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New-vehicle production and sales are important to the U.S. economy. Vehicle dealerships are the primary intermediary between consumers and manufacturers in the new-vehicle supply chain. From 2007 to 2009, these dealerships, facing declining profits from vehicle sales, adjusted their business models to increase revenues from other lines of business, especially finance and insurance (F&I). The automotive market started to change during the 2007–09 Great Recession, when profit margins on new-vehicle sales began declining. Subsequently, dealerships expanded offerings of financial products to offset reduced profit margins in vehicle sales. The volume of these services steadily increased, reaching record levels by the end of 2019. The changes in the automotive sector are reflected in U.S. Bureau of Labor Statistics (BLS) price indexes. Using these indexes, this article describes the competitive challenges in the automotive sector that resulted in changes in automotive dealerships’ profit-maximizing strategies from 2007 through 2019.
BLS publishes several producer price indexes (PPIs) that track monthly price changes of services provided by vehicle dealerships. As part of the retail trade sector, these services have price indexes that primarily reflect margin prices (i.e., the difference or spread between the selling price and the acquisition price of a good). The overall industry PPI for new-car dealers measures the change in prices for all goods sold and other services performed by dealerships. Within the overall industry index, the more specific PPI for new-vehicle sales tracks the retail selling prices received by dealerships for new cars and trucks (regardless of whether the vehicles were manufactured in the United States or imported) less their acquisition prices. Other services price indexes that constitute the PPI for new-car dealers include the indexes for used-vehicle sales, service labor and parts, and other receipts. The latter index tracks the retail markup of other services performed by dealerships, including the sale of financial products.1
Because PPIs for trade services are based on acquisition and sales prices, goods price indexes—such as consumer price indexes (CPIs) and PPIs for the output of domestic manufacturing industries—complement service margin indexes in retail service trade. For example, in the case of the PPI for new-vehicle sales, the acquisition price of new vehicles is similar to the price underlying the PPI for domestic motor vehicles manufacturing, and the retail selling price of new vehicles is similar in definition to the price underlying the CPI for new cars and trucks, which may include domestically produced and imported vehicles.2 The difference between these two prices is the gross-margin price, which reflects the value added by the establishment for services such as marketing, storing, displaying goods, and making the goods easily available for customers to purchase—this is the margin captured by the PPI for new-vehicle sales.
Applying this analysis to the data presented in chart 1 reveals that the trends in the PPI for motor vehicles and the CPI for new cars and trucks are reflected in the movements of the margin PPI for new-vehicle sales.3 An increase in the prices received by vehicle manufacturers without commensurate increases in consumer prices results in lower new-vehicle margins, whereas an increase in consumer prices without a commensurate increase in producer manufacturing prices results in an increase in the margin on new vehicles realized by dealerships.
A further illustration of the relationship between the PPI for motor vehicles and the CPI for new cars and trucks comes from the estimated margin index in chart 1, which plots the residuals of an ordinary least squares regression of the CPI for new cars and trucks on the PPI for motor vehicles. The regression is estimated as
In the regression, and capture the average difference between the two indexes over period t, a difference reflecting the average markup of car dealers. The residual of this regression, , represents deviations of dealer markups from this average. A positive residual indicates that dealer margins have risen, whereas a negative residual indicates that margins have fallen. A plot of this residual (the estimated margin index in chart 1) closely mirrors the margin PPI for new-vehicle sales, indicating that the three indexes are internally consistent.
The 5-year period over which vehicle prices experienced large fluctuations illustrates these implicit relationships. Both the CPI for new cars and trucks and the PPI for new-vehicle sales fell from January 2007 to January 2009, and prices recovered in subsequent years. The PPI for motor vehicles steadily outpaced the CPI for new cars and trucks. The gap between manufacturer and consumer prices was indicative of higher production costs relative to sales prices and is reflected in the decline of the margin PPI for new-vehicle sales and mirrored by the estimated margin index. The decline in the margin PPI for new-vehicle sales represents price changes that dealers do not fully pass through from producers to consumers. The jump in the PPI for motor vehicles in October 2008, at a time when consumer prices dipped, is reflected in a steep decline in the margin PPI for new-vehicle sales and the estimated margin index. Subsequently, consumer prices for new vehicles rose and manufacturing prices flattened out. The shift in these trends reversed the steep decline in the margin PPI for new-vehicle sales and the estimated margin index, although fluctuations persisted throughout the period.
