Just to point out what the backend means to dealers. Here’s a list of publicly owned dealerships that list their F&I numbers. This is per vehicle retailed which may mean different things at different dealers. It should mean every car that is sold except for Fleet & Government which are accounted for separately. Some dealers may only include vehicles that were financed which would make these numbers higher. Either way there’s no doubt that the F&I end of the dealership while being a small part of their revenue is a large part of their gross profits.
One other thing not in these numbers are charged backs. For example you come in trying to negotiate the price of your vehicle by saying I’ll pay cash. Yes it means nothing and they talk you into financing by offering you something. In 30 or 60 days you payoff your loan. No charges to you to do that. But the bank or finance company will charge back the dealership. It’s a very common occurrence.
Would Upstart get charged back in the same scenario?
(Sorry trouble formatting) The First column is Q3 2021 Second Q3 2020 Third % change
Avg. F&I gross profit per vehicle retailed $2,573 $2,156 19%
F&I % of revenue 5.50% 5.20%
F&I % of gross profit 27% 28%
Avg. F&I gross profit per vehicle retailed $2,152 $1,723 25%
F&I % of revenue 4.30% 4%
F&I % of gross profit 24% 25%
Group 1 Automotive
Avg. F&I gross profit per vehicle retailed $2,268 $2,035 11%
F&I % of revenue 4.90% 5%
F&I % of gross profit 24% 27%
Asbury Automotive Group
Avg. F&I gross profit per vehicle retailed $1,955 $1,800 8.60%
F&I % of revenue 4.50% 4.40%
F&I % of gross profit 22% 24%
Avg. F&I gross profit per vehicle retailed $2,009 $1,647 22%
F&I % of revenue 4.80% 4.40%
F&I % of gross profit 24% 30%
Penske Automotive Group
Avg. F&I gross profit per vehicle retailed $1,771 $1,418 25%
F&I % of revenue 3.60% 3.30%
F&I % of gross profit 20% 21%
The entire industry is changing and dealers understand that. The financing of a vehicle used to always take place in the F&I office after you found a car and agreed on a price. That is changing quickly.
-A new J.D. Power survey of 10,462 people with recent auto loans or leases found that 45 percent of customers do some research online prior to buying a vehicle. Among Generation Z, defined as those born between 1995 and 2004, that proportion rises to 62 percent.
-Sixty percent of consumers who shop online for auto finance apply for preapproval, according to the 2021 J.D. Power U.S. Consumer Financing Satisfaction Study.
My take on what this all means for Prodigy and Upstart.
-Todays market is a nominally because of the chip shortages and few other factors affecting supplies. Dealers understand this and know it’s a short term thing. Of course dealers want tools to help them attract customers, sell more vehicles and maximize profits. They know the profit margins of today are a very short term thing.
- They may take the marginal credit score customer and give them a much better vehicle for their money. For example someone with a 685 fico score. Current software and financing may get them approved but for $20,000 with $5000 down payment. It limits what the dealer can sell them to something used if they have it stock and if the customer can come up with the down payment. UPST may approve them for $26,000 and only $2500 down. The customer needs less cash out of pocket and can now get a brand new vehicle. It’s a win win for everyone the customer is more happy and more likely to return in the future.
-I agree with Rob that the used car market is right up their alley. I think their chances of landing a huge mega used car dealership is very good. They seem to be marketing themselves to the big mega dealers before the small corner guy. Dave Girouard said in a statement. “Upstart Auto Retail will provide millions of consumers with a car buying experience worthy of 2021, including that all-important financing step.” MILLIONS of consumers and CAR BUYING EXPERIENCE it’s sounds like so much more than just financing a car.
-Upstart entered the space starting with refinancing last year. Soon those customers will need to replace their vehicles. If they had a good experience they are likely to start their search with Upstart.
-Even though there are over 18,000 new dealerships across the country it’s still a small close group. Dealer principals get together with others on a regular basis and talk about what works and what doesn’t work. If Prodigy is something different and solves a problem for them others will be quick to jump onboard.