The economics of auto retailing continue to evolve right before our eyes. Competitive shopping and readily available online pricing data that feeds to the competitive nature of retailing are just some of the critical areas reshaping balance sheets at today’s dealerships.
Case in point, according to data from the National Automotive Dealers’ Association (NADA), the average U.S. light-vehicle franchise dealership lost $2 on every used vehicle it retailed in 2017.
NADA Data’s numbers show that 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.
However, F&I products are offering some hope in the battlefield for profits. According to an industry study from Crain Communications, sales of new light-vehicles fell 1.8 percent to 17.2 million in 2017. Dealerships earned an average of $1,412 in F&I revenue per new and used vehicle retailed, a 3.3 percent increase from a year ago.
The opportunity for F&I profits is very real. And despite the fact that today’s cars and trucks are made with some of the best quality parts, 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 percent of drivers today estimate their protection plan has saved them an average of $1,000 to $2,000 in savings on repairs and/or 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 percent), technology feature service (44.4 percent), brakes (44.4 percent), electrical components (41.7 percent) and drive axels (41.7 percent). Areas such as transmission and suspension repairs (27.8 percent) showed the smallest responses from drivers using protection plans.
Half of those surveyed (51 percent) said they have purchased a protection plan for their vehicle, and of those opting for a vehicle service contract, over half (53 percent) said they have needed to use their benefits on their current vehicle. The majority of respondents (34 percent) said they currently drive a small CUV/SUV for their vehicle. Most said they’ve used their benefits on general repairs (58 percent), while another 22 percent said they’ve used benefits on parts replacements.
Regarding ancillary protection programs, 69.4 percent said they’ve needed to have repairs on tires and wheels, 58.3 percent said windshield repairs and 47.2 percent said exterior appearance products such as paintless dent removal. Respondents said they’ve needed to use ancillary benefits due to road hazard repairs (39 percent), accidents (17 percent) and parts replacement (11 percent).
Dealers and their F&I departments are leveraging new approaches, such as dealer owned warranty companies (DOWC), to deliver dealer-controlled opportunities with which consumers can identify. This approach aligns with the important role many F&I programs play in improving customer satisfaction. After all, a customer protected by a service contract tends to be a more satisfied customer that returns to the dealership for service and their next purchase.
Utilizing a DOWC program, dealers can boost F&I profits, leveraging a program whereby dealers own, market and provide their own F&I program. In addition to more profit potential on F&I sales, dealers can customize their F&I offerings.
Through this format, dealers partner with a provider that has the resources to administer the program on behalf of the dealer. This leaves the dealer free to focus on marketing and presenting their program to the customer.
Given the fact that most dealers are entrepreneurs, a DOWC will feel natural to them since it’s their opportunity to offer an F&I product that is an extension of the brand they’ve worked hard to establish within their own communities. Combine this aspect with the value consumers find in F&I products with the ability to help dealers manage margin compression and utilizing a DOWC for the F&I operation can be a big win all the way around.
With the right DOWC in place, automotive retailers can embrace today’s highly competitive market with F&I programs that we can see customers have come to rely on, all while knowing they have a solid strategy in place that allows them to continue to grow their profits while serving their customers’ best interests.
