All 6 public dealership groups raise F&I profit per vehicle

Slowing new-vehicle sales failed to dampen the finance and insurance profits of the nation's public retailers in the second quarter.

All six public new-vehicle dealership groups increased F&I profit per vehicle, with Sonic Automotive, of Charlotte, N.C., and Group 1 Automotive, of Houston, posting all-time quarterly records.

New-vehicle sales, which typically offer the biggest opportunity for F&I profits, fell or stagnated for every public retailer in the second quarter. AutoNation leaders said higher used-vehicle sales hamper its overall F&I profit per vehicle, but Sonic executives said its F&I profit is stronger on used vehicles.

AutoNation, of Fort Lauderdale, Fla., ranked No. 1 for the quarter in same-store F&I profit per vehicle retailed with an average $1,926, an increase of 7.5 percent, or $134, from year-earlier figures.

CEO Cheryl Miller said the recipe for maintaining top F&I results is the combined strength of AutoNation's branded F&I products and consistent training of F&I managers to follow the retailer's standard processes. F&I profit is typically higher on new vehicles than used vehicles at AutoNation, according to Miller, and increasing used-vehicle sales will pressure those results.

"As we add additional used, or as we like to call it, nearly new business, in that does blend it down some, but we've been able to outperform that with a talented team of associates combined with having our own products in that area," Miller said.

The other public groups reported the following same-store F&I profit per vehicle results:

• Group 1 rose 9.7 percent, or $161, to $1,821.
• Sonic rose 7 percent, or $108, to $1,644.
• Lithia Motors, of Medford, Ore., rose 11 percent, or $147, to $1,451.
• Asbury Automotive Group, of Duluth, Ga., rose 8.4 percent, or $128, to $1,659.
• Penske Automotive Group, of Bloomfield Hills, Mich., rose 7 percent, or $85, to $1,302.

Most improved among the U.S. public retailers in the second quarter was Lithia.

Chris Holzshu, senior vice president of operations at Lithia, said on an earnings call last week that F&I growth was driven by higher product penetration rates and dealership acquisitions.

According to Lithia CEO Bryan DeBoer, the average F&I profit per vehicle retailed at acquired stores is $700.

"If you reflect back on the $1,450 that we did, that's about doubling that F&I average," DeBoer said last week.

The boost, he said, occurs when new stores adopt Lithia's fixed pricing on F&I products, which customers consider a more transparent process.

Of the vehicles Lithia sold in the quarter, 74 percent had dealership-arranged financing. Dealership employees sold a service contract on 48 percent of retailed vehicles and a lifetime oil product on 22 percent, Holzshu said.

"We continue to focus on F&I as a core component of integrating the more recent acquisitions," Holzshu said. "We have a lot of work to continue to do there, and we see a lot of upside."

On whether there is room to improve Sonic's F&I results, Sonic President Jeff Dyke gestured toward the competition, referencing Sonic's record-setting total F&I profit of $1,710 per vehicle for the quarter.

"You look at our friends over at AutoNation, they're running at $1,900 plus a copy and we're at $1,710 all-in. So it seems like there's more room there," Dyke said on a call with investors.

F&I profit growth was in part driven by sales at Sonic's EchoPark brand of standalone used-vehicle stores. Dyke told analysts last week that at the EchoPark stores, F&I profit per vehicle exceeded $2,200, compared with around $1,500 per vehicle at Sonic's traditional franchised stores.

Along with growth in used vehicles, Group 1's all-time U.S. record-high same-store F&I results helped lead the retailer to a 9 percent rise in same-store gross profit. But falling new-vehicle sales are still a concern.

"Given our continued strong F&I performance, maintaining our new-vehicle volume is very important," Group 1 CEO Earl Hesterberg said in a conference call.

F&I gross profit was driven by strong product penetration and an increase in income per contract, Group 1 executives said.

"We feel confident we can keep F&I around $1,750 per unit for the full-year 2019," said Daryl Kenningham, president of U.S. operations.

According to Asbury CEO David Hult, the retailer makes slightly more on F&I product sales for new vehicles than for used vehicles. The key to growing F&I, however, is lifting profit at the lowest-performing dealerships. And there is opportunity to improve there.

"If you look at our peers, we have room to grow. We're excited about our F&I, but we are not satisfied in the sense that we know there's potential there and we are missing it," Hult said.

Finance penetration rose 2 percent for Asbury. Though the lending environment is favorable, Hult said a decline in interest rates could boost Asbury's F&I performance.

"We haven't had any issues obtaining financing for our consumers, but I think as interest rates decline, that can only be positive for the consumer and for our F&I on our portfolio," Hult said.

Meanwhile, Penske's installation of docuPad, a Reynolds and Reynolds product for the F&I office, is nearing completion. Penske has invested about $5 million in outfitting all of its U.S. stores with the product.

The rollout of the digital desking tools should be complete by year end. In the stores where the tool is in place — roughly 70 percent of the group — they've been leading to higher F&I profits, CEO Roger Penske told Automotive News.

Melissa Burden and David Muller contributed to this report.