Automotive Trends
Report

Dealership Performance and Profitability Trends

F&I PVR Lifts in Q3

F&I PVR saw a positive trend in Q3, and September marked an increase over 2023 for the first time this year. Products, more than reserve, are driving these results as dealers are maximizing profit opportunities in product sales over the reduced margins in finance reserve.

Our Take: Product sales versus finance reserve can also help drive customer retention in sales and service. As customers face affordability issues, natural disasters in some parts of the country, and uncertainty around the upcoming elections and potential policy changes, a service contract can help provide much needed relief and security for the future. At the same time, these products can improve customer satisfaction and the ownership experience.

F&I PVR

As margins compress, product income has steadily increased since September 2018, showcasing another strong example of how dealers are finding ways to profitability through protection products that benefit the interests of their customers.

Tip: Having multiple options for selling F&I, like virtually or through on-demand models, can keep the customer experience running smoothly. A strong digital retailing presence can also help drive consumer education and adoption.

PRODUCT INCOME vs. FINANCE RESERVE

Front PVR Flattens Following Decline

Front PVR has evened, remaining relatively flat in Q3 as the downhill trend we've been seeing since April of last year has seen relief. Dealership leaders are training their sales associates to help them adjust to this new environment, which is much closer to pre-2020 with higher vehicle supply and a buyer's market.

FRONT PVR

As inventory grows, manufacturers will continue to increase incentives, and with the current Fed rate cut and anticipated future cuts, we may see more manufacturers begin to offer relief to consumers in the form of incentivized rates.

Back-End Revenue Helps Make Up for Front-end PVR Declines

F&I PVR has remained far more reliable than front PVR and is helping dealers compensate for the decrease in front-end profits, especially in Q3. Pressure on front-line margins is visible in these results.

Our Take: The big picture? Even though dealers are under a lot of pressure and have lost margin on the front, they are doing a great job of implementing growth strategies to boost profitability and deliver value to customers.

F&I PVR VS. FRONT PVR

Vehicle Service Contract Penetration Remains Steady

Despite a dip in July, vehicle service contract penetration has remained steady this year. Customers are keeping their cars longer. Those who may not have considered a service contract before are now more likely to because they have the desire to hold on to their vehicle.

Our Take: Product attachment rates have increased throughout the third quarter and reached their highest point this year. With high vehicle prices and persistent budgetary concerns, it's evident that customers are making ownership decisions that align with their needs for keeping their vehicles longer.

VEHICLE SERVICE CONTRACTS

Products Per Deal Rise

Though this metric has been marginally trending lower YOY, product per deal levels in September surpassed those of the same month last year. The growth has remained relatively consistent, with Q3 seeing a positive trend after a dip in July.

PRODUCTS PER DEAL

GAP Penetration Continues to Increase

After a slight downturn in July, GAP penetration levels have been increasing, reaching a high in September. According to Edmunds, nearly a quarter of trade-ins have negative equity, and of those, the average amount hit an all-time high in Q3 this year: $6,458. This shows that GAP is increasingly important to today’s car buyers.

Our Take: As consumers continue to navigate external factors beyond their control, like still-high interest rates, state and federal elections, storms and the holiday seasons, our advice remains: Continue to serve as a helpful resource to answer and alleviate your guest’s concerns. Vehicle service contracts and GAP can provide customers with much needed stability and security surrounding vehicle ownership.

GAP

Economic Factors Shaping Vehicle Sales

Interest Rates Still High Despite Federal Relief

New vehicle loan rates have been steadying this year while used vehicle interest rates have been consistently dropping, despite an upturn in February.

Our Take: Consumers have been eagerly awaiting interest rate cuts for the past few years. Though the Federal government dropped rates by half a percentage point on September 18th, the effects will likely not be seen for some time. Vehicle prices, especially new ones, remain high. As has been the sentiment for much of 2024, affordability is still a persistent issue for many. Also, with floorplan costs now higher, dealers are looking to sell cars faster.

