Financial Services profits

Volvo Cars Financial Services partners with F&I software company Darwin to raise subpar per vehicle profits.

Midway through 2018, representatives from Volvo’s dealer network and captive finance company met with automaker executives to discuss underwhelming finance and insurance performance in dealerships.

The meeting was part of ongoing conversations in the automaker’s profitability forum, which was created in 2017. Headed by Volvo Cars of North America CFO Ola Sjölander, the forum is made up of about 12 Volvo dealership representatives and CFOs who hold monthly sales calls and meet quarterly.

According to TJ Prayner, vice president of sales and marketing for Volvo Car Financial Services, Volvo dealerships’ average F&I profit per new vehicle retailed was a staggering $478 lower than its luxury competitors, for an average $709 per vehicle.

That was very glaring to us,” Prayner said.

The captive finance company dove deeper into F&I performance at the retail level, and determined part of the problem came from a lack of process. Of the 289 Volvo dealerships nationwide, just over a third were still using paper F&I product menus, Prayner said. Forty-three dealers weren’t using an F&I menu at all.

However, 55 Volvo retailers were using a digital menu through F&I tool provider Darwin Automotive, Prayner said, and achieved higher F&I profits than those that were not.

We reached out to Darwin and said, ‘How can we partner to bring Darwin more into the F&I offices within the Volvo dealerships, and how can we work together to expand the income potential outside of the F&I office as well?‘?” Prayner said.

Darwin Direct

Darwin Direct

In addition to increasing the number of stores that use Darwin F&I, Volvo’s captive is urging dealers to sign up for Darwin’s more controversial product — Darwin Direct, a tool that allows customers the ability to “purchase, contract, e-sign and pay for F&I products 24/7, 100 percent on their own, absent any human involvement from the dealership.”

Volvo Car Financial knew some dealers would resist signing up for the platform, Prayner said. Dealers expressed fears that offering traditionally profitable F&I products online could cannibalize in-store sales and possibly reduce the F&I manager’s role.

To entice dealers to enroll, Volvo Car Financial covers the cost for those who sign up for Darwin Direct. The captive also has performance targets for dealerships that opt for the Darwin F&I digital menu. If a dealership reaches those targets, they’re reimbursed by the company, Prayner said.

Nineteen Volvo dealerships have switched to Darwin Direct. The goal: 50 retailers in 2019.

Dealer pilot

Steingold Volvo Cars in Pawtucket, R.I., was the first store to pilot the technology. The dealership started with Darwin Direct, then signed up for the in-store product.

Michael Bernardo, director of marketing at Steingold, said enabling customers to buy F&I products on their own time has taken a weight off his shoulders.

F&I product pitches were time-consuming for Bernardo and off-putting to his customers, he said. To retain long-standing relationships, he would breeze through a few products, which customers occasionally bought.

Most of the time, he would field phone calls from customers who wanted to learn more about the F&I products after the sale. Now that customers can buy the products at home, they opt for more than they did in the store.

It’s a 24-hour menu. When I wake up in the morning, I’ll get three or four orders every night and I’ve never had to talk to the customers,” Bernardo said. “To the savvy customer, they don’t even need me anymore because all the information is right online.

There were few complaints at Steingold about a process that lets customers bypass the F&I office for product sales, Bernardo said, because the store doesn’t have any designated F&I managers. In fact, the store has just three managers, Bernardo said: himself, his brother, Stephen, and another manager, Brian McHayle. Bernardo’s father, Manny, is the store’s general manager.

“We’re a start-to-finish dealership,” Michael Bernardo said. “If you meet with me, I’m going to show you how the vehicle works, I’m going to put you on a test drive, I’m going to sign the finance paperwork with you. I’ll even show you how the car works and connect your Bluetooth.”

The store sells a combined 50 new and used vehicles per month.

Volvo Cars Financial Services

Digital changes

Customers input their VIN into the Darwin Direct system and answer a few questions, Bernardo said. Customers are presented with products based on their responses and can select and buy the products they desire. The customers’ choices are sent to the dealership, which has final approval. The contract is live as soon as the customers complete the payment.

The profit margin remains low for F&I products at the store — around $500 per vehicle if the customer buys three products — though penetration has increased with the new tool.

According to Darwin CEO Phillip Battista, Steingold Volvo sold 96 service contracts outside the dealership in one month.

What we’re able to do now is enable this process on behalf of the F&I manager. So instead of them thinking, ‘This is working against us,’ it’s working as if it was their own personal assistant,Battista said.

Prayner said other Volvo dealerships have been slower than Steingold to come on board, but that more were coming around. Prayner said F&I managers can let customers know they can buy later if they declined in the store.

There will always be a role for the F&I manager, even with all of these digital changes in place,” Prayner said.

Today, Volvo dealerships are averaging $1,000 in F&I profit per vehicle, according to Prayner. In addition to the Darwin partnership, the captive is working with F&I product and training company JM&A Group on a revised curriculum for F&I managers with a focus on product sales.