AN ANALYSIS of the finance and insurance (F&I) landscape for Australian automotive dealerships since November – amid a softening new-vehicle market and the banning of flex commissions – has found early signs of a significant impact on income that will require dealers to “get back to basics” this year.

Drawing on a database of 500 dealers and 225,000 transactions over the period, Fusion Business Solutions’ technology subsidiary Op2ma has calculated that the impact of the new regulations, coupled with slower market conditions stemming from tougher financier lending criteria and a range of other factors, will see F&I income at dealers’ new-car departments fall by an average of $8589 per month.

This is based on an estimate of dealers selling 10 fewer new vehicles each month (47, down from 57), with F&I income per retail unit (IPRU) reduced by $99 per car – down 10.4 per cent.

For used cars, the F&I IPRU drop is estimated at $241 per car (-25.5 per cent), leading to a decrease in F&I income at the dealership of $7569 per month, based on the dealer selling an average of nine fewer used cars per month, from 48 to 39.

Combined, the overall impact on the dealership sees F&I income down $16,158 per location per month.

“Three months into this new era, Op2ma can confirm that the impact of the F&I changes to dealers is significant and will require dealers to review their cost basis and look for sales improvement strategies,” Op2ma said in a statement.

“Dealers will need to get back to basics and look for areas where this revenue shortfall can be recovered. An overall review of each dealership’s operations needs to be performed so that areas of opportunity can be identified.”

Drilling further into the detail, Op2ma’s analysis shows only a minor drop in new and used car finance penetration – down one and two per cent respectively to 35 and 31 per cent – and no real reduction in finance income per contract for new cars, easing only slightly from $2254 to $2239.

Used cars were a different story, with income per contract down 18 per cent, from $2324 to $1906.

Most notably, significant reductions were seen in warranty and insurance penetration.

With new cars, insurance penetration fell from 43 per cent to 27 per cent – for used cars it was a fall of 55 per cent to 36 per cent – while in warranty sales, new-vehicle penetration plummeted from 11 per cent to just five per cent.

Similarly, used-car warranty penetration reduced from 18 per cent to 10 per cent.

As a result, a corresponding fall in warranty and insurance income was identified. For new cars, it dropped from $131 to $77 per unit, while used cars fell from $179 to $108 per unit.

As well as the overall measure of IPRU, Op2ma says the other key factor to consider is net amount financed (NAF) per unit, and here the data indicates that both new- and used-car NAF has actually increased.

For new cars, NAF increased from $43,261 to $44,653 per unit, while used cars climbed from $27,951 to $28,669 – movements that indicate that buyers are continuing to move into slightly more expensive cars/models.

By Terry Martin