Group 1's Hesterberg: F&I's strong; now let's work on margins
Some dealerships may be selling too many vehicles at virtually no vehicle gross profit because they are so strong in F&I.
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."
You can reach Jim Henry at email@example.com.