Price transmission is the process by which price changes in one part of a supply chain are passed through to intermediaries and final consumers. In the automotive sector, market imperfections such as oligopoly, information barriers, irrationality, and financial liquidity constraints can cause asymmetrical, delayed, and incomplete price transmission.4 Price transmission in the sector is dependent on two markets—the manufacturer–dealer market (the manufacturer can be either foreign or domestic) and the dealer–consumer market. Different conditions in the two markets can cause fluctuations in profit margins for dealerships.
In the automotive sector, manufacturers and dealers are interdependent. Manufacturers hold relatively greater market power than dealerships. For example, when a manufacturer—the supplier—raises the price paid by a dealership for a vehicle, the dealership cannot switch to another manufacturer. The dealership may or may not be able to pass the higher manufacturer price to the consumer. If consumers are unwilling to buy higher priced cars, the dealership—as the intermediary—incurs a reduced profit margin. Chart 1 shows the price transmission mechanism in both markets through the PPI for new-vehicle sales and the estimated margin index. The steep decline in the margin for new vehicles precipitated a major change in the business model for dealerships.
Dealerships selling new cars and trucks are the primary intermediary between consumers and manufacturers in the automotive supply chain and thus are a crucial component in the supply chain through which prices are transmitted. During the period analyzed here, dealerships had little flexibility in setting the price of vehicles, given their intermediary role between manufacturers who were raising prices and consumers whose purchasing behavior was highly sensitive to income and prices.5 After the Great Recession, this constraint compressed profit margins for dealerships. However, by adding ancillary services (such as service contracts and insurance) to new-vehicle sales, dealerships actively innovated to expand their value proposition.
Besides managing inventory and selling vehicles to consumers, dealerships opted for vertical and horizontal integration, expanding their offerings of ancillary products and services alongside vehicle sales. These product and service innovations, previously offered by banks, insurance companies, manufacturers, and independent repair shops, provided more options to consumers and affected consumer purchasing behavior. Accordingly, the innovations merit consideration when analyzing the price dynamics of services offered at dealerships.6
This section presents the changes in prices for new-vehicle goods and services over the business cycle beginning in 2007, describes how falling margins for vehicle sales contributed to changes in dealerships’ business models, and analyzes price indexes to describe the impetus for these changes. BLS price indexes are complemented with annual reports from publicly traded dealerships to explain how the financial services offered by these dealerships buoyed their profits.
Because the automotive industry tracks business cycles, the analysis period starts in 2007, close to the industry peak before the recession, and ends in 2019. As seen in chart 2, there were two noteworthy changes to retail margins for new-vehicle sales over this period—a precipitous drop that occurred during the recession of 2008 and a steady decline from 2012 through 2019. The decline in later years coincides with diverging trends in the producer and consumer manufacturing price indexes for vehicles. In both periods, the commodity indexes and the margin PPI for new-vehicle sales reveal the same phenomenon—prices dealerships paid for vehicles were increasing at a higher rate than prices paid by consumers. Examining the factors that precipitated both changes will illustrate, in the sections that follow, the dealerships’ competitive environment and market challenges that contributed to innovations over the 2007–19 period, up until the coronavirus disease 2019 (COVID-19) pandemic. As manufacturers used their market power to pass price increases onto dealerships, the latter generated new revenues from the expanded sale of finance and insurance products, in lieu of passing vehicle price increases to consumers.
