Entering fall, the automotive industry quite possibly might be breathing a collective sigh of relief. After the COVID-19 pandemic forced the annualized sales rate of nearly 16.8 million units in February to plummet to 8.6 million in April, industry analysts now believe vehicle sales will end 2020 just shy of 14 million1.
However, if the seasonally adjusted numbers go the way many economists are projecting, we could see a nearly 70% jump from April lows.
That’s some good news. Some equally big news is that used cars and trucks have been even hotter since the pandemic.
Used Cars and Trucks Are Hot
Used car prices actually reached a record recently, with the Manheim used vehicle price index reaching its high in mid-June, jumping 4% over the previous year, and a 7% jump since its May reading (+16% compared to April2).
The reasons for this were strictly supply and demand. Fewer used cars initially from a drop-off in trade-ins and less buying at auctions during the pandemic created less supply. However, price-conscious consumers hungry for used cars and trucks since states began their reopening phases has created a spike in demand. This scenario, where supplies are still short, has forced the price of used cars to rise.
An Opportunity to Sell More F&I
Nevertheless, more people are shopping for used cars and trucks, and that has created an opportunity for franchised and independent dealers to offer a bevy of F&I products uniquely designed to help many of these car shoppers. It is also expected that federal stimulus and deferment programs enacted during the height of the pandemic will give further confidence to millions of would-be shoppers throughout the remainder of 2020.
Typically, the best F&I product programs that work well for new vehicle sales are the same ones that work best for used sales — adjusted for the pre-owned buyer. Service contract programs and various ancillary products such as windshield protection, and tire and wheel, provide a great deal of value for pre-owned buyers.
Dealers should just make sure they are working with their F&I products representative to ensure their coverage options are well-suited for the pre-owned buyer. Many dealers are able to create additional interest and value for their customers with certified limited warranty programs. These limited warranties are included with the sale of the vehicle and provide great peace of mind for their customers and typically greater customer satisfaction.
The Best F&I Programs for Dealers
Additional F&I products create a great opportunity for dealers, but they need to pay close attention to the program they have and how it is structured, as not all F&I dealer programs are created equal. Well-structured F&I programs are a critical component to help with profitability and customer satisfaction. It’s really more important than ever for dealers and their management teams to look at their F&I programs and consider things like the dealer participation program they’re using, the F&I product mix and ensuring employees are properly trained on their F&I programs.
One of the ways in which dealers are boosting those F&I profits is through the use of a dealer participation program such as a dealer owned warranty company, whereby dealers own, market and sell their branded F&I program. Besides greater profit potential on F&I sales, the great benefit here lies in the fact that dealers can actually tailor and customize their own F&I offerings. For example, an independent dealer can build a portfolio of F&I products that caters to a variety of branded vehicles, not just one. These F&I products can range from service contracts to ancillary products.
Whether a dealership is franchise or independent, transitioning to this type of a dealer owned warranty program may be a significant key toward leveraging F&I products that increase new and used car profit potential, despite the direction of sales activity in the near future.