Public new-vehicle retailers boost F&I profit per vehicle

Higher F&I product sales and partnerships with both vendors and lenders bolstered F&I profit per vehicle for the nation's largest public retailers, though a changing sales mix from new to used vehicles could put pressure on F&I profit down the line.

Despite a 3.2 percent decline in U.S. new light-vehicle sales in the first quarter, according to the Automotive News Data Center, all six public new-vehicle dealership groups improved average F&I gross profit per vehicle.

Though both retailers reported new-vehicle sales declines, AutoNation Inc. and Lithia Motors said they reached record-high average F&I profit per vehicle on a same-store basis. AutoNation, of Fort Lauderdale, Fla., ranked No. 1 with $1,904 in average F&I profit per vehicle, an increase of 7 percent, or $124, from the year earlier. At Lithia, of Medford, Ore., average F&I profit per vehicle rose 7.8 percent — or $107 — to $1,485 on a same-store basis.

The other public dealership groups also boosted same-store F&I profit per vehicle:

• Group 1 Automotive Inc., of Houston, rose 0.87 percent, or $15, to $1,737.
• Sonic Automotive Inc., of Charlotte, N.C., rose 10.1 percent, or $149, to $1,618.
• Asbury Automotive Group Inc., of Duluth, Ga., rose 2.5 percent, or $39, to $1,585.
• Penske Automotive Group Inc., of Bloomfield Hills, Mich., rose 3.4 percent, or $42, to $1,262.

Lithia reached its record-high F&I per vehicle retailed on a same-store basis due to higher F&I product penetration rates, according to Chris Holzshu, executive vice president. Lithia arranged financing on 75 percent of the vehicles sold in the first quarter, sold a service contract on 48 percent and sold the group's proprietary lifetime oil product on 22 percent.

Holzshu told investors last week that the greatest opportunity for F&I growth comes from the group's unseasoned stores — dealerships acquired within the past five years that have yet to meet their full earning potential. The differential between an unseasoned and a seasoned store in gross F&I per vehicle retailed is about $400 to $500.

"We feel like there is still quite a bit of upside for us there as we continue to season those stores," Holzshu said.

AutoNation CFO Cheryl Miller said on a call with investors last week that sales of AutoNation-branded F&I products drove the group's F&I profit per vehicle gain.

"As we pushed into the AutoNation-branded products, which were really well received by the customer, you see the continuation of the profitability in that segment," Miller said.

A changing vehicle sales mix, however, could squeeze F&I profit at AutoNation, Miller added. New-vehicle sales tumbled 13 percent in the first quarter on a same-store basis to 62,897. Used-vehicle sales, by contrast, fell only 0.5 percent to 60,230. Used-vehicle sales tend to gross $300 less in F&I profit per vehicle than new-vehicle sales, according to Miller.

Likewise, used vehicles outsold new vehicles for Group 1's U.S. retail operations in the first quarter by nearly 3,000 units, according to Daryl Kenningham, the group's president of U.S. operations. It marked the first time used vehicles have outsold new vehicles in the U.S. for the company.

F&I profit per vehicle increased amid headwinds from rising interest rates and Group 1's Val-U-Line brand, a line of high-mileage used vehicles, Kenningham said.

"We feel confident we can keep F&I around $1,700 for the rest of 2019," Kenningham said. Kenningham added that for Group 1's 47 stores that are piloting a digital retailing tool, F&I performance "was basically right on where we are with the rest of our business."

F&I profit per vehicle improved most for Sonic Automotive, increasing more than 10 percent over a year earlier. Sonic President Jeff Dyke praised the lender partners involved in the group's used-only EchoPark locations.

Dyke said relationships with lenders such as Ally and Capital One have helped improve F&I profit. "And we expect that to continue," he told analysts.

The company's ongoing relationship with F&I product and training company JM&A Group also contributed to increases at the franchised stores, Dyke said.

Asbury also relies heavily on product sales, with financing comprising only about 33 percent of F&I profit. Product penetration varies by brand, according to CEO David Hult, though Asbury's core focus is on vehicle service contracts, followed by guaranteed asset protection.

"There's so much technology in these cars, they're getting very expensive," Hult said. "Usually the life of a car is over 11 years now. Those service contracts pay off really well for a consumer."

Meanwhile, the rollout of Reynolds and Reynolds Co.'s DocuPad interactive tabletop F&I systems across Penske's new-vehicle stores in the U.S. and Puerto Rico is more than halfway complete, Penske said. The group anticipates higher returns the longer the product remains in use.

"Customers and our employees are responding favorably to a transparent digital experience," CEO Roger Penske told analysts. "We are now seeing also improved efficiency in our F&I offices."

David Muller and Melissa Burden contributed to this report.