Tight credit and a deepening recession are spurring one surprising trend in RV financing: the outsourcing of dealerships’ finance and insurance (F&I) operations.
Priority One, a St. Petersburg, Fla., provider of turnkey full-service F&I services to over 600 marine and RV industry dealers, saw a 342% increase in dealer sign-ups during January and a 540% increase in February.
The company, over 20 years old, was acquired in 2007 by RV manufacturer Forest River Inc., Elkhart, Ind., a wholly-owned subsidiary of Berkshire Hathaway Inc. Being affiliated with Berkshire Hathaway doesn’t give Priority One easier access to retail RV loans, but “it certainly gives us more credibility in both industries we serve,” says Lisa Gladstone, the company’s president and founder.
Priority One’s volume of retail loan application business also provides it with a degree of leverage with banks and financial institutions, which an individual dealer would be hard-pressed to match. “All our business is sent in under one roof,” says Gladstone. “Rather than a dealer doing five transactions a month, we’re working with businesses that represent $1 billion worth of retail sales. We have the same staff (52 people) talking to the same lenders every day. It’s part of what we do all day long to get the unit delivered and generate extra profit for the dealership.”
After a dealership has landed a customer, Priority One handles all the closing and selling of the finance opportunities associated with the deal. “The dealer can fax in the purchase agreement on a fax machine or enter it online to turn it over to us for a credit application,” says Gladstone. “Then, we call the customer, and start working on the deal.”
As a turnkey operation, Priority One runs credit checks and discusses financing options with a dealer’s customer, helps the dealer structure loans to the selling unit and customer’s credit qualifications, lines up lenders, sells insurance and service contracts – basically doing everything that a dealers’ business office/F&I operations would handle.
Along with high volume leverage, Priority One’s appeal is in helping dealers cut costs, getting access to highly trained people and, frequently, increasing their F& I profit on each deal, Gladstone says.
Due to the seasonality of the RV business, for example, it’s more difficult for RV dealers (than car dealers) to get topnotch F&I people and keep them during the slow selling season. Even large dealers, with multi-locations, often can’t afford a business manager at each location, Gladstone adds.
Priority One handles dealers of all sizes, the average being in the $4 million to $7 million sales range. “That’s just where we are with our average size. It’s a group of dealers that understands the need to protect every customer in the purchase in making a purchase, hold their hand, shop lenders and understands the need for additional profit,” Gladstone says.
The company’s earnings are based on whatever extra profit it generates on a unit. It earns 49% of the profit generated by the finance reserve a dealership gets from lining up its own lender, for example, and/or from the sale of a service contract. All the money from the transaction goes directly to the dealership, which, in turn, then pays Priority One, rather than it collecting any money from the lender. And, “unless we help get the unit delivered and generate extra profit from the finance reserve or up-selling things like insurance or service contracts, we don’t get paid,” says Gladstone. “We pay for overnight costs, the creation of the website. The onus is on us to create value.”
The company’s dealer agreements can be terminated at any time. “We believe in success and results that speak for themselves,” says Gladstone. “We want a profitable partnership and not one that forces anything on the dealer. Our agreements simply spell out the dealer’s responsibility and ours, and if it doesn’t work, let us know, and we’ll part friends,” says Gladstone.