Categories
Business Growth

Same Store Results vs New Acquisitions in 2015

Contributing Author: Steve KleesCongratulations! You survived the Recession and are now reaping the benefits of an expanding economy as consumers return to auto lending market. Now that vehicle sales are up, and 2015 is almost upon us, lenders are beginning to re-evaluate how to grow their business and gain market share in 2015.

There are normally three methods employed to grow market share in the lending space:

  1. Loosening credit
  2. Growing existing dealer business
  3. Acquisitions

Loosening credit is the least appealing option all the way around because it increases risk. As far as growing existing dealer business is concerned, it’s important to focus on the basics and build from there.

  • Ensure your lending representatives are accessible during dealership hours.
  • Evaluate your turn-around time on loan decisioning and implement processes to speed it up.
  • Provide understandable guidelines on the types of consumers that are eligible for your loans and continuously train F&I managers on where you fit.
  • Implement a quick and efficient funding process.

Many lenders actually struggle with consistency in these basic areas of working with dealerships. Therefore, by focusing on providing superior service to the F&I managers, you can significantly differentiate your institution and keep your loan top-of-mind.

In addition, further cement your relationship with your current dealer partners by focusing on making the F&I manager’s job easier and helping dealers deliver more cars.

Encourage dealers to consider you as a primary lending source regardless of market rate, by building value into your loan. Consider advancing more to leave room for the dealers to sell cancellable consumer protection products that help drive dealer profitability. In addition, consider building profitability for both your institution and the dealer by providing complimentary F&I products like a vehicle service contract. This further differentiates your loan because it makes the F&I product presentation process easier and has the potential to reduce risk.

Lastly, it is vital to approach acquisitions from the perspective of quality over quantity. You’ve heard the situation where a lender has brought on numerous dealership partners without vetting them to find out that some of those dealerships don’t provide the type or volume of business the lender had in mind.

To acquire quality dealer partners, you need to understand what you want in a perspective dealer partner. First, evaluate the performance analytics of your existing dealership partners across your geographic presence.

  • Are there geographic areas where you have higher loan volume than average?
  • Which dealerships are generating the most loan volume or loan applications?
  • Which geographic areas have lower repossession and loss rates than average?
  • Which dealerships fund the majority of their loans with a reliable customer base as far as making their monthly loan payments?

With these statistics in mind, you can determine which geographic areas to expand within, as well as which types of franchise dealers receive the most business. For example, your analysis could reveal that the majority of your loans in Texas are tied to truck sales, and inform you which manufacturer has a higher market share in the area. Then, if you decide to increase your presence in Texas based upon current success in loan volume vs. loss ratio, you could focus your efforts on dealerships that sell that manufacturer’s trucks, either new, or on their large pre-owned lot.

To fully formulate your target list of potential dealership partners:

  • Ask for referrals from your existing dealership partners in the geographic area.
  • Determine whether the outlying metro areas are being ignored.
  • Analyze where your competitors lie in the dealership space.
    • Are they in every dealership, or only certain franchises?
    • Which dealerships/what type of dealerships offer your competitor’s loans?

Once you know your target acquisitions, it’s important to again demonstrate your focus on providing quality customer service and your ability to help your potential dealer partner increase their footprint in the market.

No matter how you plan to grow your market share, everything revolves around your engagement with your dealer partners. The more engaged you are, and the more quality services and options you provide, the higher the likelihood of bringing on more business. With almost 40 years of experience in the auto retail space, EFG Companies knows how to differentiate your institution and grow loan volume. Contact us today to find out how.

Categories
Economy

Dealing with Delinquency

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

A good portion of Experian’s latest State of the Auto Finance Market Report revolved around alleviating industry concerns that the auto market is looking more like it did right before the Great Recession. If you’ve been paying attention to headlines lately, you know that economists are worried about how quickly the subprime market is expanding and are asking if there will be another bubble to pop.

With those concerns in mind, lenders are especially concerned with the upward trend in auto delinquency. According to Experian’s report, finance companies experienced a 2.6% year-over-year increase in 30-day delinquent loans with a total balance of $6 billion. In addition, the top 10 states with the highest delinquency rates account for 32% of the total amount of delinquent loans.

With strong subprime growth and increasing delinquency levels, smart lenders are looking at how to level out their delinquency rates, or at least protect their loan portfolio from this growing risk. While some would argue that the best way to pad the portfolio is by increasing APR, there is another option that benefits the lender, the dealer and the consumer. That option is the use of complimentary consumer protection products.

