First published in GoAutoNews on 21st January 2025
Finance and Insurance has always been a key underlying driver of dealer profit. But in 2025 challenges will be encountered as retail demand wanes, finance companies tighten acceptance and many look towards rate driven retail programs to address increasing inventories.
It is important to consider as you plan your sales strategies for 2025 that many customers wanting to purchase will face an inflated changeover due to prices paid during times of short supply and the recent softening of used car prices.
In short, a percentage of your customer base will not be able (or willing) to re-finance that next vehicle at this point.
This is due to Australia’s level of debt to income being among the highest in the world (top 4 currently) meaning interest rate movements dramatically impact disposable income and sectors such as the auto industry are impacted.
In 1990, Australians had $69 of debt per $100 of after-tax household income but at the end of 2024 was approaching $200, effectively three times as much exposure to interest rates.
Housing prices play a part in this figure, but the motor industry has been a beneficiary as interest rates have remained fundamentally low for a decade and the property price growth fuelled consumer confidence.
But this has changed dramatically in the past two years.
To fully appreciate the impact debt is having on the average consumer consider that in March quarter 2022 the average household spent 5.2 per cent of disposable income on interest payments related to borrowings. By the end of 2024 this has risen beyond 15 per cent; there goes both consumer confidence and discretionary spending.
A family with a combined $3,000 a week net income now spends $450 a week on interest on borrowings; up from $150 in 2022. Now add increased cost-of-living and this comfortable household will be unlikely to be in the market to finance a new vehicle anytime soon.
Even a small reduction in demand and growing inventory will wipe out the healthiest bottom lines thus exposing the profit volatility of many dealerships; as we have witnessed recently.
So, what’s this mean for Dealers Finance and Insurance profit centre?
Five non-negotiables for F&I in 2025:
- Every internet, email and phone enquiry to be handled by F&I first ensuring 100 per cent introduction across new and used and improved lead transparency.
- Every offer must be accompanied by an F&I quote regardless of payment intention.
“At ABC motors all our pricing includes a financing (GFV) option so our customers can make a fully informed decision on the vehicle and the best way for them to own it”. - Make F&I equity-driven mining a weekly activity with sales managers and business managers required to contact a set number of prospects within set parameters each week. Equity mining moves from a “nice to do” activity to a “not negotiable process” with prospecting targets set and driven.
- Business managers are to send new and used sales appointments a professional video of them explaining the benefits of key products such as GFV before they arrive. This can also be sent by the salesperson before an appointment along with a personalised video on the vehicle the customer is coming in to test drive.
- Business managers must not handle more than 50 retail opportunities per month. They should focus more time on equity mining and joint follow up activity with the sales team.
(Source August 29 2024 IBIS World – Australia Business Environment Profile)
