Category: F&I

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F&I

F&I Takes Center Stage

Eric Fifield Author

If you’re like most dealers in the country, it’s likely you’re struggling to move your metal. As you watch your cost of inventory grow daily, and your bottom line takes a hit, it’s no wonder you might be feeling a little friction. According to Cox Automotive, new vehicles are sitting on lots between 75 and 80 days! You’re not alone feeling the financial pinch.

Consumers are also watching the value of their bank accounts decline thanks to high prices and stubborn inflation. According to Edmunds, negative equity has reached an all-time high. Consumers are rolling over upwards of $6,167 in negative equity in almost a quarter of all vehicle sales. Now, we know that’s an average and there are consumers with higher and lower amounts in the market. But, what happens when they have $10,000 in negative equity on a vehicle they bought at $10,000+ over MSRP? This is just one of the uncontrollable issues putting a damper on unit sales.

And there’s more. Edmunds recently stated that the average down payment for a new car in Q1 2024 was $6,682. Conversely, according to a Time Magazine from March, the average personal savings on hand is only $5,300. So, in order to buy a car, a person has to wipe out their savings AND ask for help? No wonder car sales are slow!

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EFG Companies F&I

High Mileage Vehicles Need High Mileage Solutions

According to S&P Global Mobility, the average age of vehicles on the road in the U.S. rose to a record 12.2 years in 2022, representing a two percent increase from 2021.  Twenty years ago, a car might have changed hands once or twice and lasted 100,000 miles, Today, it is more common for a car to have multiple owners and last for 200,000 miles or more. This extended life cycle of today’s cars creates more value for both owners and dealers – but with one caveat. These high mileage vehicles need high mileage protection to keep the car and its value in tiptop shape.

There are a couple of other issues at play, prompting consumers to keep a vehicle past its ‘prime.’ Thanks to rising new vehicle prices, many consumers are financing their vehicles for upwards of eight years in order to keep the monthly payment in an affordable range. Consumers also factor in long-term reliability when choosing a vehicle, a key criteria in OEM marketing and brand preference.

Today’s older cars also retain their drivability and are in better shape than the days of a heavy metal chassis. Vehicle manufacturers are building cars with a longer lifespan, leveraging improved assembly processes, better materials, and placing an emphasis on vehicle safety guidance from the National Highway Traffic Safety Administration and the Federal Motor Vehicle Safety Standards and Regulations. As a result, many of the top 15 longest-lasting cars are likely to reach 200,000 miles or more and also are ranked as the best-selling vehicles, based on automotive research firm iSeeCars.com.

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Economy F&I Industry Trends

2022 Predictions: Demand for Units Bodes Well for Dealers

2021 has felt like a dance with very complex steps, back and forth. In the first half of the year, the economy took a step back with severe semiconductor chip shortages, persistently high levels of COVID-19 infections across the country, and challenging labor shortages. As a result, the seasonally adjusted annualized rate (SAAR) for August dropped to 13.09 million, reflecting a steady decline since the April peak of 18.5 million according to Motor Intelligence. The August reading was the weakest of the year and the lowest since June 2020’s 13.23 million rate, early in the COVID-19 pandemic.

Now, we are experiencing a different story. According to TD Economics, in October, U.S. vehicle sales took a step forward, rising by 6.5 percent month-over-month to 13.0 million SAAR units. Last month’s gain came in well ahead of expectations, which called for a more modest gain to 12.5 million units. These forward steps brought an end to five consecutive months of declines.

However, inventory availability is still taking a step back, putting a false cap on consumer demand. New vehicle inventory remains compressed, with estimates for October revealing that dealership supply slipped to an all-time low of just 20 days. The combination of strong demand and limited inventory has continued to exert upward pressure on new vehicle prices, which are estimated to be up nearly 20 percent from last year’s levels. The October gain indicates that at current depressed production levels, 12 million seems to be the natural floor for sales.

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