2 of 6 publics see same-store F&I profit per vehicle fall in Q4, but results remain strong

Finance-and-insurance gross profit per vehicle might be leveling off among the six publicly traded franchised auto retailers after quarters of year-over-year gains.

Asbury Automotive Group Inc. was the only one of six publics to post a double-digit year-over-year percentage increase in same-store F&I gross profit per vehicle in the fourth quarter. Two of the publics registered slight year-over-year declines.

Five of the six — all but Sonic Automotive Inc. — saw results fall when compared with the third quarter. And Lithia Motors Inc. told investors that higher interest rates in 2023 would cut its F&I gross profit on vehicles.

Nevertheless, all but one of the retailers — Penske Automotive Group Inc. — continued to generate more than $2,100 in same-store F&I profit per vehicle in the fourth quarter, and all six grossed at least $500 more per vehicle in same-store F&I than they had in the fourth quarter of 2019, before the COVID-19 pandemic.

"I remember when our goal used to be $800 a car," Sonic CEO David Smith told Automotive News in a Feb. 16 interview. "But we've come a long way from that."

The auto retail industry has seen F&I performance soften since automotive interest rates began to rise in November 2021, according to Cindy Allen, CEO of F&I menu and analytics company StoneEagle. Between November 2021 and January 2023, the average dealer margin on financed deals fell 16 percent to $646, and the average number of products sold per deal fell 4 percent, from 1.58 to 1.51, Allen said in a Feb. 16 statement.

Asbury produced $2,233 in fourth-quarter, same-store F&I profit on every vehicle sold, a 12 percent increase from a year earlier.

However, that per-vehicle, same-store F&I profit was down 0.9 percent from the third quarter.

Dan Clara, Asbury's senior vice president of operations, told investors and analysts on a Feb. 2 call that rising interest rates had not affected Asbury's ability to add F&I products to deals.

"We have not seen any negative impact that is of concern at the store level," Clara said.

Asked if higher interest rates would affect demand for vehicles in the second half of 2023, Asbury CEO David Hult said "we think we'll be just fine" should the Federal Reserve institute one or two more 0.25 percentage point rate hikes.

Asbury owns its own F&I product provider, Total Care Auto, which it purchased in December 2021 as part of the Larry H. Miller Dealerships acquisition. Total Care Auto produced $27.5 million in revenue and $26.1 million in gross profit in the fourth quarter.

Asbury, of Duluth, Ga., ranks No. 5 on Automotive News' most recent list of the top 150 dealership groups based in the U.S., retailing 109,910 new vehicles in 2021.

AutoNation's same-store F&I gross profit per vehicle ticked up to $2,704 in the fourth quarter, up 0.9 percent from a year earlier, but down 2.3 percent from the third quarter.

AutoNation closed on the purchase of lender CIG Financial during the quarter, paying $83 million. It serves as AutoNation's captive finance arm.

Company CEO Mike Manley told investors and analysts in a Feb. 17 call that his group's plan is to grow CIG Financial at a "very manageable speed" on pace largely with the growth of the AutoNation USA used-vehicle-only business.

When asked about higher interest rates, Manley and CFO Joe Lower on the call stressed AutoNation's focus on F&I product sales.

Lower said more than 70 percent of AutoNation's financial services income stems from products, not revenue from securing auto loans for partner lenders.

AutoNation, of Fort Lauderdale, Fla., ranks No. 1 on Automotive News' most recent top 150 dealership groups list, retailing 262,403 new vehicles in 2021. But in 2022, Lithia pulled ahead of AutoNation in new-vehicle sales to take the crown.

Group 1 Automotive Inc.'s average same-store F&I gross profit per vehicle retailed in the U.S. landed at $2,385 in the fourth quarter, up 2.2 percent from a year earlier but down 3.7 percent from the third quarter.

Group 1 CEO Daryl Kenningham said during an interview that the company has seen more credit union loans hinder Group 1's ability to generate revenue from arranging financing.

"The credit union competitors are formidable right now, and when rates are up, a lot of times they are able to offer a really competitive alternative," Kenningham said Jan. 26. "The one good thing is when we lose financing on a vehicle, we don't necessarily lose the products … we are still able to sell some of our products even though you might not get financing, so there's that."

Automakers are trying to counter this, in part, through more aggressive competition on interest rates, he said.

"It gives us a real weapon … so we're seeing a lot of that," Kenningham said.

Group 1, of Houston, ranks No. 4 on Automotive News' most recent top 150 dealerships groups list, retailing 146,072 new vehicles in 2021.

Lithia posted same-store F&I gross profit per vehicle of $2,117 in the fourth quarter, down 0.2 percent from a year earlier and a dip of 3.4 percent from the third quarter. And Lithia expects a further drop in 2023.

"F&I per unit may be impacted by rising interest rates and consumer affordability and are estimated to be around $1,850 for the year," Lithia CFO Tina Miller said of 2023 during a Feb. 15 earnings call.

Lithia COO Chris Holzshu said Lithia is trying to get out in front of the issues.

"I think operationally what we're trying to anticipate is the impact in a rising rate environment, what consumers are able to absorb in F&I and just trying to be a little bit proactive and probably a little conservative on what F&I might look like in 2023," Holzshu said.

However, Holzshu also predicted increased inventory would aid Lithia's F&I business.

"We're very optimistic about the recovery in volume," he said. "We feel like that's not just going to be great for new, but it's going to be great for used and F&I."

Lithia, of Medford, Ore., ranks No. 2 on Automotive News' most recent top 150 dealership groups list, retailing 260,738 new vehicles in 2021.

Penske's global same-store F&I gross profit per unit in the fourth quarter was $1,881, down 3.2 percent from a year earlier, and down 2.1 percent from the third quarter.

However, when adjusted for the impact of foreign currency exchange, Penske's same-store F&I profit per vehicle in the quarter would have risen slightly to $1,976.
Penske CEO Roger Penske said higher interest rates hadn't impacted vehicle demand at his company, which largely sells premium luxury vehicles.

"I think the premium customer right now, affordability hasn't hit them obviously even with the higher interest rates, but what's driving our margins and our success, again, certainly is supply," Penske said in a Feb. 8 earnings call.

Penske, of Bloomfield Hills, Mich., ranks No. 3 on Automotive News' most recent top 150 dealership groups list, retailing 195,384 new vehicles in 2021.

Sonic collected $2,431 in same-store F&I gross profit per vehicle at its franchised dealerships in the fourth quarter, up 3.5 percent from a year earlier and up 1 percent from the third quarter.

"Despite a rising interest rate environment, F&I performance continues to be ... strong, benefiting from higher retail unit volume and near-record F&I per retail unit," Smith said in a Feb. 15 earnings call.

Sonic CFO Heath Byrd called vehicle affordability one of Sonic's concerns entering 2023 and referenced elevated interest rates.

"As rates go up, I do think that it has the potential of impacting finance penetration," Byrd said on the call.

"People shop around [a] little bit more. And so affordability is absolutely [a] concern. We haven't seen it materially impact us at this point, but it is one of our concerns going into the year," he said.

Sonic, of Charlotte, N.C., ranks No. 7 on Automotive News' most recent top 150 dealership groups list, retailing 103,486 new vehicles in 2021.

John Huetter, Mark Hollmer, C.J. Moore and Gail Kachadourian Howe contributed to this report.