Ask yourself: Do your salespeople know all the bells and whistles that will attract customers to a particular vehicle? Maybe it’s the technology-friendly features in the top-tier model or the vehicle being capable of fitting several car seats across the bench. Knowing the perks of each car can help make the sales process more tailored to every customer that walks in your store.

AVERAGE INTEREST RATES FOR 72-MONTH TERM

New and Used Vehicle Deal Mix Seesaws

The Q3 deal mix looked very similar to the same quarter in 2023. Used inventory continues to be impacted by shortages resulting from the pandemic. Fewer new vehicles made in the past means fewer used cars available today. New vehicle inventory, although varied by brand, continues to increase. Incentivized rates on new units, coupled with lack of late-model used inventory, will likely bring some would-be used car buyers into the new car market.

Our Take: As new vehicle inventory grows and used vehicle supply experiences the effects of past inventory restraints, we will continue to see fluctuation in the deal mix.

With customers facing extreme affordability issues, dealerships with processes in place for sales associates to complete a thorough needs assessment with every customer can assure the best match is made between customer and car, whether that’s new or used. Taking the time to truly listen to the customer and act as a helpful and knowledgeable guide will increase customer satisfaction and performance.

NEW/USED DEAL %

Leasing Continues to Grow

Although there was minimal fluctuation in deal mix for Q3, lease penetration continues to increase. Notably, lease penetration has increased over 5% since January of 2023.

Our Take: We are projecting both lease and finance will increase as interest rates decline and incentives rise, which presents a greater opportunity for contract sales. Will we reach 16 or 17% lease penetration in 2025? Starting off Q4 there is plenty of new car inventory ready at dealership lots, presenting a greater opportunity for finance and lease deals.

FINANCE TYPE DEAL PERCENT

Seasonally Adjusted Annualized Rate (SAAR)

The Seasonally Adjusted Annualized Rate has been on a roller-coaster this year, particularly in the third quarter. 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.

SAAR

Automotive Industry Trends and Updates

Election Season Will Bring Change

The upcoming presidential election taking place in Q4 will most likely have reverberations throughout many industries, including automotive. One sector that will be impacted? Electric vehicles. The Inflation Reduction Act (IRA), aimed at spurring EV growth and adoption, may experience changes. If removed, dealers will possibly see slower growth in the EV category. However, factors such as cost, range anxiety and climate concerns continue to be present in customers’ minds.

Our Take: An election season during a tough economic climate can bring uneasiness to customers – and your team. Take this time to check in on your team members. Do they feel prepared to sell to customers who are worried about interest rates, affordability and political change? As dealership teams continue to support each other and customers in the best way possible, the political environment will have a strong presence in Q4, but dealerships will once again prove resilient. All eyes will be on the Federal government in the next few quarters as rumors of more rate drops swirl.

Advice from a Dealer Performance Manager

“As we transition back to the ‘real car business,’ inventory is rising, dealers are offering larger discounts, and we’re entering a declining rate market. Now is the time to lean into the less glamorous but essential tasks that drive success. Accountability is key—ensure your teams are focused and executing effectively within your stores.

For those newer to the industry or early in your career, we can’t stress enough the importance of returning to the fundamentals. The rest of Q4 should be about mastering the basics. The core pillars of our business are People, Product and Process. Take a close look at each of these areas, identify opportunities, and set yourself up for a strong start in 2025.

Finally, embrace discomfort. While many dealers may be facing challenges, success is still very much achievable in the automotive industry. It’s about getting back to the core of our business, doing the hard things and finding a way to win. Let’s finish Q4 strong!”

Jonathan Saltis, JM&A Group Dealer Performance Manager

Finding Success in Q4 and Preparing for 2025 Goals

As we enter the last few months of 2024, we encourage you to continue honing best practices at your dealerships. In a busy sales and still-tough economic environment, make sure to listen to your customers, noting their concerns and truly working alongside them and their unique needs. Here’s to a great year-end at your dealership and a robust 2025!