AutoNation CEO Mike Jackson, the nation's largest dealership group, said F&I profits would still be "sustainable" at or near current levels should the CFPB force a switch to flat fees.
"I don't think it's an issue for us, from everything I've heard," Jackson said in a July 18 briefing to discuss the company's latest earnings results.
Asbury CEO Craig Monaghan said that if dealer reserve shrinks, dealership F&I departments would make up for it somewhere else.
"It's like a balloon; if you push on it on one side, it bulges out on the other side," he said during Asbury's conference call July 23.
Lithia CFO Chris Holzshu said Lithia doesn't expect much change in F&I income due to pressure from the CFPB.
Lithia dealerships negotiated financing for 73 percent of sales for the quarter, up from 70 percent a year ago, the company said. Lithia was compensated with flat fees on about half of its finance business, according to CFO Chris Holzshu. On deals in which Lithia earned dealer reserve, the average was about 175 basis points, the company said.
"We don't anticipate seeing a big change in that going forward," Holzshu said.
Four of the six public new-car retailers have reported second-quarters earnings so far. All four posted gains in average F&I revenue per vehicle retailed in the quarter, and two said their companies reached record highs.
- AutoNation reported an all-time record for average F&I revenue per vehicle of $1,381 in the second quarter. That was the fifth quarterly record in a row, a string that began with the second quarter of 2012, at $1,282. AutoNation ranks No. 1 on Automotive News' list of the top 125 U.S. dealership groups with retail sales of 267,810 new vehicles in 2012.
- Asbury Automotive Group reported an all-time high for average F&I revenue per vehicle of $1,306 in the second quarter. That was up 9.5 percent from the 2012 period. Asbury ranks No. 7 among the top 125 dealership groups with 77,712 new vehicles sold at retail in 2012.
- Sonic Automotive said its average F&I revenue per vehicle retailed in the second quarter was $1,148, up 7.4 percent from the 2012 period. Sonic ranks No. 3 on the dealership group list with new-vehicle retail sales of 132,136 in 2012.
- Lithia Motors Inc. reported average F&I revenue per vehicle of $1,098 in the second quarter, up 4 percent from a year ago. Lithia ranks No. 9 on the list with at 56,960 new units sold at retail last year.
Relying less on reserve
Several of the big dealerships groups say that in light of regulatory pressure, they've already reduced reliance on dealer reserve and increased efforts to sell F&I products such as extended service contracts and prepaid maintenance. Those products replace the income lost from dealer reserve, the groups say, and encourage service retention and customer loyalty.
Jackson said last week AutoNation gets about two-thirds of its F&I revenue from F&I products and the rest from dealer reserve -- the small percentage dealers are allowed to add to the customer's interest rate on an auto loan as compensation for having arranged the loan.
The CFPB warned lenders this year that allowing dealerships to set customers' final interest rates could result in higher interest rates for legally protected classes of borrowers, such as minorities. The CFPB suggested charging flat fees as an alternative.
Lawsuits in the late 1990s and early 2000s prompted most lenders to voluntarily cap dealer reserve at 2 to 3 percentage points, depending on the loan term. In practice, dealer reserve rarely reaches those caps as dealers and lenders strive to stay competitive, according to the National Automobile Dealers Association.
AutoNation's Jackson said last week that since dealer reserve is already limited, he doesn't think flat fees would be much lower.
"Certainly, for large companies and large financial institutions that have had caps in place for decades, the differences are so narrow and so tight that I really don't see an issue there. And if there is a transition to a different compensation system, I think it will be manageable to us," he said.
"However, if you are a retailer where your model is dependent upon a wide range of markups, I think then you're going to struggle with the transition."