Automotive Trends
Report

Dealership Performance and Profitability Trends

F&I PVR Remains Important for Dealership Sales

F&I PVR ended the year positively, compared to the same quarter in 2023. Despite a dip in December, F&I PVR is indeed steady.

F&I PVR

Our Take: We anticipate F&I PVR to remain steady, especially as interest rates are coming down. With the average transaction price near record highs and persisting affordability concerns, consumers are keeping their vehicles longer. Business managers should work to help customers understand the need to protect their expensive purchases for many years, particularly as cost of labor and parts continue to rise. Products like vehicle service contracts and pre-paid maintenance can help protect against inflation.

Front PVR Declines in Q4

Throughout 2024, Front PVR endured declining levels, with December being down 12.1% month to month and 45% YOY. The year trended lower than the previous year, reflecting the increase in inventory and the correlating increase in competition. The recent years of higher front-end earnings continue to wane as supply conditions grow.

FRONT PVR

Our Take: As inventory continues to improve and competition between neighboring (or online) dealerships heighten, review and revamp sales processes with your team to ensure you're delivering an exceptional customer service experience that positively sets your dealership apart in-store and online.

Stark Contrast Between F&I PVR and Front PVR Levels

The distinction between F&I and Front PVR levels since Q1 2022 is important to note. This shows that F&I gross can be more insulated from the industry's external factors like inventory levels. When customers are shopping for a vehicle, dealerships are competing against each other for that customer. Once a customer decides to purchase a vehicle and selects a dealership, that dealership then has the potential to earn the customer's business in F&I as well. F&I PVR has maintained growth this year, despite a small dip in Q3.

F&I PVR VS. Front PVR Quarterly Percent Change

Our Take: With front end gross waning as the external supply factor continues to influence dealer competition, your F&I team becomes increasingly crucial to the health of your dealership. Now is a good time to revisit your turnover process. Ask yourself: do your sales associates understand what makes for a smooth transition into finance and are they implementing it consistently?

Vehicles Service Contracts Show Improvement

Though VSC levels dipped month-to-month at the end of December, dealers ended Q4 strongly with a higher penetration YOY for the first time all year.

VEHICLE SERVICE CONTRACTS

Our Take: As VSCs hold strong, this further emphasizes that customers see value in the current market. With vehicle owners facing parts and labor inflation as well as increased cost of ownership, they're making plans to keep vehicles longer, and seeking protection for covered repairs in the future.

Products Per Deal Positively Follow VSC Trend Line

Dealers saw a positive trend in PPD finishing out the year. Even with a slight downturn in December, monthly levels have surpassed the previous year since September.

PRODUCTS PER DEAL

Slight Downward Change for GAP in Q4

There was a minimal decrease in GAP penetration for dealers in the last month of the year; however, YOY Q4 penetration is up. As many customers face negative equity on trade-ins (related to a limited supply market in past years which made for higher used vehicle pricing and above MSRP new vehicle purchases), GAP penetration should maintain or improve as it will remain extremely beneficial to customers in the coming year.

GAP

Our Take: In 2023, we also saw a trend of GAP penetration levels lowering in the last quarter, before an uptick in Q1 2024. With December being such a large volume month, dealers are often strongly focused on completing the vehicle sale.

Economic Factors Shaping Vehicle Sales

Interest Rates Remain High Yet Customers are Still Buying

The last quarter of 2024, particularly in December, saw the lowest interest rates of the year for new and used vehicles. Also in December, interest rates for used cars dipped to their lowest since November of 2022.

AVERAGE INTEREST RATES FOR 72-MONTH TERM

Our Take: As interest rates decrease and manufacturer incentives rise, customers who have been waiting to purchase will be more willing to join the market. Dealers should be optimistic about 2025. Cox Automotive even reported a 75% satisfaction rating from new-vehicle buyers when polled about their overall shopping experience last year. Also, as interest rates decline, dealerships are presented with a prime opportunity to call customers in for a new vehicle at a lower rate.

Finance Reserve Still Lower YOY in Q4

For the first time since August, there was a slight increase in finance reserve income percentage in December 2024. There was still a lower reserve percent YOY in Q4.

PRODUCT INCOME vs. FINANCE RESERVE

Percentage of F&I PVR – Finance Deals

Our Take: As rates are expected to come down in the future, dealers will run a greater risk of refinanced loans and chargebacks. New lenders may facilitate cancellation and replacement of the product options previously purchased. We do not expect a significant decline in product income portion in 2025. Product sales benefit the customer by enhancing their experience, helping to protect against unexpected expenses, hedging against inflation, and can provide convenience and security.

