Executives from some of the industry’s largest public dealer groups said banks are being a little more diligent these days in response to the Consumer Financial Protection Bureau’s activities in the first half of 2013. But based on second-quarter data, the bureau’s review of the indirect financing channel hasn’t slowed gains in F&I performance.

Asbury executives said they believe banks are already preparing for possible restrictions on finance reserve, even the possible elimination of policies that allow dealers to mark up interest rates on finance contracts. But they also noted having very little transparency as to the CFPB’s regulatory agenda.

“It does feel like the banks are a little more diligent. We’re seeing some preparation that’s already happened,” said Craig Monaghan, Asbury’s president and CEO. “You may see a bank offer a rate on a transaction and say, ‘I’m going to cap the spread, here’s the rate we’re going to offer and you can take the cap. And in some cases, those caps will be tighter than our caps.”

In the second quarter, Asbury’s average F&I profit per vehicle retailed (PVR) jumped $113 from the year-ago quarter to $1,306. Additionally, the group’s F&I operations represented 23.6 percent of total gross profit, which was up 16 percent for all of Asbury’s business lines.

Asbury’s F&I revenues increased 27 percent from the year-ago quarter to $52.4 million, accounting for 3.9 percent of total revenues, which totaled $1.3 billion.

AutoNation also reported big gains in PVR, with the group’s F&I operations recording a $1,381 per vehicle average, up $99 from a year ago. Total F&I gross profit was $169 million, up $24 million from a year ago

Company officials attributed F&I’s record performance to process, training and rigorous associate certification. Currently, they added, F&I product sales account for 66 percent of the company’s F&I revenues, which increased 28.8 percent from a year ago to $173.9 million. And they believe those three drivers have the group prepared for whatever decisions the CFPB makes with respect to dealer participation.

“If lenders were to transition to some sort of flat fee, I don’t think it would be much of an issue for the big public companies,” said Mike Jackson, chairman and CEO of AutoNation, adding that the group has employed caps on markups and F&I product pricing for decades. “However, if you’re a retailer where your model is dependent on a wide range of markups, you’re going to struggle.”

Jackson, however, defended the indirect channel, saying dealers often get consumers better rates than they can get on their own. In the second quarter, AutoNation’s finance penetration stood at between 70 to 75 percent, with the group arranging nearly $9 billion in auto loans.

Group 1 Automotive, which reported its quarterly performance today, stated in its investor presentation that the CFPB has yet to find any evidence of discrimination in regards to dealer participation. It also stated that dealer markups represent about $450 of the group’s $1,351 per unit average in the third quarter.

“[The] CFPB agrees dealers should be compensated for processing financing,” read a slide in the group’s investor presentation, which also listed penetration rates for service contracts, GAP, maintenance and paint protection of 40, 24, 9 and 15 percent, respectively. Finance penetration stood at 74 percent.

Lithia also reported its quarterly performance this week. F&I revenue rose 25.9 percent from a year ago to more than $34 million, accounting for 3.4 percent of total revenues. Average F&I PRU increased $37 from a year ago to $1,100. Sonic, which reported its quarterly performance on Tuesday, said F&I revenues were up 8.6 percent.

Asbury’s Monaghan said he wasn’t sure how the CFPB’s regulatory agenda would impact the indirect channel, which he described as becoming more efficient thanks to technologies like e-contracting and lender platforms like those offered by Dealertrack and RouteOne. Whatever the CFPB decides in regards to dealer participation, Monaghan said his operation will be ready.

“Spread and yield is like a balloon in our mind,” he said. “You can push in one place and it’ll expand in another place.”

—     Gregory Arroyo