November 27, 2020

Public retailers raise F&I profits despite COVID-19 headwinds

Strict shelter-in-place orders brought on by the coronavirus pandemic severely hindered profits at publicly traded U.S. megaretailers in the first quarter. But despite showroom closures, slowing vehicle sales and economic uncertainty closing out the month of March, all six public groups posted gains in finance-and-insurance profit per vehicle.

Public groups cited automaker support and robust digital processes for raising F&I figures.

Retailers have long been concerned that digital car deals, which have increased on a national scale following pandemic-related closures, corrupt F&I profits. But several public groups noted in first-quarter earnings that they are making the same amount, if not more, per vehicle in online transactions.

AutoNation Inc. and Sonic Automotive Inc. reported all-time quarterly records for average per-vehicle F&I profit in the first quarter.

Sonic showed the biggest improvement in F&I profit per vehicle, among the public groups, in the first quarter, up 13 percent, or $209, to $1,885.

AutoNation CEO Mike Jackson told investors Monday that the company makes the same F&I profits on digital transactions that it does on traditional deals. Jackson considers the uptick in digital transactions necessitated during COVID-19 pandemic “an inflection point” for auto retailers.

“While there has been a strategic trend toward digital — and we certainly have invested in those capabilities — this is an accelerant from which there is no turning back,” he said.

The raised bar for retailers to perform transactions digitally and safely won’t be optional for dealerships once operations return to normal, Jackson said.

AutoNation, of Fort Lauderdale, Fla., ranked No. 1 for the quarter in same-store F&I profit per vehicle retailed, with an average of $2,089, an increase of 9.4 percent, or $144, from year-earlier figures.

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

  • Group 1 Automotive of Houston rose 8.3 percent, or $144, to $1,880.
  • Asbury Automotive Group of Duluth, Ga., rose 5.6 percent, or $90, to $1,688.
  • Lithia Motors, of Medford, Ore., rose 6 percent, or $89, to $1,557.
  • Penske Automotive Group of Bloomfield Hills, Mich., rose 6.8 percent, or $87, to $1,363.

Automaker intervention in the form of aggressive new-vehicle incentives and dealership aid has proved critical for the large public groups, though the assistance complicates year-over-year comparisons for the quarter.

“Overall, we see an increase in F&I and I think probably from a front-end perspective, there’s so much action right now from the OEMs,” Chairman Roger Penske told investors May 6. “It’s probably hard to know what we’ll get in bonuses in order to see what the old and gross profit is.”

The company is using Reynolds and Reynolds Co.’s docuPAD interactive tabletop F&I systems and Zoom video conferencing to sell vehicles and F&I products during shelter-in-place orders, Penske said.

Penske, which has been using Reynolds’ retail management system since 2004, agreed in 2018 to roll out the docuPAD system across its 132-store footprint in the U.S. and Puerto Rico. The final system was installed last quarter.

Sonic, the Charlotte, N.C., retailer, owes a sizable portion of its F&I profits to used-only retail unit EchoPark, which typically exceeds $2,200 per vehicle on average.

Strain on the used-vehicle market benefits EchoPark’s business structure, according to Sonic President Jeff Dyke. Depressed vehicle prices allow Sonic to purchase fresh inventory cheaply, a boon for the retailer, which sells used cars essentially at purchase price and profits on F&I product sales.

“It’s nirvana for EchoPark and our used-car business on the franchise side,” Dyke said April 30 on an earnings call. “This is, while a very difficult situation for our industry, it’s a silver lining because our business model thrives in this kind of environment as we come out of it.”

Executives at Lithia said stores haven’t had any barriers in arranging consumer financing during the COVID-19 outbreak.

“We have not seen any tightening in the credit market. In fact, financial institutions and OEM captives have significantly enhanced the programs and incentives they are providing consumers,” Lithia COO Chris Holzshu said April 22.

The retailer noted in a government filing that F&I revenue rose 3.7 percent in the first quarter largely due to an uptick in financing volume and extended-warranty contracts from dealerships acquired last year. On a same-store basis, F&I revenue slipped 0.7 percent from falling insurance contract sales, though vehicle service contract penetration drove gains on a per-unit basis, the filing said.