The large public retail groups pushed hard for more F&I business after new-car sales collapsed three years ago. Now that demand is improving, they say they're focusing on sales volume -- without letting up on F&I.Executives for Lithia Motors and Sonic Automotive were particularly outspoken last week about stronger consumer demand and the need to push volume out the door, even if it means sacrificing gross margins on vehicle sales.


"We are in the automobile sales business and nothing happens until we sell a car around here," David Cosper, CFO of Sonic Automotive Inc., said during a July 26 conference call discussing second-quarter earnings.

"Margin percentages you don't take to the bank. We don't manage our business that way, and we've been saying that now for a year and a half. We just don't manage our business by a percentage; we are driving volume in this company."

At the same time, Sonic and Lithia both said they intend to keep up the pace in F&I, with measures like menu selling, in which every customer gets a pitch for every F&I product; compensation plans that reward employees for meeting targets for F&I sales penetration; and selling extended-service contracts to service customers.

The argument goes that it's worth it to sell new and used cars at a thinner gross margin in order to capture higher-margin business in F&I and service and parts. But first, you have to make the sale.

"It's like an annuity," Jeff Dyke, executive vice president of operations at Sonic, said last week in a phone interview. "The more cars you get on the road, the more cars come to your shop. Our goal is to outsell everybody."

That doesn't mean letting up on F&I. "Quite the contrary," Dyke said. Sonic's F&I revenue per vehicle grew to $967 in the second quarter, up from $889 in the corresponding period last year.

Dyke said Sonic has doubled its average number of F&I products per vehicle in the last six quarters, to 1.4 per vehicle, thanks in part to employee compensation plans. The group's goal is an average of two F&I products per vehicle, he said.

Sid DeBoer, CEO of Lithia Motors Inc., said in a July 27 conference call that his company's strategy also is to grow top-line revenues first, with the expectation that higher-margin business will follow.

"It all feeds the chain, but it all starts at the top," DeBoer said. "It's critical we get all the volume we can out of every store."

Penske Automotive Group said separately that its strategy is in between. "We're not trying to be the highest-margin guy. And we're not trying to be the highest-volume guy," said Tony Pordon, executive vice president of corporate development and investor relations.

He said the large public retail groups are each affected by different factors. For instance, he pointed out that lease-heavy premium brands account for two-thirds of Penske's sales. Lease customers are unlikely to buy extended-service contracts, and that cuts into the group's ability to sell more F&I per vehicle, he said.

"It's oversimplifying the case to say it's a simple tradeoff between volume and F&I," Pordon said.

A year-long effort at Group 1 Automotive Inc. to improve finance and insurance profits at underperforming stores pushed the retailer to its strongest quarterly F&I numbers since 2008.

Group 1 last week reported per-vehicle gross profit of $1,126 for the second quarter, up $125 from a year ago. It was the best F&I performance since the first quarter of 2008 and the second best ever for Group 1, the nation's fourth-largest dealership group. Executives credited higher finance income per contracts and better vehicle service contract penetration rates.

"The biggest thing we did is we identified our stores that were bringing down our average," Pete DeLongchamps, Group 1 vice president of manufacturer relations and public affairs, said in an interview.

There was a lot of disparity among per-store F&I performance. Much was geographic, DeLongchamps said, with stores in the lease-heavy Northeast and credit-challenged Gulf of Mexico markets on the low end of Group 1's range. So executives sat down with store general managers to come up with improvement plans, largely focused on how to sell more extended service contracts, he said.