More F&I Mergers to Start 2023 - Good or Bad Thing for the Market?

With the New Year comes a new round of mergers & acquisitions. Everyone is looking to increase their footprint even as economists are saying we’re either in a recession or about to enter one (depending on who you ask). 

‍

Smaller F&I administrators/agencies are being gobbled up at a rather alarming rate by larger companies, some of whom have been working this strategy for years. Some do it for a bigger geographic range of dealers to work with in other parts of the country where they may not have a presence. Others just simply want to get as big as they can to increase market share driven by the demands of private equity partners.

‍

The latest in this F&I provider merry-go-round is APCO buying out National Auto Care at the end of 2022. The interesting thing about this deal is that National Auto Care had already acquired 15 smaller providers and agencies over the years before being bought by APCO.

‍

All of this sounds like an innocent exercise in capitalism and on the surface, it is. But there is a ripple effect in the industry when you set up a landscape of a handful of larger players driven by private equity cash.

‍

Over just the last three years alone, the automotive aftermarket has also been shaken up by several major acquisitions of F&I administrators backed by private equity firms. 

‍

Is This Really Bad for Business?

F&I agents and smaller administrators rely on being able to hold a certain cost for their products and services. If you have a private equity firm come in with their promises of increased sales reach and back-end support, it can come at a price, sometimes a big one.

Increased pressure is being put on these acquired companies to turn a profit sooner and the way they force that initially is to have the costs to the dealer increase. 

Now the VSC, GAP, and other ancillaries ALL increase in cost. It gets passed on through the agents and now the dealer has to compensate for the higher cost with higher prices passed on to the customer. 

Prices go up. Margins get slim. Dealers lose profits. Agents lose money.

Fewer Choices Isn’t Better

Let’s talk about that last point…

‍

Acquisitions can also result in fewer agents in the F&I channel. Those agents who have built their business through years of cultivating relationships with local dealers could be looking at either selling their book to a larger company as a result of private equity deals. 

‍

With fewer providers to work with, agents will get crowded out and as they grow, so does the pressure to NOT work with agents but to shift the focus to a direct relationship between dealer and provider.

‍

As some of these providers grow, there is no guarantee that the experience for either dealer or customer will be better. Many of the smaller F&I providers could hang their hat on having an outstanding customer experience for claims and administration simply because they knew their business depended on it.

‍

Larger providers can take the hit knowing that the sheer volume of products sold can make any bad experiences less of a factor.

What’s the Answer?

‍

For dealerships, the answer is simple. Intentionally work with an F&I administrator that is NOT for sale to private equity. A company that values the relationships established with agents across the country and has the full service support your F&I department needs to be as successful as possible.

‍

But more importantly, work with a company that doesn’t have to increase back-end costs of products and services to satisfy private equity requirements. 

‍

It’s not about being the cheapest solutions in the market for your F&I products...it’s about being committed to doing business the old fashioned way. Growing relationships with dealers big and small. Stable back-end pricing that helps your dealership profits grow year after year. 

‍

truWarranty has been this ‘not-for-sale’ F&I provider since 2008, quietly building the most comprehensive menu of products and DOWC solutions for dealers that are tired of their providers being absorbed into another…and another. 

‍

One provider buys 10 smaller companies only to be gobbled up themselves a year later. That’s the reality in the market right now. 

‍

Click here to learn more about how truWarranty can be that steady partner for your store in uncertain times. We’re not going anywhere and we’re not for sale. We’re here for you.