F&I grabs bigger slice of dealership gross profits

F&I’s contribution to dealership gross profits continues to grow, despite a slight decrease in new-vehicle sales penetration for extended-service contracts, statistics released last week show.

F&I accounted for 38.8 percent of gross profit for dealership new- and used-car departments combined in 2013, up from 36.9 percent in 2012, according to “NADA DATA 2014,” the latest annual U.S. dealership financial profile from the National Automobile Dealers Association.

That was the fourth yearly increase in a row. It was also part of a gradual increase that has lasted nearly all of the past decade. The year 2009 was an exception, when contributions from F&I dipped during the recession.

NADA broke down the total F&I number into income from finance, such as dealer reserve and flat fees for arranging loans and leases, and income from “service contract and other” F&I products.

Finance-related sales accounted for 22.8 percent of new- and used-car gross profit in 2013, up from 21.3 percent in 2012. Sales from service contracts and other products accounted for 16 percent, up from 15.6 percent.

NADA also provided statistics for extended-service contract penetration. New-vehicle service contract penetration fell slightly in 2013, dropping to 41.9 percent from 42.1 percent in 2012.

That’s surprising, since many retail groups reported that their F&I product sales were on the rise in 2013. Lithia Motors Inc., for instance, said its service contract penetration was higher year-over-year for every quarter in 2013, finishing the fourth quarter at 43 percent, up from 41 percent in the fourth quarter of 2012.

However, lease penetration also increased for the industry in 2013, and that may have blunted the increase in overall sales penetration for service contracts. Lease customers typically don’t buy extended service contracts since they usually don’t keep their vehicles beyond the new-vehicle warranty.

According to the Power Information Network, lease penetration was up every quarter in 2013. In the fourth quarter it was 24.9 percent, up from 21.5 percent in the year-earlier quarter, PIN data show.

NADA Chief Economist Steven Szakaly said that while new-vehicle extended service contract penetration dipped last year to 41.9 percent, it’s up over a longer period of time. In 2011, service contract penetration was 39.4 percent.