Automotive Trends
Report

Performance and Profitability Trends

F&I PVR Trends Upwards This Year

The first quarter of 2025 saw encouraging growth in PVR, with March reaching the highest level since November 2022. Notably, Q1 2025 is outpacing the same period in 2024. Given the uncertainty surrounding automotive tariffs, this is a segment we will be monitoring closely.

F&I PVR

Front PVR Takes a Positive Turn

We saw a steady decline in Front PVR last year, but levels began to experience incremental growth this year from February to March. Some of this uptick in profit may be related to tax season returns, as well as customers making purchases in advance of anticipated price increases due to tariffs.

FRONT PVR

Our Take: We anticipate vehicle demand to vary by model, with customers willing to pay full price for cars that are more impacted by tariffs. Looking ahead to the second half of the year, we expect compression on front end margins, contingent on the impact of tariffs.

Stark Contrast Between F&I PVR and Front PVR Levels Remains Despite Growth

F&I PVR and Front PVR reached their largest divide in the last quarter of 2024. However, we saw the first quarter-to-quarter increase in Front PVR since Q1 2023. Despite ongoing affordability issues, demand remains strong, and sales are up, contributing to growth in these metrics.

F&I PVR VS. Front PVR Quarterly Percent Change

Our Take: Incoming tariffs, though not necessarily reflected in the results above, are expected to impact performance for the remainder of the year. Consumers may be looking to purchase vehicles before the full effect of tariffs takes hold, making near-term profit look optimistic.

Vehicles Service Contracts Penetration Increases

VSC experienced growth in the first three months of the year, after fluctuating for much of 2024.

Our Take: We’re optimistic about VSC penetration for the remainder of this year. Although affordability remains a concern for consumers, the trend of keeping cars longer highlights the growing value of a vehicle service contract. As repair costs look to increase with the added presence of tariffs, your team can emphasize how F&I products can help hedge against inflation of costs associated with car ownership.

VEHICLE SERVICE CONTRACTS

GAP Ahead YOY

GAP penetration has been fluctuating but saw a 6.1 percent increase month-to-month following a dip in December. We saw stabilization in January and ended the quarter slightly ahead YOY. GAP programs continue to provide value to many customers, and we anticipate penetration to hold steady throughout the year.

GAP

Economic Factors Shaping Vehicle Sales

Interest Rates Higher Than December

After months of declines in new and used rates, January and February saw slight increases for both, while March brought a slight decline. Overall, customers are facing lower interest rates compared to the same time last year.

Our Take: In the near-term incentivized rates could decrease as new car demand is high. In the long run, we may see manufacturers utilize incentivized rates to drive sales if vehicle costs are impacted by tariffs.

AVERAGE INTEREST RATES FOR 72-MONTH TERM

Product Income Versus Reserve Grow

Product is making up a larger portion of F&I PVR year over year. We expect the product income to reserve ratio to remain steady or potentially grow through Q2. However, we will be watching for reserve increases if vehicle prices increase due to tariffs.

Looking Back: In our previous report, we stated we did not foresee a significant decline in product income portion in 2025. As we’re optimistic for rates 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. Product sales benefit the customer by enhancing their experience, helping to protect against unexpected expenses, hedging against inflation, and can provide convenience and security.

PRODUCT INCOME vs. FINANCE RESERVE

New and Used Ratio Widens

The gap between new and used car deal mix narrowed in January of 2025 and widened through February and March. We anticipate this gap will continue to widen in the near term as demand for new cars increases in the coming months.

NEW/USED DEAL %

Our Take: While used cars are not directly impacted by tariffs, they could be indirectly affected. If new car prices increase, pushing some consumers into the used car market, we would see more used car purchases narrowing the ratio between new and used and increasing used car prices. Even without potential tariffs, consumers facing affordability issues are choosing longer terms to keep monthly payments lower. Edmunds reports, “84-month loans hit an all-time high in Q1 2025, making up 19.8% of new-vehicle financing — up from 15.8% in Q1 2024 and 13.4% in Q1 2019.”

Leasing Ahead Quarter Over Quarter

Lease penetration was higher quarter over quarter, although slightly down from Q4 of last year. Leasing is highly dependent on incentivized programs from the manufacturer, so similar to our take on incentivized rates, in the short term you could see OEM's back away from lease incentives but in the long-term manufacturers could use leasing incentives as a lever to pull if facing affordability issues related to price increases.

Our Take: Dealers should not lose focus on leasing as it not only drives immediate sales but also ensures future service and sales opportunities. Leasing a car today can lead to multiple sales in the future, as customers return to upgrade or replace their vehicles.

FINANCE TYPE DEAL PERCENT

Product Income Percentage Boosts

This quarter, we saw more product growth than reserve. Since 2023, there’s been a 3% change favoring product income, which shows dealers are focusing more on product sales than relying on reserve in the current economy.

SAAR Sees Highest Levels Since April 2021

Many were (positively) shocked to see the huge spike that occurred with the SAAR in March. From starting the year off with a decline to ending the first quarter of 2025 with the highest levels seen since April 2021, there is much positivity surrounding these results.

Our Take: We've seen a sales increase driven partly by refund-ready taxpayers eager to purchase and partly by consumers concerned about rising vehicle costs amid tariff uncertainties. Employee-pricing incentives from OEMs like Ford and Stellantis are providing more opportunities for near-term purchases. With healthy demand, manufacturers may reduce incentives in the short term. However, if tariffs have a significant impact on vehicle prices, this could drive new car sales down, potentially prompting an increase in incentives to foster sales growth. We’ll have a clearer projection after the second quarter, but ultimately, only time will tell how the rest of this year will unfold.

SAAR

 Top Trending News 

Tariffs, Tariffs, and Tariffs

Tariffs continue to be the topic on everyone’s minds. Vehicle and parts pricing, which drastically affects regular service and unexpected repair expenses, could be impacted by tariffs. A Vehicle Service Contract can help alleviate concerns about rising parts cost down the line as ripple effects of the tariffs come into play. With unknown future vehicle costs, customers may want to give themself the option of (securely) keeping their car longer, without worrying about a new high car payment, or costly repairs. Prepaid maintenance packages can also lock in today's rate and help shield the customer’s budget against inflation.

For more on tariffs, check out Brian Kramer’s tariff strategy resource for dealers.

Rising Insurance Costs

As we prepare for potential tariffs, we can’t ignore the already rising insurance costs and how tariffs could further fuel automotive insurance inflation. Your customers are likely already noticing premiums hike, which can impact their views on purchasing additional protection products or vehicle upgrades. Recently, we talked to Wards Auto about the increasing costs, to hear more of our thoughts, check out the article.

Stay Strong with Your Dealership Goals

As consumer demand for new vehicles is being pulled forward, for fear of tariff-related price increases, we are likely to see near term gains in unit sales, as well as front and back PVR. Depending on the future impact of tariffs, if new car prices increase, used cars will eventually follow. We also should keep in mind that our newer-used car supply (less than 3-years-old) is still recovering from pandemic inventory lows.

Whether it’s inventory shortages, interest rates, or cyberattacks, our industry has seen it all. We love to say it, but it’s especially true now – we are a resilient industry when we work together. By reviewing your own dealership data from Q1, you can start to pinpoint the areas that may need an extra performance nudge as we face another unpredictable year in the industry.