During the Great Recession, dealerships’ margins for new-vehicle sales dropped suddenly because producer prices rose abruptly while prices consumers paid for vehicles declined. U.S. producer manufacturing prices increased rapidly for high-fixed-cost firms with tight financial conditions, and the situation for vehicle manufacturers was no different.7 To remain solvent and cover their rigid cost structures and interest payments, these manufacturing firms increased producer prices during the recession. Retailers—dealerships, in the case of automobiles—had no option but to accept the price increases given their interdependence with manufacturers. But falling consumer demand during the recession left dealerships unable to pass high prices to cash-strapped and indebted consumers. Producer manufacturing and consumer prices diverged, leaving dealerships caught in the middle, with shrinking margins.
The trend of shrinking margins is apparent in chart 2. From 2007 to mid-2009, the margin PPI for new-vehicle sales dropped precipitously. Then, consumer prices increased in the last half of 2009 while producer manufacturing prices remained flat, with the PPI for new-vehicle sales recovering in the beginning of 2010. The PPI for new-vehicle sales dipped again later in 2010, as weak consumer demand and inventory buildup contributed to low dealership margins. The quick drop in dealerships’ margins at the beginning of the recession illustrates how vehicle manufacturer costs were pushed through to dealerships, regardless of the dealerships’ ability to push them onto consumers.
After the volatility coinciding with the recession and other external factors, the PPI for new-vehicle sales and the CPI for new cars and trucks diverged once again. From January 2012 to December 2019, producer manufacturing prices for vehicles increased 9.6 percent while consumer prices increased only 2.2 percent. As producer prices steadily outpaced consumer prices, the margin PPI for new-vehicle sales fell 34.7 percent over the 8-year period.
Financial data on profit margins reported to the U.S. Securities and Exchange Commission (SEC) by publicly traded dealerships in the United States corroborate the historic trends in the PPI for new-vehicle sales. Chart 3 shows annual vehicle margin indexes from the five largest publicly traded dealerships in the United States. These indexes declined rapidly during the period in which the PPI for new-vehicle sales decreased.8 The SEC accounting data show volatility within a small range during the recession and shortly after—from 2007 to 2011—followed by a rapid decline thereafter.9 The average new-vehicle margin based on SEC data declined 25.6 percent from 2007 through 2019, mirroring the 34.3-percent decline posted by the PPI for new-vehicle sales over the same period. The margin on a new-vehicle sale for the publicly traded companies in 2019 averaged 5.2 percent, with one company’s margin reported as low as 4.1 percent.
Facing low consumer prices and higher producer prices in the immediate aftermath of the Great Recession, dealerships sustained profitability by offsetting declining new-vehicle margins with increased profits on the sale of add-on ancillary goods and services.10 New profit opportunities were sought because vehicle sales cratered and tight credit conditions stunted traditional financial profit sources such as interest rate markups. Many dealerships created new ancillary finance and insurance (F&I) products and found ways to market existing products more effectively. Dealerships enjoyed unprecedented success in selling products ranging from traditional Guaranteed Asset Protection (GAP) insurance and extended warranties to credit cards, credit repair services, and even products like disability and unemployment insurance.11 GAP insurance, purchased by an estimated 37 percent to 50 percent of all consumers, is one of the most popular F&I products, constituting about 26 percent of all F&I sales.12 GAP insurance products can be more prudent for consumers who take out high loan-to-value loans, because these products protect borrowers and lenders when the value of debt owed on a wrecked or traded-in vehicle is higher than the actual value of the vehicle. In addition, point-of-purchase sales emerged as good profit sources, providing immediate profits from fees and commissions and recurring profits in the forms of contracted repairs, deductibles, and premiums. Furthermore, services that were rolled into an auto loan resulted in larger principal and interest payments.
By opening this new product area, dealerships saw their revenues rise continuously from the immediate postrecession period through the end of 2019. As shown in chart 4, the BLS aggregate PPI for new-car dealers increased steadily over this timeframe, despite the decline in the margin prices represented by the PPI for new-vehicle sales. This increase was due to advances in the PPI for other receipts and the PPI for service labor and parts. The PPI for other receipts tracks price changes in the F&I products described above.
