4 of 6 publics see Q2 F&I gross profit drop; more decline possible

“I think F&I is going to be pressured,” Jefferies analyst Bret Jordan said following the second-quarter earnings season for Lithia Motors Inc., AutoNation, Penske Automotive Group Inc., Group 1 Automotive Inc., Asbury Automotive Group Inc. and Sonic. “I would expect that the general trend in F&I content is probably lower.”

Customers struggling to afford vehicles are less likely to include F&I product coverage and its associated cost into the deal, both Jordan and Stephens analyst Daniel Imbro said. Lessees can be less likely to buy F&I coverage on their short-term new models, a challenge mitigated for auto retailers by leasing’s collapse from 30 percent of retail sales in pre-pandemic 2019 to less than 20 percent in 2022, according to Cox Automotive.

Vehicle prices and interest rates aren’t likely to plummet and free up more consumer buying power in the near term. Meanwhile, leasing is slowly rebounding as automakers restore incentives they slashed during an inventory shortage; Experian’s second-quarter data saw leasing reach 21 percent of the new-vehicle market, up from 20 percent during the second quarter of 2022 but still below 28 percent in the second quarter of 2021.

“We have it down modestly into the next year,” Imbro said of F&I gross profit per vehicle. But both Imbro and Jordan said they thought F&I gross profit would stay higher than it had been before the disruption of the COVID-19 pandemic.

Higher vehicle costs cut into F&I product attachment, but they also increase revenue from what Imbro called the “F side of F&I” — the commission a dealer received from a financial institution for bringing the lender and the consumer together on an indirect auto loan.

Retailers also “got better at selling” F&I products, Imbro said, which should have a lasting impact on gross profits. Online F&I sales would also provide a permanent lift, he said, mentioning Asbury’s Clicklane and Group 1’s AcceleRide digital retail platforms.

Clicklane generated $2,408 per vehicle in F&I gross profit for Asbury during the second quarter, up 11 percent from a year earlier and slightly higher than both Asbury’s overall ($2,363) and same-store ($2,369) quarterly F&I gross profit. AcceleRide produced $2,616 in F&I gross profit per online sale, virtually the same as a year earlier and more than $200 higher than Group 1‘s overall or same-store F&I operations in the U.S.

Jordan also said he thought the industry had improved its F&I acumen, though a ceiling in gross profit was inevitable.

“I think there’s a limit to what you can sell from a product standpoint,” he said.