Our Take: Inventory has vastly improved, and we are continuing to experience the shift from a seller’s to a buyer’s market. Quarter one results show that in true dealership fashion, managers and teams are adapting to the changing conditions and have a positive outlook on the year ahead.
F&I PVR
Product Income Versus Finance Reserve
Business Managers continue to capture F&I profitability, but are slowly changing how. In the last four months alone, we've seen product income make up about 3% more of F&I PVR as compared to finance income. We see this as a positive trend for two reasons:
- Product income better supports the customer lifecycle by helping to bring customers back to the dealership through the service department.
- Finance reserve can be risky to rely on as income, because when a customer pays off a loan early, the dealership gets charged back by the lender.
PERCENTAGE OF F&I PVR 72-MONTH TERM
Incentives and Process Improvement Benefits Front PVR
Front PVR has begun to level out when compared to last year’s decline from March onwards. However, this metric is still performing far better than in 2019. The leveling off we're beginning to see likely stems from an increase in incentives and improved sales processes.
JM&A Group Tip: If inventory levels continue to rise, that will put significant pressure on Front PVR, which could result in declines throughout this year. In preparation, it’s important to focus on your processes and sales techniques as competition will get tougher with more options available on dealership lots.
FRONT PVR
Vehicle Service Contracts Continue to Be a Value-Add
Year-over-year results demonstrate how VSC penetration levels are improving after a slight decline in the back half of last year. With growth in Q1, is it safe to say we’re seeing signs of normalization taking place?
VSC
Our Take: We are keeping an eye on VSC sales compared to 2023 and 2019. Concerns regarding affordability remain. Interest rates are still high, car insurance premiums continue to rise, and many customers are working on a tight budget. From an F&I perspective, a service contract can have dual benefits: the value that service contracts create for the customer and the opportunity for finance managers to drive PVR.
PPD Levels Emerge From a 2023 Decline
Similar to VSC levels, PPD has emerged from a downward trend for much of the latter half of 2023 to now almost matching the number of products per deal in March 2023. This is also following a similar line to PVR. Put simply, dealers are selling more products to make more money, showcasing their constant agility in an evolving market.
Our Take: As this first quarter trends in a more positive direction, we anticipate this number to keep going up if dealers continue tailoring their sales process to meet customer needs.
“Record high interest rates are a top concern for dealers and consumers. The industry is focusing on a customer-centric approach and reserve is lessening over time. A focus on product is timely so car buyers with affordability concerns can plan for a more fixed cost to own their vehicle, granting stability in a time of economic uncertainty.” - Caroline Urrutia, Sr. Advisor of Retail Strategy at JM&A Group
PPD
Buyer Adoption of GAP Increases with Affordability Concerns
Another positive Q1 trend can be seen in GAP levels with three consecutive months of increased penetration. When inventory was low, many consumers paid over MSRP for their vehicles, creating an environment for negative equity when they trade in their vehicles. Now, record amounts of negative equity affect the industry, reaching an average of $6,064 in Q4 2023.
JM&A Group Tip: It is far easier to explain to a customer today why they should consider GAP products compared with two years ago when people had large amounts of equity because used car values were so high. To help ease affordability concerns, consider evaluating your team’s process for approaching GAP sales and make sure their techniques are effective, helpful and encouraging for consumers.
GAP
