and James B. Treece contributed to this report.