Public dealerships' F&I gross profits fall in Q2 but most above $2,000 a vehicle

The six publicly traded franchised dealership groups all generated less finance and insurance same-store gross profit per vehicle during the second quarter compared with a year earlier. But five of the six reported F&I gross profit above $2,000 per vehicle, and two CEOs said in earnings calls that their groups' F&I performance ought to remain above historic levels.

"We do know that our F&I is structurally different than it was before because of the ability to improve for five years," Lithia Motors Inc. CEO Bryan DeBoer said in an Aug. 1 earnings call. He said Lithia should generate "a couple hundred dollars" of F&I gross profit per vehicle more than in the past.

Asbury Automotive Group Inc. produced same-store F&I gross profit per vehicle of $2,124, down 11 percent from a year earlier. But like Lithia, the decline stemmed in part from Asbury's development of another in-house business.

Dan Clara, Asbury senior vice president of operations, said the F&I gross profit per vehicle was impacted by the ongoing rollout of Asbury's in-house F&I product provider Total Care Auto.

"As expected, the deferred revenue headwind of [Total Care Auto] is starting to be more pronounced," Clara said in an earnings call Aug. 2.

Asbury bought the F&I product provider in its 2021 Larry H. Miller Dealerships acquisition and has been introducing Total Care Auto's products to legacy stores. Having its own provider rather than relying on a third-party company means Asbury can earn more money from F&I, but it affects the group's F&I gross profit accounting.

"With the ownership of TCA, while the combined profitability of the transaction is higher, the timing of revenue and cost recognition is deferred and amortized over the life of the contract," Asbury explained in a quarterly government filing.

Having to defer revenue for Total Care Auto caused $169 of the $255 year-over-year decline in Asbury's F&I gross profit, Clara said.

"We continue to expect this headwind to be impactful throughout 2024," he said.

Total Care Auto produced $21.6 million in pretax income during the quarter, down 29 percent from a year earlier. Asbury CFO Michael Welch said Asbury expects the F&I provider will produce from $65 million to $80 million for all of 2024.

Welch told the call Asbury delayed its plans to roll out those offerings to its Florida and Jim Koons Automotive Cos. stores — the only locations remaining in the Total Care Auto expansion — but would finish the process by the end of the year.

Same-store F&I revenue also fell during the quarter because of a decline in vehicle sales — at least in part because of the CDK Global outage, Asbury said — and an 11 percent decline in F&I attachment per vehicle, Asbury wrote in the government filing. Asbury said it saw "slightly lower" F&I product penetration during the quarter as customers confronted with higher interest rates sought to limit their monthly payments.

Asbury, of Duluth, Ga., ranks No. 5 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 149,509 new vehicles in 2023.

AutoNation Inc.'s F&I gross profit per vehicle fell 9 percent to $2,563 during the second quarter. But its captive finance company's growth was partly to blame, as was the CDK outage, according to the group.

"The outage not only reduced new- and used-vehicle sales but further limited our attempt to attach [consumer financial services] product and finance offerings to the vehicles we did sell," AutoNation CFO Thomas Szlosek said during an earnings call on July 31. "It's a little bit of a double whammy in an environment where high interest rates are already consuming more of our customers' monthly budget."

AutoNation wrote in a government filing it couldn't "offer certain products" because of the outage. It said F&I penetration in general declined during the quarter.

But Szlosek said AutoNation's outage workarounds helped to keep its consumer financial services unit profitability within 3 percent of first-quarter rates, minimizing the impact of the CDK cyberattacks on its finance and insurance business.

"We are encouraged by our continued strong performance in this portion of this business and continue to grow the [AutoNation] Finance business," Szlosek said.

AutoNation wrote in a government filing it financed more vehicles through the AutoNation Finance captive finance company, which reduced the F&I gross profit per vehicle. Financing loans in-house means less F&I gross profit compared with what AutoNation would make arranging indirect loans between third-party finance companies and consumers in the traditional fashion, according to the group.

But it's a trade-off: "The profitability to AutoNation over the course of an AutoNation finance loan is expected to be two-and-a-half to three times that of a non-AutoNation finance loan," Szlosek said.

Szlosek added that the AutoNation Finance business should exceed the company's expectations of $700 million in originations in 2024. The lender had $755.5 million in auto loans receivable at the end of June compared with $451.2 million at the end of 2023, according to the government filing.

