Strong F&I profits buoy 2nd-qtr. earnings for public retailers
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Cheap and easily available credit, more subprime business, higher sales and additional training drove finance-and-insurance profits higher for the five public dealership groups that have released second-quarter earnings. Sonic Automotive Inc., Group 1 Automotive Inc. and Asbury Automotive Inc. reported record F&I results.
"It was a great F&I quarter. It was our biggest F&I gross quarter in company history," said Jeff Dyke, Sonic executive vice president of operations, noting that F&I helped all retailers during the second quarter. "Everybody's rolling in it."
At Sonic, F&I contributed 3 percent of revenues during the second quarter, but 20.4 percent -- or a record $65 million -- of total gross profits. F&I gross per vehicle was $1,055, up 5 percent and just shy of the company record of $1,073.
At Group 1, increasing product sales and higher finance penetration contributed to record F&I gross profit per vehicle of $1,191, up 6 percent.
"Low interest rates are a tailwind for the F&I business," said Pete DeLongchamps, Group 1 vice president of financial services and manufacturer relations.
Group 1 also has gained by narrowing the number of products it sells to those most closely tied to customer satisfaction, DeLongchamps said. For instance, service contract penetration was 37.5 percent during the quarter and is up by more than four percentage points since 2009.
Product penetration also is improving at Asbury, which set company records for both F&I revenue and F&I per-vehicle gross profit. That per-vehicle number rose 8 percent to $1,200.
But Asbury COO Michael Kearney still sees room to grow. Enhanced training for F&I managers helps. "There's always a bottom third, and that's what we really focus on," Kearney said.
Though not a record, Lithia's average gross profit per unit in F&I products rose to $1,059, up 6 percent.
Much of the increase is the result of increased customization of F&I products to the customer's budget, Lithia CEO Bryan DeBoer said. For instance, even though F&I product prices are not negotiable at Lithia, a finance manager can offer many of them for shorter terms with lower priced deductibles to bring the payment down.
"A lot of it comes down to knowing your customer," DeBoer said. There are more subprime buyers among that customer base. Lithia said subprime contracts, which have high interest rates and produce more profit, rose 31 percent from a year ago.
Good credit availability for the full range of buyers helped all the public groups.
"As far as automotive finance, we're fully back to '06 [levels], and the availability is just terrific," AutoNation CEO Mike Jackson said.
AutoNation reported F&I gross profit of $1,282 per vehicle, a 4 percent gain. COO Michael Maroone said that should continue to increase as AutoNation continues to focus product sales on service contracts and prepaid maintenance.
Said Maroone: "It's got to be value-added products, and that's where we're seeing the primary growth."
| Publicus' profits soar | |||||
| High volume and robust F&I profits boosted earnings for the 5 public retailers that reported second-quarter results. | |||||
| Lithia | Group 1 | Asbury | Sonic | AutoNation | |
| 2nd-qtr. net income (in millions) | $20.50 | $28.60 | $21.10 | $28.20 | $78.60 |
| % increase | 38% | 16% | 49% | 32% | 9% |
| 2nd-qtr. revenue | $847.1 mil. | $1.9 bil. | $1.2 bil. | $2.2 bil. | $3.9 bil. |
| % increase | 26% | 29% | 11% | 12% | 17% |
| F&I gross profit/unit | $1,059 | $1,191 | $1,200 | $1,055 | $1,282 |
| % increase | 6% | 6% | 8% | 5% | 4% |
| Source: Companies | |||||
You can reach Amy Wilson at awilson@crain.com.
