Group 1's U.S. F&I Operations Stays Above $1,500 Per Copy in Q4
February 16, 2016
HOUSTON — Consolidation of its lender base, pre-recession level credit availability and an improving subprime financing environment drove a 4.7% and 9% fourth-quarter increase in new- and used-vehicle unit sales, respectively, for Group 1 Automotive. The dealer group’s U.S.-based F&I operations also benefited from the more favorable lending environment, with F&I gross profit increasing 6% from the prior-year period to $93 million.
The dealer group also reported that its U.S.-based operations realized a 4% increase in F&I gross profit per unit retailed, which averaged $1,525 in the end-of-year quarter. Combined with its international markets, the group’s F&I PRU grew by $44 to $1,368 in the fourth quarter.
“Our F&I gross profit grew 4.4%, reflecting an approximate 1% increase in PRU, on a local currency basis, combined with a 3.5% increase in total retail unit sales” said John C. Rickel, CFO and senior vice president of Group 1 Automotive.
For the year, F&I revenues totaled $409 billion, up from $367 billion in 2014 and up 19.4% since 2010. Aside from a favorable lending environment, officials credited the increases to integration of the group’s F&I sales and compliance training, as well as its proactive rollout of the National Automobile Dealers Association’s Fair Credit Compliance Policy Program during the second quarter 2014.
“Finance and Insurance gross profit increased 5.9% on a consolidated basis,” said Earl J. Hesterberg, president, CEO and director of Group 1. “This growth was driven by vehicle unit sales, as our consolidated F&I per retail unit was essentially flat …”
On a consolidated basis, penetration rates for financing and vehicle service contracts remained flat with 2014 levels at 67% and 34%, respectively. Acceptance rates for GAP, however, improved 3 percentage points to 27%, while acceptance rates for the group’s maintenance and paint protection products inched up a percentage point to 10% and 19%, respectively.
In the U.S. market alone, finance penetration and acceptance rates for the group’s paint protection product increased by a percentage point each from 2014 to 73% and 19%, respectively. Acceptance rates for GAP and maintenance increased two percentage points each to 28% and 12%, respectively, while VSC penetration rates remained flat at 73%.
The group’s U.S. revenues for the fourth quarter totaled $2.3 billion, a 7.6% increase from the prior-year period. Officials said the increase was driven by the 4.7% increase in new-vehicle sales, a 9% increase in used-vehicle sales, and a 7.5% growth in parts and service revenue. The revenue growth drove a 5.2% increase in gross profit, which totaled $334 million.
For the year, Group 1 Automotive sold 142,256 new-vehicle units, a 5.1% increase over 2014. As for used, the group sold 12.1% more than all of 2014, with retail sales totaling 105,211 units. For the fourth quarter, Group 1 sold 35,605 new and 36,332 used vehicles.
Low gas prices was also listed as a driver of the group’s retail sales gains, although Group 1’s Hesterberg said fuel prices were responsible for the group’s 7.2% decrease in used-vehicle gross profit per unit sold in the fourth quarter. For the year, however, gross profit per used unit sold was up 5.1%
“So they dynamic in the new-vehicle land of trucks and SUVs being in greater demand than cars is the same in the used-vehicle market, and many new-vehicle customers are trading in a car and moving to an SUV or a truck, and then those trade-ins get pushed into the used-retail market,” he said.
Group 1’s total consolidated revenue for the fourth quarter was $2.7 billion, a 5.3% increase from the prior-year period. For all of 2015, revenues totaled a record $10.6 billion, a 7% increase over 2014. Gross profit was $1.5 billion, a 5.9% increase over 2014.
"While we delivered a record year in total for revenue, gross profit, and adjusted diluted earnings per share, our fourth quarter results were significantly hampered by the negative impact of continued oil and gas price decreases on the economy in our prime markets of Houston, Oklahoma and Texas in general,” Hesterberg said. "Additionally, we suffered from increased new- and used-vehicle margin pressure resulting from oversupply in a variety of key brands, especially in the U.S. luxury segment."