Publics lift F&I profit per unit on strong ancillary sales

Second-quarter F&I gross profit per unit rose at all six publicly traded U.S. new-car dealership groups, largely driven by strong product penetration, the companies said during their earnings calls today and last week.

Group 1 Automotive had the highest average F&I gross profit per vehicle retailed the quarter at $1,682 on a same-store basis, up 4.9 percent, or $78, year over year. F&I product penetration on used vehicles during the quarter, especially for extended service contracts and maintenance, made up for lower transaction prices on used units, CEO Earl Hesterberg said. The Houston dealership group's finance penetration fell slightly, he said.

"I think we're still pretty steady," Hesterberg said. "We've been saying for a long time, we don't think we can grow penetration much higher and we keep making ourselves out to be liars. But this business still seems very stable to us. And a lot of lenders still are competing very aggressively for our business."

AutoNation Inc., , of Fort Lauderdale, Fla., closely followed Group 1 with F&I profit per unit of 1,664, a 4.3 percent, or $68, increase from the year-earlier quarter. Customer acceptance of AutoNation-branded F&I products drove the F&I profit per vehicle boost, CEO Mike Jackson told Automotive News.

At Asbury Automotive Group, of Duluth, Ga., F&I profit per unit jumped 6 percent to $1,522. CEO Craig Monaghan said on the company's conference call last week that only one-third of the company's F&I profit per unit is finance reserve. The majority of F&I profit, he said, is driven by sales of ancillary products. "We have a great F&I team and trainers, and with that we think we've benefited through ... products sales," he said.

F&I profit per unit at Sonic Automotive Inc., of Charlotte, N.C., inched up 2.4 percent to $1,374 in the second quarter. Jeff Dyke, executive vice president of operations, said Sonic has an internal goal this year of $1,400 per unit in average F&I gross profit. Considering rivals Group 1 and AutoNation are in the $1,600 range, Dyke said, Sonic could eventually go higher than this year's target. "We think that number can be $1,500," he said, adding that F&I performance varies by brand and geography. "But we certainly think there's plenty of upside from an F&I perspective."

Same-store F&I profit per vehicle at Lithia Motors, of Medford, Ore., jumped 6.4 percent to $1,352 in the second quarter. On a consolidated basis, Lithia's average F&I profit per unit was $1,298. For the 128 stores it acquired before December 2014, average F&I gross profit was $1,314, compared with $948 for the 32 stores Lithia acquired after December 2014. The company's goal is an overall average of $1,450 in F&I per unit, according to its earnings presentation.

Lithia arranged financing on more than 75 percent of units sold, the presentation said. The dealership group sold service contracts on 45 percent of sales and lifetime oil contracts on 26 percent, CFO John North said during the company's earnings call last week.

For some products, extended service contracts, for example, used-vehicle sales have a higher penetration than new-unit sales, said Lithia Executive Vice President Chris Holzshu. Forty-eight percent of used vehicles were sold with a service contract, compared with 41 percent of new-vehicle sales, he said.

"Our key is [to] continue to focus on making sure we have the right products for the right customers," Holzshu said. "You have certified customers, you have core customers, and you have value customers. And what we're trying to do is make sure we have the right products that we can attach to each one of those customers based on where they're at in the buying cycle."

Penske Automotive Group, headquartered in Bloomfield Hills, Mich., near Detroit, increased F&I profit per unit 5.31 percent to $1,150.

Jamie LaReau and Jim Henry contributed to this report.