From January 2007, when the margin PPI for new-car dealers peaked before the recession, to December 2019, the PPI for other receipts increased 70.8 percent, outpacing the price increase of all other services provided by dealerships. The PPI for service labor and parts increased as well, rising 50.0 percent over the same period. The steady price increase in dealers’ labor and parts sales is largely a function of the number of vehicles sold in previous years. The expansion of F&I sales and the growth of service contracts allowed dealerships to remain profitable and withstand low margins on new vehicles through 2019.
For an overall industry index composed of component indexes, relative-importance values (determined by prices and quantities sold) show the portion of that index attributable to each component index. Examining these values over time shows the change in the composition of the overall index. From December 2008 to December 2019, the relative importances of the indexes composing the PPI for new-car dealers decreased from 27.2 percent to 17.4 percent for vehicle sales, rose from 2.3 percent to 26.1 percent for other services (a category including financial services), and decreased from 70.5 percent to 56.4 percent for service labor and parts. These trends in relative importance provide additional evidence of the shift in industry composition outlined above.
The profit contributions of major business segments of publicly traded dealerships reflect the decline in margins described by BLS price indexes. The expansion of the F&I segment dominated profit growth from 2009 to 2019.13 (See chart 5.) The amount of gross profit attributable to F&I sales for publicly traded dealerships grew by 134.6 percent from 2007 through 2019, making F&I sales the fastest growing profit contributor. Conversely, gross profits from new-vehicle sales decreased by 1.8 percent. This decrease coincided with record growth in the number of vehicles sold; together with falling margins, this trend resulted in decreased profits per vehicle over the 2007–19 period.
Chart 6 illustrates these stark trends of F&I sales overtaking new-vehicle sales as a bigger source of gross profits. From 2012 through 2019, the same period during which the margin PPI for new-vehicle sales declined, F&I profits reported to the SEC either matched or exceeded profits from new-vehicle sales. In 2007, new-vehicle sales constituted 26.6 percent of gross profits, F&I sales constituted 19.9 percent, and parts, labor, and service constituted 40.1 percent. By 2019, these shares were reversed, with new-vehicle sales constituting 15.9 percent of gross profits, F&I sales constituting 28.4 percent, and parts, labor, and service constituting 43.4 percent.14
Chart 6 also shows that gross profits did not return to their 2007 levels until 2012. From that point on, F&I sales accounted for 41.5 percent of growth in gross profits, whereas new-vehicle sales saw their profit contribution stagnate. (See chart 7.) Although parts, labor, and service had the largest percent contribution to gross-profit growth over the 2007–19 period, they also represented the largest segment of dealerships’ business. In other words, F&I sales contributed disproportionately to profit growth over the 12-year period.
Without the disproportionate growth in F&I sales over the 2007–19 period, publicly held dealerships’ net profits would have declined.15 Gross profits generated from all major business segments cover fixed costs and financing costs. Chart 8 presents a hypothetical example highlighting how F&I sales sustained dealership profits over the period. The chart compares annual growth in net profits of five publicly held dealerships (2007 is the relative base year) with an estimate of net profits for which F&I sales are assumed to have remained a constant percentage of new-vehicle sales.16 If F&I sales had held at that constant percentage, net profit for the five publicly traded dealerships would have declined or risen less from 2007 to 2019. Some companies would have experienced net losses.
The recession-related losses sustained in the automotive sector were followed by a persistent and, at the time, unusual pressure on new-vehicle profits. As price takers, dealerships endured the margins squeeze as the automotive sector returned to profitability in 2011. From 2011 to 2019, dealers bolstered their profits by expanding the sale of F&I products and other services.17
The expansion of F&I sales is crucial to understanding the lack of price transmission from producer to consumer prices in the new-vehicle market. The F&I innovations helped dealerships stay in business, because dealerships had neither the bargaining power to negotiate lower vehicle prices with manufacturers nor the consumer demand that would have allowed them to charge higher vehicle prices. Since innovations in services do not factor into a vehicle’s price, they can explain how dealerships withstood the gap between higher and rising prices for new vehicles supplied by manufacturers and new-vehicle prices paid by consumers.
