Most of the six public new-car dealership groups focused on the growing used-vehicle market in their latest earnings calls. That could be a plus for their F&I results.
Lithia Motors Inc., which does not operate used-only stores, increased its used-vehicle retail sales at its new-vehicle stores 16 percent to 32,171 units in the second quarter. Executive Vice President Chris Holzshu said service contract penetration is actually higher on Lithia's used vehicles. In the second quarter, service contract penetration was 48 percent on used vehicles and 41 percent on new, he said. And at Group 1 Automotive's new-vehicle stores, F&I product penetration on used vehicles during the quarter made up for lower transaction prices on used units, CEO Earl Hesterberg said.
Because there is likely little or no factory warranty on a used vehicle, buyers of those vehicles may be more inclined to buy a service contract. Customers realize that a vehicle with 30,000 miles is more likely to have an issue than a new car.
On used-vehicle transactions, service contract penetration "should be double new all day long," Jim Maxim, former president of MaximTrak Technologies, said last year. "So if you're not [at] 60 to 70 percent [penetration] on used, you're doing yourself a disservice." Maxim became chief strategy officer at RouteOne after RouteOne acquired MaximTrak near the end of 2016.
Used buyers can also imagine their vehicle breaking down because of age or mileage, unlike new-vehicle buyers. Many F&I product providers have launched high-mileage service contracts over the past few years, which means more used buyers will be eligible for a contract.
Even though Asbury Automotive Group closed its two remaining Q Auto used-only stores, COO David Hult said, Asbury still plans to expand used-vehicle sales at its new-car dealerships. Penske Automotive Group, AutoNation Inc. and Sonic Automotive Inc. also have opened used-only chains in recent years.
The entire industry will have to adjust to an expanding used-vehicle market, but for F&I, used sales bring opportunity.