Aftermarket product chargebacks cut into dealer F&I profit

Chargebacks related to early cancellations of aftermarket products are squeezing already tight finance and insurance profits for dealers. 

Back-end profits have returned as a key to dealer profitability, but chargebacks from early cancellations are costly and complicated, Shirley Jones, chief financial officer of Car Pros Automotive Group, said during the Jan. 14 Auto Finance News webinar, “Tapping Aftermarket Products to Improve Dealer Relations and Profitability.” 

Watch the full AFN webinar here 

“Back-end revenue has been impacted by F&I cancellations,” Jones said. “We would like to see something happen in the industry where lenders can streamline the process, like standardizing forms to simplify the entire cancellation process.” 

In 2024, dealer profitability tied to front-end margins on vehicle sales dropped 30% but back-end profits rose 3%, according to data provided to Auto Finance News by JM&A Group, which provides finance and insurance (F&I) solutions and consulting services for more than 3,800 dealers. 

Dealers are divided on whether F&I profitability will continue to grow in 2025. 

In fact, only 45% of dealers anticipate F&I will positively impact dealership profitability in 2025, while 7% predict a negative effect, according to a survey conducted from June 2024 to November 2024 of over 635 dealerships by Kerrigan Advisors, a dealership buy/sell advisory firm. 

Chargebacks a challenge 

At El Monte, Calif.-based Car Pros Automotive Group, chargebacks and early cancellations have had “tremendous impact on our profitability throughout all our dealerships,” Jones said in the webinar. 

The dealership group, which consists of nine dealerships in California and Washington, has hired additional staff to help handle the cancellation process. Canceling aftermarket products can be difficult to manage with various players involved, and the need to handle refunds quickly, Jones said. 

“You have the consumer, you have the lenders and you have the dealerships,” she said. “You have all this information that’s coming into your dealerships, and you need to process it timely and maintain customer satisfaction.” 

When refunding a consumer after a chargeback, dealers must prorate refunds correctly and in a timely manner, or it can be even more costly for the dealer, Jones said. 

‘Wild West’ 

Among the challenges for dealerships handling cancellations is that products can be cancelled in various ways, such as a refinanced loan, Scott Kunes, chief operating officer of Kunes Auto Group, said during the webinar. 

“It’s the wild west out there,” he said. “You never know where the cancellation is going to be coming from. Are they canceling with the lender? Or are they refinancing and canceling and that lender is then canceling the product? Is it another dealer canceling the product? Is the consumer coming back to the dealership to cancel the product?” 

The Delavan, Wis.-based Kunes dealership group comprises more than 40 dealerships and has hired additional staff to focus on the cancellation process, which has suppressed margins, Kunes said.  

However, by handling the process correctly and matching customers with the loan and products that fit their budget and needs, dealers can maximize profits, he said.  

“We may be less profitable, but if we’re keeping more of that dollar. That’s a plus.” 

Affordability remains a concern 

Persistent affordability concerns among consumers have also hindered dealers’ ability to grow F&I profits, which may be leading to tempered optimism in 2025, Erin Kerrigan, founder and managing director of Kerrigan Advisors, told AFN. 

One of those challenges is negative equity. 

In 2024, 24.9% of trade-ins for new-car purchases had negative equity, up from 20.4% in 2023, according to a Jan.16 Edmunds report. Additionally, 24.6% of borrowers with negative equity owed more than $10,000 on their old car loans, an increase of 2.4 percentage points from the same period in 2023. 

“The consumer is stretched; there’s not much room to sell them any more products. That’s driving some of the negativity,” Kerrigan said. “There’s only so much room for [dealers] to squeeze in more products into a sale that’s already stretching the consumer.” 

Despite facing several challenges in 2025, dealers have significant opportunities to grow their F&I profits. A rise in negative equity creates a stronger demand for Guaranteed Asset Protection (GAP) insurance, Jonathan Jordan, director of performance development services at JM&A Group, told AFN.  

“Negative equity is driving the amount financed up, which can create more finance reserve for dealers,” he said.  

“It also is a great opportunity to sell GAP because there’s awareness from the consumer when they’re rolling over negative equity into another vehicle that GAP is a need and that they need some protection if something were to happen to that vehicle.” 

Auto Finance Summit East 2025 is set for May 12-14 at the JW Marriott Nashville featuring fireside chats with Santander Consumer USA and Chase Auto. Visit autofinance.live for more information. Click here to register for the event.