Almost all of the top six public auto dealership groups saw their same-store finance and insurance gross profit per vehicle fall slightly in the third quarter compared with a year earlier.
Only Group 1 Automotive Inc. saw results improve, up about 1 percent year over year. AutoNation’s per vehicle F&I profit fell the furthest, down 6 percent from the same period in 2023.
Despite the small drops, “F&I showed resiliency,” said Jeff Lick, a managing director of equity research at Stephens.
While new-vehicle gross profits skyrocketed during the inventory shortages, F&I gross profits never rose as high, Lick added.
Affordability challenges also shift how people buy financing and F&I products, Lick said. High sticker prices have pushed some consumers out of the new-vehicle market. Meanwhile, the higher-income consumers who remain tend to buy more expensive F&I products, he said.
“A lower-income consumer might not take the wheel warranty, for example,” Lick said.
Looking ahead, higher leasing rates could be a headwind for the public auto retailers because automaker warranties can cut into F&I profits, he added.
A closer look at quarterly earnings calls and Securities and Exchange Commission filings reveals how F&I performance broke down among the six groups.
F&I profit per vehicle slips
Same-store finance and insurance gross profit per vehicle was down at 5 of the 6 public dealership groups in the 3rd quarter.
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Asbury Automotive
Asbury Automotive Inc. reported same-store third-quarter finance and insurance gross profit per vehicle of $2,111, down $108 or 4.9 percent from a year earlier.
Asbury wrote in a government filing it was seeing “slightly lower” F&I sales per vehicle as customers sought to keep monthly payments from becoming too expensive during a time of higher interest rates.
Dan Clara, senior vice president of operations, said on an Oct. 29 earnings call that $51 of the $108 decline could be attributed to the accounting related to Asbury’s in-house F&I product company Total Care Auto.
Asbury bought Total Care Auto as part of the Larry H. Miller Dealerships acquisition in December 2021, and the group has been rolling out Total Care Auto products to Asbury dealership finance departments. CFO Michael Welch said the process would continue in 2025 with the Jim Koons Automotive Cos. stores Asbury added in late 2023 and Asbury’s Florida stores the last two segments of the retailer’s footprint awaiting the Total Care Auto portfolio.
Asbury said it makes more profit on the Total Care Auto first-party products compared with traditional third-party F&I coverage, but the revenue and cost related to the products is spread out over the F&I contract in Asbury’s accounting.
Total Care Auto produced $36.4 million in revenue during the third quarter, up 0.6 percent from a year earlier, and $22.2 million in gross profit, up 0.5 percent.
Asbury, of Duluth, Ga., ranks No. 5 on Automotive News’ list of the top 150 dealership groups based in the U.S., retailing 149,509 new vehicles in 2023.
AutoNation
AutoNation Inc.’s same-store F&I gross profit per new vehicle dropped 6 percent to $2,589 during the third quarter, compared with $2,750 in the same year-ago quarter.
CEO Mike Manley said during the company’s Oct. 25 earnings call that AutoNation Finance, the company’s captive finance arm, has been holding its own. It is growing steadily, he said, with more than $700 million in loan originations so far in 2024 even as it has eliminated third-party originations.
AutoNation Finance met the group’s full-year expectations within nine months and is on track to carry roughly $1 billion in loan originations for the full year, CFO Thomas Szlosek said during the earnings call.
He added that the division has tightened underwriting requirements, with a goal of “building a prime portfolio.”
”We’re also finding that [AutoNation] Finance is deepening the relationship we have with our customers,” Szlosek said.
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
Group 1′s same-store F&I gross profit per unit grew slightly in the third quarter, up about 1 percent to $2,093.
“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 in a regulatory filing.
The Federal Reserve announced a 0.5-point cut to its benchmark rate Sept. 18, which experts believe will bring auto loan interest rates down. Group 1 is not yet feeling the full effects of the Federal Reserve’s rate cut, CEO Daryl Kenningham said in a call with investors Oct. 30. The company is hopeful there will be more rate cuts, he said.
“You are seeing some more ammunition pointed at that affordability issue,” he added.
The Fed also announced an additional 0.25 point cut to its benchmark rate Nov. 7.
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.
Lithia Motors
Lithia Motors Inc. collected $1,982 in same-store third-quarter F&I gross profit per vehicle, down 2.8 percent from a year earlier.
Lithia in a government filing attributed the lower F&I gross profit to “a decline in service contract penetration rates.” A Lithia spokeswoman said this referred to lower sales of a single F&I product.
Lithia’s financing operations segment, which is made up of U.S. captive finance company Driveway Financial Corp. and financing programs in Canada and the United Kingdom, reported approximately $900,000 in income during the third quarter, up from a $4.4 million loss a year earlier.
Lithia CEO Bryan DeBoer said on an Oct. 23 earnings call that segment was “expected to have consistent profitability going forward.”
Driveway Financial financed 17,775 vehicles during the third quarter, up 5.8 percent from a year earlier. It was the lender in 12 percent of Lithia’s new- and used-vehicle sales, up from 9.7 percent a year earlier and closer to the 20 percent share Lithia would like to see.
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
Penske Automotive Group in the third quarter recorded $1,832 in same-store F&I gross profit per vehicle retailed, down just more than 1 percent from the year-ago period.
Affordability is still a major challenge for consumers, Rich Shearing, COO of North American operations, said on an Oct. 29 call with investors.
“The average new-vehicle transaction price now has increased 2 percent to $57,880,” CEO Roger Penske said on the same call.
Penske’s same-store F&I revenue per unit, excluding agency sales, slipped 1.5 percent in the U.S. and fell 3.5 percent in the U.K.
The retailer said in an SEC filing that it believes the decline was “primarily due to high interest rates impacting overall customer affordability and an increase in lease penetration and electric and hybrid fleet vehicle sales in the U.K. which limits our finance and insurance product sale opportunities.”
Penske ranks No. 3 on Automotive News’ list of the top 150 dealership groups based in the U.S., retailing 229,942 new vehicles in 2023.
Sonic Automotive
Sonic Automotive saw its same-store F&I gross profit per vehicle slightly dip by 3 percent to $2,339.
Sonic CEO David Smith said during the group’s Oct. 24 third-quarter earnings call that F&I performance stayed strong despite elevated interest rates for consumers.
“The continued stability of F&I in these levels supports our view that F&I per unit will remain structurally higher than pre-pandemic levels, even in a challenging consumer affordability environment,” Smith said.
Sonic Automotive, of Charlotte, N.C., ranks No. 6 on Automotive News’ list of the top 150 dealership groups based in the U.S., retailing 107,257 new vehicles in 2023.
Mark Hollmer, Gail Kachadourian Howe, John Huetter and Julie Walker contributed to this report.
Source: Automotive News, November 22, 2024