Given the penetration of financial products and GAP insurance in the new-vehicle market, the spread between the CPI for new cars and trucks and the PPI for motor vehicles does not describe the actual consumer expenditure for a new car. The price definition used in the CPI for new cars and trucks refers to the final price of a vehicle paid by a consumer to a dealership and includes taxes and transportation costs, and excludes finance charges. Because GAP insurance and other F&I revenues are not part of a vehicle’s price as measured by the CPI for new cars and trucks, the true economic cost to consumers who purchased these products for a new vehicle likely rose more than that index. With record levels of low- and no-downpayment sales during this period, GAP insurance substituted as underwater-loan protection for consumers and was extremely popular. Thus, part of the difference between the PPI for motor vehicles and the CPI for new cars and trucks is the unaccounted cost to the consumer of additional F&I services, beyond the cost of a new vehicle.
Between the 2007–09 Great Recession and the onset of the COVID-19 pandemic, car and truck dealerships faced an economic shock and compressed profit margins on new-vehicle sales. Many dealerships weathered these challenges by providing more F&I products and continuing to expand other services such as parts and repair. This article uses the industry PPI for new-car dealers to illustrate these changes. This industry index (which separately measures price change for new-car sales, service labor and parts, and other receipts) shows that, from 2007 to 2019, the automotive industry offset declining margins on new-vehicle sales by increasing prices for service labor and parts and for other receipts. Relative-importance values from industry indexes also indicate a shift from vehicle sales toward other activities. Within the industry, the relative importance of vehicle sales decreased from 27.2 percent to 17.4 percent from December 2008 to December 2019, and the relative importance of other services (a category including financial services) rose from 2.3 percent to 26.1 percent over the same period.
The shift in strategy toward the sale of F&I products and services was common for dealerships through 2019, but subsequent events reestablished the dominant market influence of economic shocks. A case in point was the 2021 supply chain disruption affecting the automotive industry, which shifted dealership operations and recalibrated profit maximization.18 In April 2021, the industrial production index for motor vehicles and parts manufacturing declined 70.8 percent.19 Over the same period, the PPI for new-vehicle sales advanced 26.4 percent, the largest monthly increase since the series was first published in December 1999. In other words, acute supply shortfalls coincided with a record increase in dealer margins. Notwithstanding the unique economic climate in 2021, the recent trends indicate dealers needed to innovate to find new areas of profit. The BLS producer and consumer price indexes help tell the story of how those innovations unfolded in response to a changing business environment.
Kevin M. Camp, Michael Havlin, and Sara Stanley, "Automotive dealerships 2007–19: profit-margin compression and product innovation," Monthly Labor Review, U.S. Bureau of Labor Statistics, October 2022, https://doi.org/10.21916/mlr.2022.26
1 For details on the Producer Price Index (PPI) coverage of the retail trade sector, see https://www.bls.gov/ppi/factsheets/ppi-coverage-of-the-retail-trade-sector.htm.
2 The PPI for new-vehicle sales (and all other dealership services) is based on an industry classification system and is not seasonally adjusted. For this price index, we use an industry classification system as opposed to a commodity-based classification system, because the product mix captured by industry classification indexes is closer to that reflected in the Consumer Price Index (CPI) for new cars and trucks and the PPI for motor vehicles (both of which are commodity indexes).
3 In this article, all references to PPIs for motor vehicles refer to manufacturing indexes from a commodity-based classification system; the seasonally adjusted version of these indexes is used. CPIs for vehicles measure the final price for a finished vehicle paid by the consumer to the dealership or other retailer and include taxes and transportation costs; the indexes exclude finance charges. CPI measurement also subtracts any rebates the consumer receives from the price. PPIs for both car and truck manufacturing measure the prices received by manufacturers of domestically produced vehicles sold to retailers and intermediaries. Manufacturers typically sell new vehicles to dealerships, so the price used for the PPI for motor vehicles is the dealer net price, which subtracts taxes, fees, and any incentives or rebates provided to the dealership.
