As the industry emerges from its COVID-19 cocoon, automotive dealerships are seeing long-term impacts on how they do business. 

The pandemic ushered in a new normal that puts F&I sales in a state of flux, requiring dealers to pay closer attention to performance-based metrics, states Joe St. John, senior vice president of Business Development for StoneEagle, a firm offering industry-leading metrics reporting, menu sales tools and F&I product administration solutions that drive performance, improve efficiency and increase profitability. 

“The industry is crazy profitable right now, unlike anything we have seen before,” he says. “The point of sale is more fluid, and F&I considerations have moved further upstream in the buying process. In this new normal, dealers must change the way they approach performance management in the F&I office.” 

St. John predicts F&I managers’ jobs will change as dealerships adjust to a permanent shift in buyer behavior in a post-pandemic world. F&I managers will cross-train to sell automobiles and F&I products earlier. In fact, he says, this shift has already begun.  

“Though 98% of deals are still done in the traditional F&I flow, digital retail has changed how they are done,” he says. 

Now customers show up at the dealership with their sale and financing nearly complete. They inspect the vehicle, which is clean, gassed and ready to drive home. The dealership has sales paperwork printed and ready to sign. Consumers have a quick conversation with the F&I manager about their driving habits, the best F&I products for them, and the financial impacts of adding these products to their loan. 

“The F&I manager advises them on products in a way that feels less combative than when it happens at the end of a four-hour sales process,” he says. 

Opportunity abounds in this new landscape, but only if dealerships understand their F&I performance. Typically, dealers review metrics monthly, but St. John says such measures must occur more often.

“What gets measured, gets improved,” he explains. “By the end of the month, there’s little you can do to change course. When you look at the data more often, it tells stories that can help a dealer make sure a blip doesn’t turn into a trend that turns into lost profitability by month’s end.” 

Emerging Trends in Vehicle Sales

StoneEagle supports dealers with real-time business intelligence to help them grow profits and maximize revenue. The business supports over 6,000 dealers with its metrics, over 15,000 dealers with its enterprise software, and collected millions of reports from dealers over the past 12 months. 

This annual data highlights trends that began during COVID-19 and continue today. 

The first trend comes as no surprise. Demand has skyrocketed. “We have incredible demand from consumers coming out of the pandemic. They want transportation and seek to buy a car now,” St. John says. “Dealers are turning their inventory at extremely fast rates.”

During the pandemic, dealers ran out of inventory in May and June 2020 after factories shut down in March and April. Dealers can expect the same scenario this June and July as a critical shortage of semiconductor chips grinds vehicle manufacturing to a halt. 

Consumers interested in purchasing a new vehicle may be disappointed when there are few to be had. But many may turn to used vehicles instead. “I expect the sales percentage of new vehicles versus used to change,” St. John says. “Traditionally it’s 55% new versus 45% used but it will tilt to where dealers sell more used cars than new.”

Add strong sales to a limited supply and higher prices also result. According to J.D. Power, the average new car price shattered records in May, coming in at over $38,000, which is 12% higher than the same period a year ago.

St. John says used car dealers report a similar story. In fact, they say the MSRP price on used vehicles is often higher than its new vehicle price. For instance, a 2019 Hyundai Tucson Limited that sold for $31,935 new, now retails for $35,150, and a 2018 Jeep Wrangler with an MSRP of $47,000 new, now has a book value of $54,000. 

“Demand is way up, which has driven up transaction prices, which is influencing book prices,” he says. 

Soaring used vehicle sales and prices change the game for F&I managers, he adds. “You have to sell that one-, two- or three-year-old vehicle differently than in the past. There is a high probability that the person buying a used car is a new car buyer who cannot find the new car he or she wants,” he says.

Sales managers must shift their strategy from “why buy an older vehicle when you can purchase a new one” to selling the advantages of certified used vehicles. A sales manager might say instead, “Here is why we certify our vehicles. We base our certifications on a 180-point inspection. You get a great vehicle with a better warranty than a new vehicle.”

There’s also opportunity for greater F&I sales per unit with this type of buyer. New car buyers are generally more receptive to F&I products. 

“I’m telling every F&I manager to focus on selling aftermarket programs like Dent and Ding Protection, Tire & Wheel Coverage, or Super Polysteel protection to used car buyers,” he says. “The person sitting in front of them buying a used car has a high probability of being a traditional new car buyer.” 

F&I Sales Trends

StoneEagle data through May also shows soaring F&I profits. The average F&I profit per vehicle sold in May 2021 was $400 higher per unit than in May 2019. The numbers keep rising too!

St. John notes StoneEagle dealers averaged $1,237 a car in January 2019. As of May 2021, the data shows that figure grew to $1,697 per car. The F&I products per purchase also increased. StoneEagle data shows that consumers now buy 1.49 products per vehicle, up from 1.23 in 2019. The top 20% of StoneEagle dealers sold 1.99 products per deal and averaged $2,341 per vehicle through April 2021.

“Consumers purchase more available coverage options than in the past,” he says. “They have a lower risk tolerance than before the pandemic and want to be in a favorable position when the unexpected happens.” 

Service contracts sales also have increased post COVID. StoneEagle data shows out of 4.5 million car deals, service contract penetration now averages 44%, compared to 38% in January 2019. St. John attributes the increase to a shift in how consumers view their vehicles. They now see service contracts for their high-tech automobiles as necessary as service contracts for their iPhones. 

The number of consumers choosing gap coverage also increased. It went from 30% to 35% between March and April 2020 and hasn’t come back down, according to StoneEagle data.

“Gap coverage is a good indicator of risk tolerance,” St. John says. “If something happens to the vehicle, consumers are not on the hook for negative equity. Those with longer loans can mitigate their risk with gap coverage.” 

St. John attributes enhanced F&I sales trends to beefed up training during the pandemic.

“Vehicle sales took a big dip during COVID, and dealerships realized they might not have as many opportunities to sell F&I products in the past,” he says. “To maximize profitability, they put a laser focus on improving the skill sets of F&I managers. F&I managers were more receptive to training and focused on improving.”

St. John says F&I managers saw F&I turns plummet from 75 or 80 a month to 40, and notes, “They had to get the best performance possible because every single one mattered.” 

What it All Means

Some dealers believe the new F&I numbers are here to stay.  St. John isn’t as sure. “There’s a part of me that thinks $1,700 per unit could be the new normal,” he says. “The other part of me thinks we’ll go back to rates that look more like January 2019 as the market cools off.” 

What is certain is the days of dealers selling how they want to sell and customers coming along for the ride are over. Now dealers must tailor products and programs to customers and how they prefer to shop. 

“We will see an evolution in F&I that is driven by consumers,” St. John says. “There is a real opportunity for F&I managers to use their performance data to evolve their role from an individual contributor to a leader inside the dealership.”

The data also allows dealerships to provide greater transparency to consumers. Today’s consumers expect to find pricing transparency for F&I products online. Dealerships that deliver pricing transparency become more profitable, according to St. John. 

“The more transparent you are, the more you’ll profit,” he says. “When you give consumers valuable information and show you’re not trying to jerk them around, they become more likely to say ‘yes.’ The more they say ‘yes,’ the more profitable you become.”