New and Used Inventory is Coming Back

The new and used car deal mix gap continued to widen in Q4 of 2024. As new-vehicle supply and incentives grew, so did new-vehicle sales. Although we may experience some fluctuation in the used-car market with fewer anticipated lease returns, stability in new-vehicle supply will help minimize used-car market inflation.

New & Used Deal %

Our Tip: More inventory means more competition. For most dealerships, having the vehicle a customer wants is not what sets you apart. What sets you apart is your team's ability to deliver an exceptional customer service experience. Work with your sales teams to ensure that you are honing your sales process and properly training associates to maximize customer satisfaction and profitability.

Lease Deals Finish the Year on a High Note

Leasing continued to rise throughout 2024, despite a few dips along the way. The last quarter saw steady growth for lease deals especially after dropping from September to October. Currently, lease penetration is the highest it’s been since June 2021, which was the last time we saw levels at or above 13.7%. Cash penetration finished up the year in December at 24.2%. This continues to show that customers concerned with interest rates will pay with cash or use alternative finance methods if they are able.

FINANCE TYPE DEAL PERCENT

Our Take: With the ability to increase customer satisfaction and dealership performance, properly training Business Managers on cash conversion methods remains a vital part of the health of your F&I department.

SAAR Shows Positive Outlook For 2025

A forward-looking SAAR projection shows growth for the new year, especially as all three months in the last quarter of 2024 were boosted by a strong holiday season.

SAAR

Looking Back: In our Q3 report, we mentioned that "though the CDK Global cyberattack may have impacted the June results, results again dipped after July. With these fluctuations, projections that 2024 results will beat 2023 remains to be seen." Now we can positively say that 2023 results have been surpassed!

Automotive Industry Trends and Updates

Presidential Election & Upcoming Changes

The fourth quarter in 2024 gave us answers to which administration would be running the country for the next four years. Dealers may see potential EV incentive cuts, which the incoming Trump administration has alluded to. As new rules and regulations emerge or dissolve in the following year, what remains consistent is the industry's resilience.

Renewed Calls for Cybersecurity

We anticipate even more of an emphasis on cybersecurity in 2025, as the past year many dealers in the industry experienced issues related to a data breach. Now several months later, it’s still important to review your current tech stack and the measures you are utilizing to protect not only your customers’ data, but the data surrounding your business operations and employee information. As you improve processes in 2025, paying attention to your systems and refreshing them often so that you are prepared in the event of an outage is important. Learn what Mary Rice, Dealer Principal at Toyota of Greensboro, suggests for protecting your stores in our podcast episode.

Electric Vehicle Sales Increase in December

Though there are rumors surrounding the reduction or elimination of EV incentives, sales of EVs increased in the last month of 2024. Policy changes from the Trump administration may not be implemented quickly so this is an optimal time to review your EV sales strategy. Many people are buying while incentives are good – they may not have a strong passion for EVs, but the savings are enticing in the current economic environment.

What group of EV buyers would leave the market if incentives went away?

In a data set provided to us by J.D. Power, YoY in December, there was an 8.3% change in EV penetration. We believe EV sales may see some “fuel” in the first few months of 2025, as consumers may anticipate policy changes will affect incentives. This will be an interesting space to watch over the year.

A Leading Economist’s Outlook for Q1 2025

We recently interviewed Jonathan Smoke, Chief Economist at Cox Automotive, on our podcast, The Walk Around. He shared his thoughts on the changing buyer market, consumers who have been waiting to buy, and industry trends as a whole.

“We now are in a very different world, because we’re not sure where interest rates are going to go, and a lot of people are talking the Fed could even be increasing rates at some point in the second half of this year... And prices, especially with the risk of tariffs being put on the industry, changes the whole price dynamic as well. And I think that mere shift of psychology from ‘you’re better off waiting’ to ‘you know, you probably ought to buy sooner rather than later’ is a part of the momentum we’re seeing.

Check out the full episode on Spotify, Apple Podcasts, or on our podcast page.

Jonathan Smoke, Chief Economist, Cox Automotive

Getting Prepared for a Strong 2025 Year at Your Dealership

Overall, even with fewer interest rate cuts and persistent affordability concerns, there is a positive outlook for this year – which is always a welcome sentiment in the industry. As we continue in the first quarter of 2025, looking back on important milestones and trends throughout 2024 can help as you plan for success throughout this new year. It’s not too late to set goals for team training, better operational processes and a united approach to customer development. As opportunities present, capitalize on strong sales methods. We hope this data helps you with enacting your strategy for success!