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ReprintsAs credit returns, Penske makes F&I gains
Penske Automotive Group had higher F&I revenues in the second quarter because captive finance companies are approving more leases and loans and because leasing is making a comeback.The group's F&I revenues were up about 16 percent from the year-ago quarter, to $63.6 million. New and used retail unit sales combined also increased 16 percent, to 68,908. F&I revenue per unit was flat, at $922.
"Credit has improved, closing ratios are higher and leasing is better," CEO Roger Penske said in a July 29 conference call with analysts and reporters. "We have also noticed a significant increase in approval rates at our captive finance lenders and our preferred lender network," he said.
Without specifying approval rates, Penske said approval they were up 10 percentage points for Honda Financial Services; up 7 percentage points for Toyota Financial Services; up 5 to 6 percentage points for banks; and up "a couple" of percentage points for Mercedes-Benz Financial.
He said Penske Automotive does about 75 percent of its retail loan and lease volume with captive finance companies. That includes a higher than average share of leases, since the group gets most of its sales from luxury brands.
Penske's F&I revenue per vehicle is the lowest of five big public chains that reported earnings in recent weeks That may reflect the prevalence of leasing at Penske Automotive, said Tony Pordon, senior vice president.
Lease customers aren't likely to buy extended service contracts, since they don't usually keep their cars beyond the original warranty. Lease customers are also less likely to buy Guaranteed Asset Protection policies.
Penske said 60 to 65 percent of Mercedes-Benz retail volume is in leases. The BMW, Lexus and Audi brands also are heavily leased, he said.
On the positive side, leasing has become more widely available. Ford Motor Credit Co. and Ally Financial Inc. have gotten back into leasing somewhat, but still don't lease near as much as the luxury import brands. Leasing is less risky now for auto lenders because used-vehicle values bottomed out in 2008 and have since recovered.
The latest residual values on some Mercedes-Benz models are $3,000 to $4,000 higher than the models they replaced, Penske said.
"It's a strong product, he said. "The domestics really haven't gotten into the (lease) business to the extent foreign nameplates have." You can reach Jim Henry at autonews@crain.com.
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