Lending Curve

Contributing Author:
Brien Joyce
Vice President
EFG Companies

Rapid changes are taking place in the way people buy things. The U.S. is moving toward a subscription-based economy, driving companies to focus less on individual sales, and more on gaining recurring customers. This trend is seen across industries, in companies like Netflix, Blue Apron, Spotify, Amazon, and now BMW, Mercedes, Audi and General Motors. But, how big is this market, and who is signing up for these subscriptions? More importantly, how does this subscription-based economy impact the retail automotive industry and the lenders who support it?

The subscription e-commerce market has grown by more than 100 percent per year over the past five years, with the largest retailers generating more than $2.6B in sales in 2016, up from $57.0M in 2011. E-commerce subscribers are most likely to be 25 to 44 years old, to have incomes from $50,000 to $100,000, and live in urban environments in the Northeastern U.S. Women account for 60 percent of subscriptions. But men are more likely to have three or more active subscriptions suggesting that men value automated purchasing to save time. These numbers track well with the potential prime auto loan customers that lenders crave, and they are reflective of the coveted Millennial consumer base.

There are numerous reasons why Millennials utilize subscription models, but one of the primary reasons is that this generation sees a greater financial benefit in accessibility over ownership. Nearly 60 percent of Millennials would prefer to rent a home than buy one. They are also the leading proponents of the sharing-economy (e.g., Uber) – thanks to their financial position. Aside from record amounts of student debt, Millennials earn on average 20 percent less than Baby Boomers did at the same stage of life, according to the Federal Reserve. This disparity is the driving force for why Millennials did not run out and buy vehicles and homes as soon as they graduated high school and college. Continue reading →

Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

Chatbots. Artificial intelligence. Voice prompts. Phone trees. Digital avatars. Truly, technology is advancing at a rapid pace, especially in the retail automotive lending space. One example is the use of automatic approvals to increase loan volume in the dealership. Will technology sound the death knell to human interaction in the lending office? Or, will it open new ways to engage with a digitally savvy population? Consider the ways technology can impact the human element in auto lending.

Impact on Human Resources

Experts have long predicted technology will someday replace many of the jobs done by humans. However, history has shown that as jobs become more automated, new opportunities open up. Today’s students are encouraged to prepare for technology-based finance and banking jobs like data analysis and computer programming, whereas four decades ago they would have been steered toward a more manual, hands-on position. Technology has also greatly improved worker productivity, increasing the number of daily transactions.

Impact on Customer Outreach

Thanks to social media and the internet, reaching consumers is easier than ever. It is also a great equalizer, enabling even the smallest lender to compete with large, multinational institutions for auto lending business. Using do-it-yourself website tools and social platforms, any lender can engage with target customers, position their offerings, and build relationships. The digital playing field also comes with reduced marketing costs that create parity between large corporate lenders, smaller local institutions and even innovative startups. Continue reading →

Contributing Author:
Brien Joyce
Vice President
EFG Companies

According to The Center for Generational Kinetics, Millennials are now the largest generation in the U.S. workforce, and the fastest-growing generation of customers in the marketplace. Though their numbers are strong, their financial situations are not. While there are certainly exceptions, Millennials are launching their lives later, often strapped with burdensome student loan or other debt, with lower or missing FICO scores, and a history of postponing large financial purchases. Couple these challenges with Millennials’ demand for high tech/low touch encounters and auto lenders have their work cut out for them.

As the Internet has grown up, so have Millennials. This means that as the Internet became more sophisticated, providing immediate access to everything from encyclopedias to fast food delivery, this demographic has become accustomed to immediate gratification through impersonal communication.

In addition, this generation has the greatest level of student loan debt in the country’s history, and it’s rising because wages have been stagnant for several years. According to the Project on Student Debt, 68 percent of 2015 bachelor’s degree recipients graduated with an average student loan debt of $30,100 per borrower. The debt load not only affects the amount of savings they have for purchases and down payments, it also greatly impacts their credit scores.

This is one of the biggest reasons why Millennials have put off the milestones of adulthood. They simply can’t afford to move out of their parents’ homes, buy cars, get married, buy houses, and have children. Saddled with debt yet striving for success, Millennials also face another challenge. According to a PwC survey, only 24 percent of Millennials surveyed could demonstrate basic financial literacy. In another survey of Millennials already saving for retirement, a third said they were “not sure” how their money was invested. Not knowing the nuts and bolts of money matters can hurt Millennials’ personal financial prospects – as well as their ability to successfully negotiate loan terms for a car purchase. Continue reading →

Contributing Author:
Brien Joyce
Vice President
EFG Companies

I admit it. I fell victim to Amazon Prime Day. However, I still stuck to my guns and completed my due diligence for every purchase. For me, that included researching the price on multiple sites, checking out customer reviews and ratings, and reading the small print on the product description.

I’m not alone in my habits. An Ernst & Young study showed that more than two-thirds of customers now spend less than 10 hours to research their vehicle purchase – down from 15 hours in 2016. This same study showed that consumers spend more time online researching a vehicle than any other online purchase!

In fact, a recent Cox Automotive study found that 43 percent of consumers want to apply for financing or pre-qualify for a loan online. Furthermore, the amount of time spent completing a car purchase is the primary complaint for consumers. Less than half of the car-buyers surveyed were satisfied with the length of the car buying process.

How frequently do your customers contact your financial institution to pre-qualify for an auto loan? Have you run the numbers on your conversion rates between website page views, completed applications, and actual loans finalized? How often do consumers “shop” your site for auto loan rates? If you don’t have the answers to these questions, it’s likely you are losing money on your digital footprint. Let’s look at some of the areas you should track and manage. Continue reading →

Lending Curve

Preparing for a Subscription Economy

Don’t Lose Touch

Impact on Human Resources

Impact on Customer Outreach

Closing the Relationship Gap

Get a Jump on that Loan