4 Mariano Tappata, “Rockets and feathers: understanding asymmetric pricing,” The RAND Journal of Economics, vol. 40, no. 4, October 2009, pp. 673–687, https://doi.org/10.1111/j.1756-2171.2009.00084.x; Habtu Tadesse Weldegebriel, “Imperfect price transmission: is market power really to blame?” Journal of Agricultural Economics, vol. 55, no. 1, March 2004, pp. 101–114, https://doi.org/10.1111/j.1477-9552.2004.tb00082.x; Sam Peltzman, “Prices rise faster than they fall,” The Journal of Political Economy, vol. 108, no. 3, June 2000, pp. 466–502, https://doi.org/10.1086/262126; and Jochen Meyer and Stephan von Cramon-Taubadel, “Asymmetric price transmission: a survey,” Journal of Agricultural Economics, vol. 55, no. 3, August 2002, pp. 581–611, https://doi.org/10.22004/ag.econ.24822.
5 Patrick S. McCarthy, “Market price and income elasticities of new vehicles demands,” The Review of Economics and Statistics, vol. 78, no. 3, August 1996, pp. 543–547, https://doi.org/10.2307/2109802; and James E. Turley, “Automobile sales in perspective,” Review (Federal Reserve Bank of St. Louis, June 1976), pp. 11–16, https://doi.org/10.20955/r.58.11-16.qgu.
6 D. Selz and S. Klein, “The changing landscape of auto distribution,” Proceedings of the Thirty-First Annual Hawaii International Conference on System Sciences, 1998, http://dx.doi.org/10.1109/HICSS.1998.654820; Wendy E. Dunn and Daniel J. Vine, “Why are inventory-sales ratios at U.S. auto dealerships so high?” Finance and Economics Discussion Series 2016-047 (Board of Governors of the Federal Reserve System, May 2016), http://dx.doi.org/10.17016/FEDS.2016.047; Mark Graban, “Overcapacity and overproduction in the auto industry (and healthcare),” Lean Blog, January 5, 2019, https://www.leanblog.org/2014/05/preventing-overcapacity-and-overproduction-in-the-auto-industry/; and Bertel Schmitt, “The truth about channel stuffing,” The Truth About Cars, March 4, 2013, https://www.thetruthaboutcars.com/2013/03/the-truth-about-channel-stuffing/.
7 Simon Gilchrist, Raphael Schoenle, Jae Sim, and Egon Zakrajšek, “Inflation dynamics during the financial crisis” (Cambridge, MA: National Bureau of Economic Research, November 2016), https://doi.org/10.3386/w22827.
8 Here margins are defined by subtracting the cost of goods sold from total new-car revenue and dividing the result by total new-car revenue. The cost of goods sold is a common accounting term referring to the variable costs associated with selling a particular item. In microeconomics language, this metric is very close to (p × q − AVC × q)/(p × q), where p is price, q is output, and AVC is average variable cost; however, opportunity cost is not considered in financial statements and is considered in the microeconomic concept of AVC.
