Public group F&I results strike gold in Q4

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All six large publicly traded new-car retailers reported higher average F&I revenues per vehicle in the fourth quarter vs. the year-earlier period. The gains reflected ongoing efforts to increase sales penetration for F&I products such as extended service contracts, GAP and prepaid maintenance.

For example Lithia Motors Inc. reported today it had 43 percent sales penetration on a same-store basis for extended service contracts, up from 41 percent in the fourth quarter of 2012. Sales penetration for a lifetime oil and filter package was 37 percent, up from 34 percent in the 2012 period.

Lithia said its average F&I revenue per vehicle was $1,174 in the fourth quarter, up 7 percent from the 2012 period.

Sonic Automotive today reported its average F&I revenue per vehicle was $1,143 in the fourth quarter, up 2 percent from the year-earlier period.

For the six companies combined, the average F&I revenue per vehicle in the fourth quarter was $1,244, up 6.8 percent.

Room to improve

Lithia CFO Chris Holzshu said in a conference call today the company believes there is still room for improvement in credit availability for customers with subprime credit in Lithia’s Western markets.

On average, Lithia estimates subprime credit should account for around 20 percent of the group’s sales. But in Oregon, only about 6 percent of its sales are subprime; in California, about 10 percent; and in Washington state, just 3 percent, Holzshu said.

“We know recovery is going to come in those markets,” he said. Overall, Lithia said its subprime finance penetration -- defined as financing to customers with credit scores below 620 -- was about 11 percent in the fourth quarter, up from 10 percent a year ago.

Group 1 leads

In terms of average F&I revenue per vehicle, Group 1 Automotive led the way in the fourth quarter at $1,418, up 9 percent.

Pete DeLongchamps, vice president of financial services and manufacturer relations, said the fourth-quarter result was an all-time quarterly record for Group 1. He said Group 1 sales penetration was up for F&I products, although he wouldn’t disclose a number.

In a Feb. 14 phone interview, he said: “There has been a nice, steady increase in penetration for meaningful products for the consumer. It hasn’t been all rate [interest rate profit from adding dealer reserve]. Also, we’ve worked hard taking up the slack on stores that are below-average for their brand.”

Less dealer reserve

Like other dealership groups, Group 1 has been working to increase the share of F&I revenues it gets from F&I product sales as opposed to dealer reserve.

The dealer reserve is the small amount of interest that lenders typically allow dealerships to add to the buy rate on an auto loan to compensate the dealership for arranging the loan.

The Consumer Financial Protection Bureau is trying to get lenders to switch from dealer reserve to flat fees or some other form of dealer compensation in which dealerships don’t have discretion over their own compensation. The CFPB contends that dealership discretion can lead to higher rates for minority buyers.

Several public groups have said they are purposely trying to reduce their dependence on the dealer reserve, partly in case the CFPB forces a change to flat fees or some other form of compensation that could be less profitable.

AutoNation COO Mike Maroone said AutoNation gets about 67 percent of its F&I revenues from product sales. For the fourth quarter, AutoNation reported its average F&I revenue per vehicle was $1,378, up 5 percent.

You can reach Jim Henry at autonews@crain.com.

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