JIM HENRY

Sell more service contracts? That may get tough

Automotive News | August 15, 2012 - 12:01 am EST

Is the glass 40 percent full, or is it 60 percent empty?

Perhaps it's neither.

A couple of the publicly traded new-vehicle retailers reported their extended-service contract penetration was around 40 percent for the second quarter -- specifically, Group 1 Automotive and Lithia Motors Inc. The other public groups don't usually break out detailed F&I numbers.

The numbers look better if you take out leases. Lease customers are unlikely to buy an extended-service contract. Leasing accounted for about 24 percent of new-vehicle volume in the first quarter for the whole industry, according to Experian Automotive. Those two dealership groups didn't provide specific lease figures, but most of the public retailers say their lease penetration is higher than average.

In addition, Lithia said 24 percent of its customers paid cash or got financing somewhere else. For Group 1, it was 30 percent. Those customers are also less likely to buy add-on F&I products at a dealership.

So between leasing and cash customers, something like half of their customers weren't good candidates to buy an extended-service contract. That makes 40 percent penetration look a lot higher -- more like 80 percent.

Several of the public groups said this month they are leaning on their bottom performers to sell more F&I products. But from the present level, the going may get pretty tough.

Jim Henry is a special correspondent for Automotive NewsJim Henry is a special correspondent for Automotive News

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