According to Protective Asset Protection, experts estimated that dealerships leveraging a dealer-owned warranty company structure to sell F&I products are seeing a 20-percent lift in profits on average for F&I sales.
Protective Asset Protection has focused on this topic significantly during the past year since many dealers have offset the recent downward trend in vehicle margins through increased F&I profitability. The company explained that a way some dealers have maximized their F&I income is through participation in the underwriting profits on the F&I products sold.
A number of structures exist for the dealer to participate in these products — each with varying benefits.
Protective Asset Protection explained that typical types of F&I products available for dealer participation include extended vehicle service contracts, GAP waivers and road hazard tire coverage, among others. The profit participation programs typically include guaranteed retrospective (retro) agreements, participating retro agreements, and insurance and reinsurance programs, including dealer-owned warranty companies (DOWC), controlled foreign corporations (CFC) and noncontrolled foreign corporations (NCFC).
Protective Asset Protection vice president Matt Gibson recently offered an in-depth analysis, reviewing the process for dealers transitioning their business from NCFC to DOWC because of federal tax law changes. Gibson also discussed the topic during a recent episode of the Auto Remarketing Podcast.
The company emphasized the importance of this strategy, reiterating that dealership margins keep shrinking. Protective Asset Protection pointed out these data points:
• The average U.S. light-vehicle franchise dealership lost $2 on every used vehicle it retailed in 2017.
• NADA Data 2017 figures: The average dealership saw a net loss of $2 per used vehicle retailed, swinging from a per-unit profit of $65 in 2016 and $132 in 2015.
• NADA Data’s numbers show that domestic-brand dealerships posted a net profit of $159 per used-vehicle sale. Volume import-brand dealerships posted a net loss of $111, and the average luxury-brand dealership posted a net loss of $197 per vehicle retailed.
“Dealer-owned warranty companies enable dealers to tailor and customize their own F&I offerings. For example, an independent dealer can build a portfolio of F&I products that caters to a variety of branded vehicles, not just one. These F&I products can range from service contracts to ancillary products,” Protective Asset Protection said.
“Given the fact that most dealers are entrepreneurs, with some even owning their own dealership, a DOWC will feel natural to them since it’s their opportunity to offer an F&I product that is merely an extension of the brand they’ve worked hard to establish within their own communities,” the company went on to say.
For more details about setting up a DOWC and more, go to www.protectiveassetprotection.com.