The six largest publicly traded franchised dealership groups generated less same-store gross profit per vehicle in finance and insurance 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 on earnings calls that their groups’ F&I performance is expected to remain above historical levels.
“We know 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 on an Aug. 1 earnings call. He said Lithia should generate “a few hundred dollars” more F&I gross profit per vehicle 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 the development of another internal Asbury business.
Dan Clara, Asbury’s senior vice president of operations, said F&I gross profit per vehicle was impacted by the continued implementation of Asbury’s in-house F&I product provider, Total Care Auto.
“As expected, the deferred revenue headwind from [Total Care Auto] is starting to be more pronounced,” Clara said on an earnings call on Aug. 2.
Asbury bought the F&I supplier in its 2021 acquisition of Larry H. Miller Dealerships and has been introducing Total Care Auto products into brick-and-mortar stores. Having its own supplier instead of relying on a third-party company means Asbury can make more money from F&I, but that affects the group’s F&I gross profit accounting.
“With TCA ownership, 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 from Total Care Auto caused $169 of Asbury’s $255 decline in F&I gross profit year-over-year, Clara said.
“We continue to expect this headwind to have an impact throughout 2024,” he said.
Total Care Auto produced $21.6 million in pretax profit during the quarter, down 29% from a year earlier. Asbury CFO Michael Welch said Asbury expects the F&I provider to produce $65 million to $80 million for the full year of 2024.
Welch said on the call that Asbury has postponed its plans to launch those offerings at its stores in Florida and at Jim Koons Automotive Cos. — the only remaining locations in the Total Care Auto expansion — but that it would complete the process by the end of the year.
Same-store F&I revenue also fell during the quarter due to a decline in vehicle sales — at least partly due to the CDK Global shutdown, Asbury said — and an 11 percent decline in F&I attachment per vehicle, Asbury wrote in the government filing. Asbury said he saw “slightly lower” F&I product penetration during the quarter as customers faced with higher interest rates sought to limit their monthly payments.
Duluth, Ga.-based Asbury ranks No. 5 on Automotive News’ list of the 150 largest U.S. dealership groups, 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 growth in its captive financing business was partly to blame, as was the CDK outage, according to the group.
“The disruption not only reduced sales of new and used vehicles, but further limited our attempt to attach [consumer financial services] “product and financing offerings for the vehicles we sell,” AutoNation CFO Thomas Szlosek said during a July 31 earnings call. “It’s a double whammy in an environment where high interest rates are already eating up more of our customers’ monthly budgets.”
AutoNation wrote in a government filing that it could not “offer certain products” because of the disruption. It said overall F&I penetration fell during the quarter.
But Szlosek said AutoNation’s outage workarounds helped keep profitability at its consumer financial services unit within 3% of first-quarter rates, minimizing the impact of CDK’s cyberattacks on its financial and insurance businesses.
“We are encouraged by our continued strong performance in this part of the business and continue to grow our [AutoNation] Financial business,” Szlosek said.
AutoNation wrote in a government filing that it financed more vehicles through captive finance company AutoNation Finance, which reduced F&I gross profit per vehicle. Financing loans in-house means less F&I gross profit compared with what AutoNation would make by arranging indirect loans between third-party finance companies and consumers in the traditional way, according to the group.
But it’s a trade-off: “AutoNation’s profitability over the course of an AutoNation finance loan is expected to be two and a half to three times greater than that of a loan without AutoNation finance,” Szlosek said.
Szlosek added that the AutoNation Finance deal is expected to 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.
Fort Lauderdale, Fla.-based AutoNation ranks No. 2 on Automotive News’ list of the 150 largest U.S. dealership groups, selling 244,546 new vehicles in 2023.
Group 1 Automotive Inc. reported record U.S. F&I revenue in the second quarter, rising about 6 percent to $183.9 million. But the auto retailer’s overall same-store F&I gross profit per vehicle sold fell 0.7 percent to $2,063.
Group 1’s new vehicle penetration rate for the quarter was 75%, said Pete DeLongchamps, Group 1’s vice president of public relations, and the group said its same-store F&I gross profit per vehicle at U.S. stores increased during the quarter.
“Penetration rates for vehicle service contracts, new vehicle financing and other F&I products improved, contributing to higher same-store F&I gross profit per unit sold,” Group 1 wrote of its U.S. business in a government filing. “OEM incentives increased in the Current Year, leading to improved new vehicle F&I penetration.”
Group 1 ranks fourth on Automotive News’ list of the 150 largest U.S. dealership groups, selling 175,566 new vehicles in 2023.
CEO Bryan DeBoer said he thought Lithia’s same-store gross profit outside of F&I should remain perpetually higher than it was five years ago. He predicted that what used to be $3,500 to $3,700 in total gross profit per vehicle — a figure that counts sales and F&I contributions — and was $4,762 during the second quarter should 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 Center-South [U.S.]which has higher F&I, less regulation, much higher [average] size of the store, which really helps us a lot,” DeBoer said.
Lithia surpassed the $2,000 mark with $2,001 in F&I gross profit per vehicle during the second quarter, down 2.8% year-over-year.
Lithia said its same-store F&I revenue fell during the quarter due to growth in the company’s captive financing business, Driveway Finance Corp. Similar to AutoNation Finance, these in-house loans bring in less cash up front for Lithia compared with the traditional indirect auto loans it arranges between consumers and third-party lenders. However, Driveway Finance’s loans are ultimately three times more profitable for Lithia.
Medford, Ore.-based Lithia ranks No. 1 on Automotive News’ list of the 150 largest U.S. dealership groups, with retail sales of 314,116 new vehicles in 2023.
Penske Automotive Group Inc. earned $1,810 in F&I gross profit per vehicle in the second quarter at its dealerships, not counting its agency-model stores. That was a 3.2% decline from a year earlier.
In a government filing, Penske described the decline as “primarily due to rising interest rates impacting overall customer affordability, coupled with an increase in leasing penetration and an increase in electric and hybrid vehicle sales to fleets in the UK, which limits our opportunities to sell finance and insurance products.”
CEO Roger Penske said on a July 31 earnings call that a reduction in interest rates would help consumers.
“I see where the Fed stood today,” Penske said. “I expect them to make some noise here in the next month or so; we’ll see that the benefit will help us in our budget plans and obviously, you know, in a financial settlement, it will help immensely.”
Penske Automotive of Bloomfield Hills, Mich., ranks third on Automotive News’ list of the 150 largest U.S. dealership groups, selling 229,942 new vehicles in 2003.
Sonic Automotive Group Inc. CEO David Smith was optimistic about his group’s ability to perpetually outperform its past 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 Aug. 5 earnings call.
Sonic’s franchised dealership segment produced $2,380 in F&I gross profit per vehicle, down 5.8% from a year earlier. Lower vehicle sales due to the CDK Global shutdown and lower prices on vehicles sold during the quarter cut into franchised F&I revenue, Sonic wrote in a government filing. CDK temporarily shut down its automotive retail software as a precaution after suffering two cyberattacks on June 19.
“Our F&I performance continues to be a strength despite elevated consumer interest rates,” Smith said.
He highlighted Sonic’s same-store F&I gross profit growth of 1.3% per vehicle in the first quarter.
Charlotte, North Carolina-based Sonic ranks No. 6 on Automotive News’ list of the 150 largest U.S. dealership groups, selling 101,168 new vehicles in 2022.
Reporters Mark Hollmer, Paige Hodder, Gail Kachadourian Howe and Julie Walker contributed to this report.