Public retailer Lithia Motors Inc. increased per-vehicle F&I revenue by 4 percent in the second quarter, to $1,098. And CEO Bryan DeBoer isn't satisfied.
Lithia's total F&I revenue per vehicle -- and the size of the increase -- trailed that of all but one of its five publicly traded new-car retail rivals.
Lithia executives say the company plans to boost F&I revenue per vehicle retailed as much as $200 by:
1. Increasing F&I training.
2. Tweaking the sales process.
3. Hiring, if need be, new F&I personnel at some of its dealerships.
The company doesn't have a target date for achieving that goal, but it faces a particular challenge in getting there: a concurrent goal of increasing its used-car sales. Those sales generally produce lower F&I revenues. Lithia's F&I revenue per vehicle retailed is $1,265 on new cars and $900 on used cars.
Older used vehicles, dubbed value autos by Lithia, represent about 30 percent of the group's total used-vehicle sales each quarter. Those value autos average about $500 each in F&I sales, DeBoer says.
Also hurting Lithia's F&I revenue per vehicle is Lithia's self-insurance on its Lifetime Oil product, DeBoer says. That defers profits by an additional $40 to $50 a vehicle.
"We're about $130 less than our competitors because of those two factors," DeBoer says. "However, we still believe there's another $100 or $200 out there."
Lithia, of Medford, Ore., ranks No. 9 on the Automotive News list of the top 125 dealerships groups in the United States with retail sales of 56,960 new units in 2012, when it also retailed 49,067 used units.
Most of Lithia's 91 stores generate $1,500 to $2,000 per vehicle in F&I revenue, CFO Chris Holzshu told Automotive News. But about a third of Lithia's stores deliver only about $500, he said. "The stores that are doing $450 to $500, we need to improve those, and they know it," he said.
To help those stores, Lithia will offer them more F&I training. Lithia already sends new F&I officers through a one-week training program at its corporate office. Now it will deploy its F&I training teams to lagging dealerships more frequently to do F&I sales training at the stores. The training will focus on improving the sales process, Holzshu says.
Holzshu believes the stores must introduce F&I products to the customer sooner in the sales experience. "It's so important for us to make sure that the salespeople and the F&I desk are setting up the customer's expectations up front," he says. He also wants salespeople and F&I managers to realize that F&I "is a team sport."
DeBoer says Lithia may consider offering new F&I products to appeal to used-car buyers and boost those sales in the future. But he is satisfied with Lithia's current product offerings. Lithia's F&I product prices are fixed and nonnegotiable.
"We're negotiating more on the values or the benefits that we're providing rather than the cost," DeBoer says. "If someone wants a $1,500 service contract but they only can afford $1,200, we'll just have a higher deductible."
To boost F&I revenue, Lithia also will consider hiring new talent, DeBoer says. "We have very high performance standards as an organization in all of our jobs," DeBoer says. He says Lithia doesn't want to arbitrarily fire people but will if results don't improve.
"If we commit to them, hire them or promote them, we're committed to making them successful," he says. "That doesn't always work out, and unfortunately when it doesn't work out, then you have to change things."
Adds Holzshu: "Our people that have been in this business for a long time, they know who the best F&I managers are and who the up-and-comers are and who the old legacy F&I guys are. We'll work to recruit them if we need to."