The economics of auto retailing continue to evolve right before our eyes. Competitive shopping and readily available online pricing data that feeds to the spirited nature of the business are among critical areas reshaping balance sheets at today’s dealerships.
Case in point: according to National Automotive Dealers Assn. data, the average U.S. light-vehicle franchise dealership lost $2 on every used vehicle it retailed in 2017.
NADA numbers show domestic-brand dealerships posted a net profit of $159 per used-vehicle sale. Volume import-brand dealerships posted a net loss of $111, and the average luxury-brand dealership posted a net loss of $197 per vehicle retailed.
F&I products are offering some hope in the battlefield for profits. According to Wards Intelligence, new light-vehicle sales in the U.S. fell 1.9% to 17.1 million in 2017. But dealerships earned an average of $1,412 in F&I revenue per new and used vehicle retailed, a 3.3% increase from a year ago.
The opportunity for F&I profits is real. And despite the fact that today’s cars and trucks are of the best quality, drivers need products that go beyond standard factory warranties to include vehicle-service contracts that provide greater coverage, as well as benefits from ancillary products, such as tire and wheel protection and interior/exterior protection.
According to a recent survey of vehicle-service contracts and ancillary protection plans, 42% of drivers today estimate their protection plan has saved them an average of $1,000 to $2,000 on repairs and parts replacements. Vehicle service contracts and ancillary products show great value for drivers, especially on specific aspects of a vehicle.
According to drivers, the types of repairs most likely covered by their vehicle service contract include steering (47.2%), technology features (44.4%), brakes (44.4%), electrical components (41.7%) and drive axles (41.7%).
Transmission and suspension repairs (27.8%) showed the smallest responses from drivers using protection plans.
Nearly half of those surveyed (51%) said they have purchased a protection plan for their vehicle. Of those, over half (53%) said they have needed to use their benefits on their current vehicle.
The majority of respondents (34%) said they currently drive a small CUV/SUV. Most said they’ve used their benefits on general repairs (58%), while another 22% said they’ve used them on parts replacements.
Regarding ancillary protection programs, 69.4% said they’ve needed to have repairs on tires and wheels and 58.3% on windshield repairs. About 47% had exterior appearance work done, such as paint-less dent removal. Respondents said they’ve needed to use ancillary benefits due to road hazard repairs (39%), accidents (17%) and parts replacement (11%).
Dealers and their F&I departments are leveraging new approaches, such as dealer-branded warranties to deliver dealer-controlled opportunities with which consumers can identify. In this approach, dealers provide, market and can customize their own F&I programs.
Through this format, dealers partner with a provider that has the resources to administer the program on behalf of the dealer. This leaves dealers free to focus on marketing and presenting their programs.
It’s their opportunity to offer an F&I product that is an extension of their brand. It can be a big win all the way around.
Tim Blochwiak has more than 20 years of experience in the auto-retailing and F&I industry. He is vice president for F&I provider Protective Asset Protection.