The dealer markup on indirect auto loans is the subject of intense debate among auto lenders, dealers, consumer advocates and government regulators.
Some experts, including even some auto lenders, say a time may come when one-size-fits-all flat fees could replace the dealer markup, which can vary from customer to customer within certain limits, depending on what the market can bear.
"The dealer markup model and the regulatory pressures we are facing, that's really my concern as you look at increased bank regulation. It's stuff we are all concerned about," says Andrew Stuart, CEO of VW Credit Inc.
The markup model "can kind of be a target," he adds. Dealer markup, also called dealer reserve or finance reserve, is the practice whereby dealerships mark up the interest rates on loans they arrange for customers as a source of income for the dealership.
The markup is a mainstay of a dealership's profits in the finance and insurance department and for the store as a whole.
Most dealership groups don't disclose how much they make on dealer reserve. However, publicly traded Lithia Motors Inc. of Medford, Ore., reported its average was $406 per car in the fourth quarter of 2011, up from $361 in 2010. As of the first quarter of 2012, Lithia stopped reporting that specific number, although it still reports total F&I revenue per vehicle.
In 2011, Lithia sold 44,537 new vehicles at retail, ranking it No. 9 on Automotive News' list of the top 125 dealership groups.