Automotive Trends Report

Dealership Performance and Profitability Trends

F&I PVR Finishes Strong in Q3

Average F&I PVR increased over the third quarter. Finishing September with the highest average F&I PVR since Q3 2022.

Our Take: The average transaction price and monthly payment increased again in September to $45,795 and $756, according to JD Power’s U.S. Automotive Forecast for September 2025. Consumers are feeling the pressure as auto insurance remains high, maintenance costs continue to inflate and the effects of tariffs loom. The adoption of F&I products enhances the consumer experience in a time when car ownership can be worrisome, bringing cost stability and convenience so owners can focus on enjoying their vehicle.

Front PVR Begins to Stabilize

After the pre-tariff spike in demand earlier in the year, we saw a 4-month degradation in front PVR, reflective of higher inventory levels and the pressure consumers are facing in price increases. But August saw only a single digit decline and September a modest increase for the first time since April, showing welcome signs of stabilization.

Our Take: With Q4 in full swing, now is a key time to ask yourself: Is your sales staff properly trained to serve as consultants, pairing customers with the right cars that match their budget, lifestyle and long-term goals? Have you reviewed your sales associates' fact-finding processes recently? Proper sales processes are key to improving customer satisfaction and driving profitability at your stores.

F&I PVR and Front PVR Quarterly Results Fluctuate

Q3 Front PVR decreased without the boost in pre-tariff demand, while F&I PVR remains steady and in fact came in ahead quarter-to-quarter and year-over-year.

Our Take: As vehicle prices continue to fluctuate and margins on both new and used inventory tighten, dealerships nationwide are navigating significant profitability challenges. In this environment, the F&I department stands out as a key catalyst of performance, transforming lower margin sales into more profitable transactions. A skilled F&I team plays a critical role in helping dealerships thrive in a high-price market by enhancing customer value and boosting overall profitability.

Vehicle Service Contract Penetration Sees Slight Increase

Vehicle Service Contract penetration remains ahead year-over-year, and in September, we saw a month-to-month increase for the first time since May.

Our Take: Parts and service costs continue to rise, and with the full impact of tariffs still ahead, now is an ideal time for customers to invest in a service contract. It can be a smart way for consumers to help protect against future price increases and maintain control over ownership costs. Likewise, as a dealer, it’s an essential time to partner with a provider that’s preparing your dealership for rising repair costs.

GAP Begins to Recover After Decline

GAP began an upward trajectory after a rolling decline since reaching a peak for the year in June. However, despite a few dips over Q1 and Q3, GAP is still above 2024 results.

Our Take: GAP will continue to be very relevant as prices rise and people are concerned about financing more expensive vehicles. Costs will continue to go up for different reasons and the average products per deal remains up, year-over-year. Underwriting is essential to your business and continuously monitoring reserves and tracking economic forecasts as conditions evolve is just as critical.

Economic Factors Shaping Vehicle Sales

New and Used Vehicle Interest Rates Drop

Interest rates for both new and used vehicles saw a decline by the end of Q3, providing some, though not a major, relief for consumers. Used vehicles saw a steady decline, while new vehicle interest rates minimally fluctuated.

Our Take: Given the ongoing concern around interest rates, it's important to prioritize strategies that enhance customer retention and satisfaction. Focus on promoting products that deliver tangible value to customers, such as protection against unexpected expenses, inflation mitigation, and added convenience and security, rather than emphasizing reserve options, which may carry higher refinancing risks in the future.

New and Used Ratio Remains Stable

Throughout Q3, new and used ratio stayed relatively stable, with minor fluctuations. New vehicles saw a slight rise, most likely due to the EV tax credit ending in September.

NEW/USED DEAL %

Lease Penetration Hits 15% for First Time Since 2021

Cash penetration is slightly down with a steady 23% across Q3 whereas finance deals dropped from 64% to 62% and lease deals rose from 13% to 15%, the highest since May of 2021.

Our Take: The EV tax credit eligibility and loophole encouraged customers to lease their EVs, which likely contributed to an increase in lease penetration in Q3. With an increase in demand leading up to the tax credit elimination, dealers can expect a rise in used EVs in the next few years. Keep reading to learn more about EV fixed ops considerations below.

FINANCE TYPE DEAL PERCENT

Product Income Gains Traction in Q3 2025

Looking at quarterly performance YOY, finance reserve and product income ratio are mostly stable with only a .2% change, favoring product income.

Product Income vs. Finance Reserve

Our Take: As interest rates decline, many owners who signed retail installment agreements at higher rates will be looking to refinance. With a product to reserve income ratio that favors product, dealers can minimize risk of chargebacks while providing a customer experience that promotes retention.

SAAR

The SAAR ended the quarter at 16.4 million, up from a Q2 dip but not as high as March’s peak. We anticipate a steady finish to 2025.

SAAR

Our Take: Consumer affordability and the total tariff impact are concerns headed into 2026, but we should keep in mind that people still want cars. More than seven in 10 consumers are willing to sacrifice other budgetary items to maintain vehicle access, the highest reading in two years. Dealers and manufacturers are going to need to be creative in how they work to address affordability concerns while maximizing profitability by making adjustments through incentives, their sales process and other areas of their business.

Top Trending News

Tariffs Concerns Continue

Manufacturers have been working to absorb the majority of tariff-related increases, helping to shield already price-sensitive consumers. While price increases for 2026 models have been lower than expected, this trend could change. By this time next year, with the release of 2027 models, the market landscape may look quite different. We anticipate further price increases for new vehicles, which will likely drive up prices in the used vehicle market as well.

As Edmunds reports, “the share of buyers committing to monthly payments of $1,000 or more accounted for 19.1% of all financed new-car transactions in Q3, near the record set last quarter at 19.3%. For used vehicles, $1,000+ monthly payments hit a record high of 6.1%, up from 5.6% in Q2.” Consumers may find themselves extending loan terms to 84 or even 96 months to keep payments within their budget. Some have even taken out short-term mortgages for cars.

New in Q4: The administration announced tariff relief for the industry, extending a short-term rebate until 2030.

EV Tax Credit: Impact from Credit Elimination

The industry saw a surge in EV purchases over Q3, with this being the biggest EV sales quarter ever, at 10.5% of all cars sold. Over 438,000 EVs were purchased from July-September, which makes sense as consumers were trying to take advantage of savings before October 1. In Q4 2025, we expect to see a slowdown in EV sales, not a complete stop. Plenty of inventory exists for consumers who prefer a battery-powered motor and manufacturers are continuing to produce these vehicles. However, the question arises: With no incentivization from the government, will OEMs increase their incentives and lower their prices to better reach budget-weary consumers?

We will probably see a slowdown in sales but EVs are here to stay, and consumers will still have questions and interest. Your team still needs to know how to sell to consumers that express interest in these vehicles. On the fixed ops side, evaluate whether your dealership is ready to handle an influx of used EVs and the repairs required for resale. Consider EV specific maintenance such as potential battery expenses and greater wear on tires. EVs require more in-depth diagnostics when issues are present, dealers should assess and establish an EV labor rate separate from their standard labor rate.

Rare Earth Minerals Restriction

China’s expanded restrictions on rare Earth minerals, of which many are sourced from within the country, is set to take effect over November and December and could add to the affordability crisis for consumers. Magnets and other automotive parts rely on these specific minerals, like lithium. Foreign companies would be required to get Chinese government approval to export products containing even trace amounts of certain China-sourced rare earth minerals. Those restrictions could cause delays to production and, depending on costs to manufacturers, added price increases to consumers.

Over the next few months, as both the Chinese and U.S. government meet to de-escalate trade tensions, this will be a space to watch closely.