AutoNation, of Fort Lauderdale, Fla., ranks No. 2 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 244,546 new vehicles in 2023.

Group 1 Automotive Inc. posted record U.S. F&I revenue in the second quarter, up about 6 percent to $183.9 million. But the auto retailer's overall same-store gross F&I profit per vehicle sold fell 0.7 percent to $2,063.

Group 1's new-vehicle penetration rate for the quarter was 75 percent, said Pete DeLongchamps, Group 1's vice president of public affairs, and the group said its F&I same-store gross profit per vehicle at U.S. stores increased during the quarter.

"Penetration rates for vehicle service contracts, new vehicle finance and other F&I products improved, contributing to the higher same store F&I gross profit per unit sold," Group 1 wrote of its U.S. business in a government filing. "OEM incentives have increased in the Current Year, leading to the improved new vehicle F&I penetration.""

Group 1 ranks No. 4 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 175,566 new vehicles in 2023.

CEO Bryan DeBoer said he thought Lithia Motors' same-store gross profit outside of F&I ought to remain perpetually higher than five years ago. He predicted what used to be $3,500 to $3,700 in total gross profit per vehicle — a figure that counts both sales and F&I contributions — and was $4,762 during the second quarter ought to settle into the $4,200 to $4,500 range.

"We now have a good portion of our business in the high-margin regions of the Southeast and South Central [U.S.], which has higher F&I, less regulation, a lot higher [average] store size, which really helps us a ton," DeBoer said.

Lithia squeaked in above the $2,000 mark with $2,001 in F&I gross profit per vehicle during the second quarter, down 2.8 percent from a year earlier.

Lithia said its same-store F&I revenue declined during the quarter because of growth in the company's captive finance business, Driveway Finance Corp. Similar to AutoNation Finance, these in-house loans bring in less money up front for Lithia compared with the traditional indirect auto loans it arranges between consumers and third-party lenders. However, the Driveway Finance loans are ultimately three times more profitable for Lithia.

Lithia, of Medford, Ore., ranks No. 1 on Automotive News' list of the top 150 dealership groups based in the U.S., with retail sales of 314,116 new vehicles in 2023.

Penske Automotive Group Inc. had $1,810 in second-quarter F&I gross profit per vehicle at its dealerships, not counting its agency-model stores. It was a 3.2 percent decrease from a year earlier.

Penske in a government filing called the decline "primarily due to rising interest rates impacting overall customer affordability, coupled with an increase in lease penetration and an increase in electric and hybrid fleet vehicle sales in the U.K. which limits our finance and insurance product sale opportunities."

CEO Roger Penske said on an earnings call July 31 that a reduction in interest rates would help consumers.

"I see where the Fed held today," Penske said. "Hopefully they're going to make some noise here in the next month or so; we'll see that benefit will help us on our floorplans, and obviously, you know, on a finance deal it will help immensely."

Penske Automotive, of Bloomfield Hills, Mich., ranks No. 3 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 229,942 new vehicles in 2003.

Sonic Automotive Group Inc. CEO David Smith was bullish about his group's ability to perpetually beat its old F&I results.

"The continued stability in F&I supports our view that F&I per unit will remain structurally higher than pre-pandemic levels, even in the challenging consumer affordability environment," he said during an earnings call Aug. 5.

Sonic's franchised dealerships segment produced $2,380 in F&I gross profit per vehicle, down 5.8 percent from a year earlier. Reduced vehicle sales because of the CDK Global outage and lower prices on vehicles sold during the quarter cut into franchised F&I revenue, Sonic wrote in a government filing. CDK temporarily shut off automotive retail software as a precaution after suffering two cyberattacks June 19.

"Our F&I performance continues to be a strength, despite elevated consumer interest rates," Smith said.

He pointed to Sonic's 1.3 percent growth in same-store F&I gross profit per vehicle from the first quarter.

Sonic, of Charlotte, N.C., ranks No. 6 on Automotive News' list of the top 150 dealership groups based in the U.S., retailing 101,168 new vehicles in 2022.

Staff reporters Mark Hollmer, Paige Hodder, Gail Kachadourian Howe and Julie Walker contributed to this report.