Group 1's Hesterberg: F&I's strong; now let's work on margins

It's a nice problem to have, but F&I revenue per vehicle has gotten so high, and done such a good job of offsetting thinner margins in new cars, that it could actually be seen as a problem.

That's according to Earl Hesterberg, CEO of Houston-based Group 1 Automotive.

"We may be selling too many vehicles at virtually no vehicle gross profit because we're so strong in F&I," he said in a conference call for investors and analysts on Tuesday.

For the fourth quarter of 2012, the six biggest publicly traded new-car retail groups all reported higher F&I revenue per vehicle compared with the 2011 quarter. Group 1, Asbury Automotive Group, Lithia Motors Inc. and Sonic Automotive Inc. all reported fourth-quarter results this week. AutoNation Inc. and Penske Automotive Group reported earlier.

Naturally, Hesterberg wasn't advocating making less money on F&I in the future. Rather, he acknowledged that Group 1 and the rest of the industry need to work on new-vehicle margins in 2013 after a year of moving the metal in 2012.

"We maybe had a little too much emphasis on moving metal also, but we're working to temper that a little bit," Hesterberg said. "Our F&I has gotten so strong. We've been too willing to sell cars out of near losses, I think, to make the F&I money."

Group 1 said it had an all-time record for F&I revenue per vehicle in the fourth quarter at $1,270, up about 7 percent from 2011. Without disclosing the details, CFO John Rickel said sales penetration increased for vehicle financing and for extended-service contracts.

Hesterberg: "Our F&I has gotten so strong. We've been too willing to sell cars out of near losses, I think, to make the F&I money."

On Jan. 31, AutoNation reported its best-ever quarterly F&I revenue per vehicle at $1,307, an increase of about 7 percent from the 2011 quarter.

Asbury Automotive Group also reported its fourth-quarter results on Tuesday. CEO Craig Monaghan said in a conference call for investors and analysts that the company will stick with a strategy of improving F&I at underachieving stores. For the fourth quarter, Asbury reported average F&I revenue per vehicle at $1,251, up 9 percent.

"There is quite a bit of disparity between what our best stores do in F&I and what our opportunity stores do in F&I, and those spreads can be well in excess of $600 per vehicle retail on average," Monaghan said.

"That's what we just keep coming back to: How do we get the people who were in the lower quartile back to the median? And if we can do that, there is still plenty of opportunity to go."