Strip away manufacturers' dealer incentives, and F&I gross profit on new vehicles is exceeding vehicle gross profit, according to the latest benchmark data from DealerStrong. That holds true for transactions in all credit tiers as dealerships sell more F&I products.
"Without a doubt, dealers are doing a much better job in selling product than what they used to," DealerStrong President Greg Goebel told Automotive News.
DealerStrong's benchmark data represent the top-performing one-quarter of all dealerships that work with DealerStrong and ProMax Unlimited. The most recent benchmark data, amassed in the second quarter, reflect about 250,000 transactions at 1,100 dealerships.
In the prime-risk category, defined as credit scores of 681 and above, F&I gross profit in the second quarter was 35 percent higher than vehicle gross profit at $1,743. For the near-prime category, reflecting scores of 621-680, F&I gross profit was nearly double vehicle gross profit at $2,333. For the risk category DealerStrong calls subprime tier 1, defined as scores of 576-620, it was more than double at $2,024.
The numbers exclude factory-to-dealer incentives, which averaged $710 per vehicle in the April-June period, according to DealerStrong's second-quarter benchmark data report.
F&I gross profit began exceeding vehicle gross profit in late summer 2015, Goebel said. It reversed once later that year, but new-vehicle F&I gross profit has been consistently higher than vehicle gross profit ever since, he said.
Dealerships have relied on F&I profit more in recent years as new-vehicle margins continue to shrink, Goebel said.
"If you sell vehicles for [sticker price], there's little gross profit on a lot of vehicles, so it's not surprising to me that the F&I gross profits are so high," he said. "The dealers are becoming much more proficient, and finance companies are allowing much more significant F&I profit. The combination of proficiencies and finance companies are the biggest contributing factors."
F&I gross profit is strong for other dealerships, too, not just those represented in DealerStrong's benchmark data, Goebel said, pointing to the six publicly traded new-vehicle dealership groups.
In the second quarter, F&I gross profit per new-vehicle unit rose at all six groups, largely driven by strong product penetration. Second-quarter averages for the groups ranged from $1,682 F&I gross profit per new unit for Group 1 to $1,150 per new unit for Penske Automotive Group.
The six public groups would fall into DealerStrong's average category, not benchmark, Goebel said. The fact that their F&I gross profit is relatively close to the benchmark "just shows that the publics are doing well in that area," he said.
On used-vehicle transactions, the benchmark vehicle gross profit is significantly higher than the average for all dealerships DealerStrong and ProMax work with. For the benchmark dealerships, vehicle gross profit outpaced F&I gross profit, but for the average dealership's used-vehicle transaction, F&I gross profit outpaced total vehicle gross profit.
The average dealership's vehicle gross profit is $1,000 to $1,200 lower than the benchmark dealership's, Goebel said.
For example, the average vehicle gross profit for a prime used-vehicle sale was $1,351, compared with the $2,342 benchmark. Average F&I gross profit was $1,363, slightly less than the benchmark of $1,582.
Over the past couple of years, F&I gross profit has become "vitally important in the dealer gross profit," Goebel said. And over the last five years, vehicle gross profit has fallen only slightly, but F&I product sales have driven consistent F&I gross profit growth.
"I would absolutely expect to see this trend continue going forward," Goebel said.