There Could Be Some Upside

Related document: 2009 Ward's Dealer Business F&I 150 List

There are no bright spots for dealers on this year's Ward's Dealer F&I 150. And 2009 is promising more of the same. But there's hope yet.

New-car sales dropped by 20,000 from 2007 to 2008 while used-vehicle sales plunged by more than 40,000 units for the top F&I dealers. Meanwhile, their overall revenue from finance and insurance was down by more than $200 million.

Average F&I revenue per vehicle sold (new and used combined) was down by just over $200 a vehicle.

The top dealer on last year's list, Dave Smith Motors in Kellogg, ID, generated more than $16 million in F%I revenue. This year's leader, Right Toyota, in Scottsdale, AZ, had $11.6 million out of its F&I department.

Dave Smith, meanwhile, dropped to No. 3 with $20.6 million in F&I revenue.

The declines were fueled by credit availability, tighter conditions imposed by lenders, higher charge backs and reduced advances on vehicle loans, Mike Maroone, president and chief operating officer for AutoNation Inc., tells investors.

“I don't think we're concerned that it's going to go down a lot further,” Maroone says. “I think there's opportunity on the upside. It's really about credit tightening and lender advances. And, I think with the anticipation that the TALF money will help loosen the credit markets, I think there could be some upside.

“What we really work hard on is our product penetration, because that's in our control. The lender advances at this point are not in our control. We've also got slightly higher charge backs year over year. But, the big issue really is credit availability, lender advances, lender conditions on the loans that are being approved.”

Dealers were hampered in 2008 on what they could charge the customer in F&I. OEM finance companies began changing the way they paid dealers for contracts along with imposing tighter guidelines on credit issued.

“There were lots of what I call flats that were paid by the OEM finance companies which give us less revenue on the finance line and our reserves,” Roger Penske, chairman and CEO for the Penske Automotive Group, says during a conference call. “I think that when they look at the credit profile of the customers, the stipulations are certainly tougher so the rates that we're able to charge are somewhat impacted.”

This year could be tougher, although there are signs credit is beginning to loosen, somewhat. Yet, according to data from Experian Automotive, lending to prime customers, people with credit scores higher than 680, continues to shrink. However, overall share for the prime market jumped about 7% from first quarter-2008 to first quarter-2009.

The average credit score for customers being financed for new-vehicle purchases went from 753 in the first quarter of 2008 to 773 in the first quarter of 2009. For customers getting used-car financing, the average credit score went from 653 to 660 in that period.

Meanwhile, Experian also shows financing across the three categories below prime (non-prime, subprime and deep subprime) are down 19%, 35% and 48% respectively for the first quarter-2009. Only deep subprime is up slightly in the used-vehicle category.

Although, conventional wisdom says used vehicles provide the greatest opportunity today, they are getting the hardest hit across all credit categories with the amount being financed.

Amount financed per used-vehicle sale to subprime customers dropped the most, posting a $2,079 decline year over year.

Another trend dealers need to watch for this year, says Melinda Zabritski, Experian Automotive's director-automotive credit, is that lower amounts are being financed for much shorter terms.

The Ward's Dealer F&I 150 is a ranking of dealers on the Ward's Dealer 500 based on finance and insurance revenue.