AutoNation, Sonic achieve new highs in F&I profits

AutoNation Inc. executives have warned that increasing used-vehicle sales will pressure the company’s industry-leading finance and insurance results. Meanwhile, Sonic Automotive Inc., which posted the biggest improvement in F&I profit per vehicle in the third quarter, relies on used-vehicle sales to generate growth.

Those differing strategies resulted in better F&I results for both companies last quarter.

AutoNation boosted F&I profit per vehicle 8.4 percent, or $150, to an any-quarter record of $1,939. That number increased for AutoNation each quarter this year, but the trajectory could be tested as industry new-vehicle volume flattens or slows, interim CFO Christopher Cade said.

“As you move more of a mix toward used away from new, there is a difference in total F&I [per vehicle retailed]. We’ve said in the past that’s usually a few hundred dollars difference between the two,” Cade said on a call with investors last month. “Then you combine that, though, with higher penetration rates and some pricing power that we have now on our brand extension, that’s been an overall supporter.”

CEO Cheryl Miller said last quarter that AutoNation has been able to outperform lower F&I numbers on used-vehicle transactions through the combined strength of AutoNation’s branded F&I products and consistent training of F&I managers.

Yet Sonic increased its F&I profit per vehicle by 18 percent largely from sales at its EchoPark standalone used-vehicle stores. That marked a $266 year-over-year increase to a record $1,771.

EchoPark’s same-store total profit per unit increased 10 percent year-over-year, to $2,151, driven by F&I profits. In fact, EchoPark stores lost $201 per vehicle sold last quarter, as noted by Jeffries analysts, despite making an average $2,352 on F&I for each sale.

On a consolidated basis, Sonic, of Charlotte, N.C., also posted a record F&I gross profit of $126.8 million, a nearly 30 percent increase.

F&I profits helped insulate the public groups’ profits amid flat U.S. new light-vehicle sales in the third quarter. For the majority of the public groups, F&I income made up about 4 percent of quarterly revenue but accounted for 30 percent of gross profits.

Same-store F&I profit-per-vehicle results at other groups:

  • Group 1 Automotive Inc., of Houston, rose 3.2 percent, or $54, to $1,751.
  • Asbury Automotive Group Inc., of Duluth, Ga., rose 7.9 percent, or $119, to $1,628.
  • Lithia Motors Inc., of Medford, Ore., rose 7.3 percent, or $100, to $1,471.
  • Penske Automotive Group Inc., of Bloomfield Hills, Mich., rose 4 percent, or $49, to $1,262.

AutoNation, of Fort Lauderdale, Fla., remains the benchmark against which other publics measure their F&I-per-vehicle penetration. Executives at Sonic and Penske directly and indirectly referenced the leading retailer’s figures and cited room for improvement at their companies.

“We’re not up in the $1,800, $1,900 or $2,000 [level] because a lot of our premium customers are leases,” CEO Roger Penske said on a call. “And we get flats on those, and we don’t have the ability to sell extended warranty on a three-year lease.”

Many luxury-vehicle buyers opt against F&I products because they can afford repair costs if their vehicles are damaged. Penske’s sales are roughly 70 percent luxury, and more than half are leases.

At Group 1, increases in F&I profit per vehicle were “driven by strong product penetration and income per contract increases,” Daryl Kenningham, president of U.S. operations, said on an earnings call.

He added: “We feel confident we can keep F&I [per retail unit] around $1,750 for the full-year 2019.”

Executives at Asbury said credit-pressured customers hindered F&I results in the third quarter. Asbury CEO David Hult said on a call with investors that subprime customers are more restricted when it comes to financing options, including the kinds of F&I products they purchase.

“You actually have more opportunity as the FICO score goes higher for product sales,” Hult said.

Chris Holzshu, Lithia’s executive vice president, said the retailer arranged financing on 73 percent of deals in the third quarter, sold a service contract on 48 percent and sold its proprietary lifetime oil product on 22 percent.

“We continue to focus on capturing the additional earnings potential in F&I,” Holzshu said, “by improving the customer experience and seamlessly integrating the online and brick-and-mortar experience in our stores.” a