Lease customers rarely buy F&I products such as extended-service contracts or GAP, and with leasing on the rise, that's one of the main reasons Penske Automotive Group was the only public group whose per-vehicle F&I revenues declined in the third quarter, according to Chairman Roger Penske.
Penske Automotive also was the only one of the six publicly traded, new-car retail groups that saw per-vehicle F&I revenues below $1,000. And three of those groups -- Asbury Automotive Group, AutoNation Inc. and Group 1 Automotive Inc. -- topped an average of $1,200 per vehicle.
"My eyes are wide open when I look at the peers that are at $1,100 or $1,200," Penske said in a Nov. 2 conference call for analysts and media. F&I revenue per vehicle was $969 for Penske Automotive, down $57 from a year ago.
He said the group expects to hover around $1,000 per vehicle. Penske also pointed out his group gets 38 percent of its revenue from overseas markets, and that also brings down the average for F&I sales, he said.
Primarily, Penske blamed the group's brand mix, which skews toward lease-heavy, luxury-import brands.
Premium luxury brands -- including Audi, BMW, Lexus, Mercedes-Benz and Porsche -- accounted for 68 percent of the group's revenue in the third quarter, the company said. U.S. domestic brands accounted for only 4 percent. "Volume foreign" brands, primarily Toyota and Honda, accounted for the rest, the company said.
The Penske group's average new-vehicle lease penetration is 30 to 35 percent of all deals financed, including all brands, company officials say.
According to Experian Automotive, lease penetration for Mercedes-Benz Financial Services was 88 percent in the second quarter, the most recent data available. BMW Financial Services was at 57 percent leasing, the credit bureau said. Honda Financial Services was also at 46 percent leases, according to Experian.
For Penske Automotive, high lease penetration makes it difficult to sell the biggest-ticket F&I products: extended-service contracts and GAP. Most leases come with built-in GAP. Lease customers also are much less likely to buy extended-service contracts, since most leases end within the new-car warranty period.
The Power Information Network said that about 11 percent of lease customers bought extended-service contracts in the third quarter, vs. 46 percent of customers who got loans at dealerships.
Some brands, such as BMW, also include scheduled maintenance at no extra charge, so there's even less motivation to buy a service contract, Penske said.
Even so, the growth in leasing is good, he said.
"With low interest rates available to the OEMs, low lease payments and higher residual values for some of their products, that'll give the SAAR [seasonally adjusted annual sales rate] momentum going into next year," Penske said.
"Monthly payments are going to be the thing."