It will be an interesting year for F&I. The nimble and flexible dealerships could do well.
As we wrap up 2024, it’s been a year of contradictions for F&I managers — a mix of the predictable and the unexpected, all pointing to one thing: buckle up for 2025. If you thought this year was complicated, next year’s market will demand even more finesse and flexibility.
Let’s not sugarcoat it — affordability stayed stubbornly tight in 2024. Despite some rate cuts, the average auto loan payment hit $740. And with 36.2 weeks of median income still required to buy a new vehicle, it’s clear that affordability isn’t improving in any real way. For F&I, this means customers will remain cautious, making it essential to get creative when structuring deals that can work in this financial landscape.
Looking ahead to 2025, there’s a glimmer of optimism, but it’s wrapped in layers of complexity. Predictions show new car prices could drop 3-5 per cent by late 2025. On the surface, this seems like good news for the buyer, but for F&I departments, it’s actually an opportunity to upsell.
As monthly payments become a bit more manageable, customers might have room to consider extended warranties, gap insurance, and other protections they previously dismissed.
The challenge will be balancing thinner front-end margins with a greater reliance on back-end profits — essentially, F&I managers will need to make the most out of every deal.
The used car market tells a different story. 2024 saw a steady decline in both retail and wholesale prices, and used cars continue to present a unique challenge for F&I.
As prices drop and margins tighten, upselling finance products becomes even more critical. Embedded finance solutions gained traction this year, but they come with their own set of complexities. F&I managers will need to find ways to stand out and offer real value in a landscape where competition is fierce.
Interest rates, as always, are a double-edged sword. While they dipped slightly toward the end of the year, both new and used vehicle loan rates remain high.
The average rate on used car loans hit 13.94 per cent, and that’s not exactly a confidence booster for buyers. Consumers may hesitate on big-ticket purchases, and F&I managers will be the first to feel that shift. Expect longer conversations about loan terms, and don’t be surprised when more customers start negotiating for rate breaks or stretching their payments. How well you handle these discussions will define your success in 2025.
Extended warranties, service contracts, and other value-adds will become crucial differentiators when margins are razor-thin.
The EV revolution continues, but it’s not the only tech game in town. Hybrid vehicles are holding their own, and automakers are pouring resources into hybrid and plug-in hybrid technology.
For F&I offices, this means new opportunities. These vehicles come with new kinds of potential issues — think battery warranties and charging system breakdowns — that open the door for specialized service contracts. As these technologies evolve, so too must your product offerings and the training your team needs to sell them effectively.
One final piece of the puzzle for 2025 will be supply dynamics. While new vehicle supply has stabilized, the used market is still recovering and inventory remains tight.
For F&I managers, this means getting creative with how you structure deals and bundle products. Extended warranties, service contracts, and other value-adds will become crucial differentiators when margins are razor-thin. You may not be able to control inventory levels, but you can control how you respond to these pressures.
All in all, 2025 is shaping up to be a pivotal year. For our business office, staying agile, thinking strategically, and continuously adapting to shifting trends will be the key to success. It won’t be easy, but then again, has it ever been?
The good news is, if you’re ready to pivot with the market, there are plenty of opportunities on the horizon.
References
- Cox Automotive/Moody’s Analytics Vehicle Affordability Index, September 2024. Available at: www.coxautoinc.com/market-insights/september-2024-vai
- CarEdge, “Car Price Predictions for 2025.” Available at: www.caredge.com/guides/car-price-predictions-for-2025
- Cox Automotive Auto Market Report, October 15, 2024. Available at: www.coxautoinc.com/market-insights/september-2024-vai
- KPMG, 24th Global Automotive Executive Survey, January 2024. Available at: assets.kpmg.com/content/dam/kpmgsites/xx/pdf/2024/01/24th-gaes-report.pdf
- Motor Finance Online, “Five Key Trends Transforming Auto Finance in 2024.” Available at: www.motorfinanceonline.com/comment/the-five-key-trends-transforming-auto-finance-in-2024