9 This analysis is of the five largest dealerships that exclusively operate in North America.
10 Jackie Charniga, “Through thick and thin, dependable profits from F&I fight margin compression,” Automotive News, September 19, 2018, https://www.autonews.com/article/20190919/FINANCE_AND_INSURANCE/180919687/through-thick-and-thin-dependable-profits-from-f-i-fight-margin-compression; Charniga, “F&I profit per unit rises at 5 of 6 public dealership groups,” Automotive News, October 31, 2018, https://www.autonews.com/article/20191031/FINANCE_AND_INSURANCE/181039943/f-i-profit-per-unit-rises-at-5-of-6-public-dealership-groups; Hannah Lutz, “AutoNation says F&I profit will hold steady even when new-vehicle sales fall,” Automotive News, August 8, 2018, https://www.autonews.com/article/20190808/FINANCE_AND_INSURANCE/180809781/autonation-says-f-i-profit-will-hold-steady-even-when-new-vehicle-sales-fall; Lutz, “AutoNation posts rise in net income, invests in online retailer Vroom,” Automotive News, October 30, 2018, https://www.autonews.com/article/20191030/RETAIL/181039994/autonation-posts-rise-in-net-income-invests-in-online-retailer-vroom; Lutz, “Don’t turn today’s profit into tomorrow’s chargeback,” Automotive News, November 14, 2018, https://www.autonews.com/article/20191114/BLOG13/181119884/don-t-turn-today-s-profit-into-tomorrow-s-chargeback; Lutz, “Publics see F&I gains in Q3, buoyed by add-on sales,” Automotive News, November 4, 2015, https://www.autonews.com/article/20151104/FINANCE_AND_INSURANCE/311049915/publics-see-f-i-gains-in-q3-buoyed-by-add-on-sales; and Jim Henry, “Dealership gross profits see bigger impact from F&I,” Automotive News, April 15, 2015, https://www.autonews.com/article/20150415/FINANCE_AND_INSURANCE/304159998/dealership-gross-profits-see-bigger-impact-from-f-i.
11 Leslie J. Allen, “F&I bright spots: dent removal, tire repair,” Automotive News, May 4, 2009, https://www.autonews.com/article/20090504/RETAIL02/305049836/f-i-bright-spots-dent-removal-tire-repair; and Lutz, “As CFPB retreats, what’s next for dealer reserve?” Automotive News, February 19, 2018, https://www.autonews.com/article/20190219/FINANCE_AND_INSURANCE/180219770/as-cfpb-retreats-what-s-next-for-dealer-reserve.
12 John W. Van Alst, Carolyn Carter, Marina Levy, and Yael Shavit, “Auto add-ons add up: how dealer discretion drives excessive, arbitrary, and discriminatory pricing” (Boston, MA: National Consumer Law Center, October 2017), https://consumerist.com/consumermediallc.files.wordpress.com/2017/10/report-auto-add-on.pdf.
13 Charniga, “Through thick and thin”; and Charniga, “F&I profit per unit rises.”
14 Company-specific information is from the 10-K forms filed with the U.S. Securities and Exchange Commission (SEC), which are stored in the SEC EDGAR database (https://www.sec.gov/edgar/search/).
15 Net income before taxes is calculated by subtracting fixed costs, depreciation, and interest expenses from total gross profits.
16 Chart 8 truncates the data values at −100 percent despite 2008 values falling below that level, for two reasons. First, having a 2008 data point fully displayed in the chart distorts the visualization and makes the difference between the actual and estimated profits difficult to observe. Second, the level of −100 percent is a meaningful cutoff because any point below it is a net loss. The calculation begins by taking total finance and insurance (F&I) sales for each company in 2007 and dividing each figure by total new-vehicle sales in 2007. Then, to arrive at the estimated counterfactual net profit for each company, the proportion obtained from the previous step is held constant over the 11-year period by multiplying it by new-vehicle sales each year and then subtracting the difference between actual F&I sales and the estimated counterfactual from actual net profits.
17 Charniga, “Through thick and thin”; and Charniga, “F&I profit per unit rises.”
18 Lucia Mutikani, “U.S. manufacturing gains steam; raw material, labor shortages mounting,” Reuters, June 1, 2021, www.reuters.com/world/us/us-manufacturing-sector-picks-up-may-work-backlogs-rising-ism-2021-06-01.
19 “Industrial production: manufacturing: durable goods: motor vehicles and parts (NAICS = 3361-3)” (FRED, Federal Reserve Bank of St. Louis, January 31, 2022), https://fred.stlouisfed.org/series/IPG3361T3S.