After a difficult sales environment in 2022, the automotive industry has experienced a noticeable recovery in 2023. Even as supply chain issues continued to dissipate, new challenges emerged, including the ongoing threat of a potential recession, persistently high inflation and the effects foreign conflicts continue to have on financial markets.
These types of issues may make consumers think twice before investing in new and used vehicle models when car shopping. Furthermore, the government’s decision to resume student loan re-payments may place additional pressure on sales of new vehicles, especially for younger consumer demographics.
However, consumers have remained resilient since the pandemic, and there is still pent-up demand for new and used vehicles as we enter 2024. This is important, because F&I product sales are critical contributors toward overall profit potential for dealers. Unfortunately, large economic factors have been weighing heavily on the potential to maximize F&I sales.
Five of the six major publicly traded franchised auto dealership groups recently reported same-store F&I gross profit per vehicle declines year-over-year in third-quarter earnings. These retail groups indicated that interest rates are a major factor, and F&I managers continue to see affordability at the consumer level as an ongoing issue.
Dealers Regaining their F&I Footing in 2024
Dealers must find ways to maximize F&I sales opportunities, because in the highly competitive landscape of the automotive industry, dealerships rely on the sale of these products to enhance their bottom line and remain competitive. Based on our fourth annual industry report looking at F&I product trends, here is the F&I outlook entering 2024.
Comparing 2023 to 2022, many dealers indicated the sale of F&I products has remained a key focus area for their dealership according to survey data. This includes products such as vehicle service contracts, appearance products, tire and wheel, prepaid maintenance, GAP, etc.
Forty-nine percent of dealers stated that covering electrical components was the most frequent reason consumers noted for selecting protection products, followed by 46% who said covering advanced technology features and 45% who prioritize the need for emergency roadside services.
Shopping Online for F&I Options
Online F&I research and purchasing options could be a key opportunity for many of these dealers. Sixty-nine percent of dealers said they are likely or definitely a proponent of enabling customers to research their F&I options online. In a separate category, 89.2% of dealers said they are possibly or definitely a proponent of enabling customers to purchase their F&I options online. Those dealers believe that having F&I options online will help customers take the time they need to make the right decisions, which could help lift their F&I sales. Those in the possible category are proponents but feel it’s important to be able to answer customer-specific product questions digitally.
Over the years, our annual report has been a valuable resource in helping dealers learn from the current year and help them develop the right F&I product strategies for the coming year. We believe dealers across the country fully understand the impact F&I has on their bottom line, as well as customer satisfaction levels. As the market and economy continue to change as we are heading into 2024, these trends will help ensure that each dealer is maximizing their ability to help their customers protect the vehicles they drive today.
To better serve their customers, dealers and their F&I departments have access to some of the most cutting-edge F&I products and online resources in the history of the automotive industry, especially with the continued growth of digital retailing. With digital assistance, car buyers will be able to better research the numerous F&I products and services that are specifically tailored to their purchasing preferences online.
Dealers’ F&I carriers will continue to expand their offerings to make vehicle protection plans and other F&I products that are advantageous to new and used cars and trucks with internal combustion engines, even with the market’s ongoing changes and some consumers’ interest in electric vehicles. Additionally, as a growing number of drivers select electric vehicles, they will rely on their dealerships to guide them with the right protection products geared toward EVs.
The key for many dealers will be their ability to adopt more processes that enable the research, education, selection and transaction of F&I products in an omni-channel environment. Those dealers that have taken the lead in this area are already seeing improvements in F&I margins and will become the leaders of tomorrow’s F&I industry.