With consumer protection products, like a vehicle service contract or vehicle return protection, consumers are protected from the high costs associated with a vehicle breakdown, or from the negative financial repercussions of instances like involuntary job loss. This same consumer protection also protects the loan. How? Consumers can continue to make loan payments if they don’t have to reallocate funds to cover costly mechanical repairs or cover living expenses on an unemployed budget.

Dealerships also benefit by setting up the F&I product presentation with a description of the benefits consumers will receive with their loans. This offers F&I managers an excellent springboard into presenting upgrade options or additional products to further protect the consumer. Your loan will essentially turn the conversation from strictly a sales presentation to a rewarding and productive discussion about the benefits of consumer protection products, and the value the dealership is providing.

Don’t feel like your only course of action to combat delinquency levels is to raise rates. Pair your loans with complimentary consumer protection products. They can help protect your loan portfolio, while also protecting your customers and providing your dealership partners with the ability to make additional F&I income.

With almost 40 years of experience in innovating compelling consumer protection products, EFG Companies knows how to strategically place the right product mix with your loan to achieve greater loan volumes. Find out how today!

Categories
Compliance Government Regulations Reputation Management

Don’t Get Lax With Customer Service

Contributing Author: Brien JoyceGreat News! The auto industry continues to break sales records! According to a report from Urban Science, the average number of sales per dealership in the U.S. is on track to hit an all-time record of 904 units, based on vehicle sales of 16.2 million. As far as subprime growth is concerned, according to CNW Research in July, the auto industry experienced a 25.5 percent year-over-year increase of subprime buyers. And, Edmunds determined that 77 percent of car buyers in the same month financed their vehicle purchase through the selling dealership.

With sales and indirect lending up, both lenders and dealers can be tempted to take a step back and relax. However, a new ground war is brewing around compliance and consumer perceptions.

The Consumer Financial Protection Bureau (CFPB) has continued to focus its efforts on the dealership finance process since fining Ally Financial, earlier this year. Recently, the CFPB fined First Investors Financial Services Group, Inc., which primarily operates in the subprime auto finance segment, $2.75 million for providing inaccurate information to credit reporting agencies. The CFPB and the Federal Trade Commission have also made it easier for consumers to post formal complaints regarding their treatment during the dealership finance process.

In addition, a recent survey of online shoppers by Kelley Blue Book found that:

  • only 14 percent of consumers planned to finance their next vehicle through a dealership;
  • 54 percent believed the interest rate would be higher at the dealership; and,
  • 31 percent didn’t trust the dealer to give them the best deal.

Analyzing the contradictory nature of consumer perceptions versus market statistics can leave you with a head ache, but it’s important to take their considerations seriously. Even though consumer perceptions are not directly affecting their decisions once they get to a dealership, consumers can easily file formal complaints and online reviews after the fact, which can have long-lasting and severe repercussions.

Certainly, the perception issue needs to be definitively addressed as the CFPB continues its campaign against dealer markup, but what does this mean for lenders?

The onus to change consumer perceptions does not lie solely on dealerships. Lenders can also re-evaluate their customer/dealer service to ensure they consistently provide dealers with an indirect lending model that meets consumer demands. Lenders need to ask themselves how they can act as an extension of the dealership:

  • Are my lending representatives accessible during dealership hours, not just bank hours?
  • How quick is my turn-around on loan decisioning, and how can I speed it up?
  • Do I provide understandable guidelines on the types of consumers that are eligible for my loans?
  • Have I implemented a quick and efficient funding process?
  • Is my institution making the F&I manager’s job easier?
  • Am I helping my dealers deliver more cars?

While these are pretty straightforward, you’d be surprised at how many lenders struggle with consistency in these areas. Your availability and active engagement with the dealer is critical. Ensuring that you provide a quick turn-around process and secure enough funds to meet dealer demands will keep your organization competitive and help dealers cultivate a positive brand image.

In addition, providing complimentary consumer protection products, like a vehicle service contract or vehicle return, on your auto loan will directly address consumer concerns about getting the best deal.  Never before have consumers held on to cars as long as they are now. After dealing with significant vehicle repairs, consumers are now shopping for more than just APR. They are looking for the deal that provides the most for their money. With strategic F&I products paired with your loan, consumers will know that their investment is protected should an unforeseen mechanical breakdown or job loss occur.

For instance, with vehicle return, consumers coming out of the recession know they are protected if for example, they lose their source of income. This program allows consumers to return their vehicle to the selling dealership should unforeseen circumstances occur, like involuntary job loss.

Providing complimentary consumer protection products on your loans will also
make the F&I process smoother, allow for dealerships to make money on upgrades,
and protect your loan portfolio from the risk of delinquency or default.

With nearly 40 years of experience in innovating profitable solutions in the dealership space, EFG Companies knows how to differentiate your business and create sustained loan volume. Find out how, today!