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Mark Rappaport President Simplicity Division EFG Companies

Contributing Author:
Mark Rappaport
Simplicity Division
EFG Companies

Q4 2017 has finally arrived. Are you on track to meet your auto loan volume projections?

Vehicle sales numbers are flowing in and so far it looks like the projections for a flat market have panned out, even with the upsurge in sales in flood-damaged areas. The Federal Reserve raised interest rates twice this year, and expects to raise them once again in December. Credit Union auto loan market share saw an 8.5 percent increase in Q2, according to Experian. Consumer spending grew marginally in Q3, by 1.5 percent, while consumer confidence decreased in September.

All signs point to more of the same in the coming months. Unit sales will still eke out at around the same volume as last year. The combination of raising interest rates and lackluster consumer confidence will create an atmosphere where consumers are more hesitant to make those big-ticket purchases.

In auto lending, this means increased competition for the available supply of consumers in the market for a vehicle. As you take the time in Q4 to prepare for 2018, it’s important to evaluate how to differentiate your institution with both dealers and consumers.

Evaluate your value proposition through the optics of building a relationship:

  • Do you instill the value of providing superior service across your institution?
  • Are your dealer partners well versed in how you fund and your funding requirements?
  • How quickly does your institution respond to an application?

One of the primary concerns for every dealer, especially during the holiday shopping season, is keeping their Contracts in Transit (CIT) numbers low. If they have too many contracts in limbo, it turns into an issue that could result in lost sales. One of the main reasons contracts stay in limbo is because the contract is missing a piece of required information. There are two things your institution can do to help dealers maintain low CIT numbers.

  1. Ensure the dealer understands all that is required to submit a contract to your institution. This includes documentation, consumer credit score, and, in general, contracts in which you specialize.
  2. When you receive a contract that is missing a piece of information, contact the dealer, rather than waiting for them to contact you. While it may be tempting to say, “that’s not my responsibility,” it actually is if you want to increase loan volume and build a solid long-term relationship with a dealer.

You’d be surprised by how simply focusing on providing superior service to dealers both establishes and increases relationships.

To further enhance your value proposition, ask the question, “How can I position my loans as a solution for current dealer challenges?”

For the next few months, dealers operating in Southeast Texas, Florida, and Puerto Rico will be struggling to provide vehicle financing for a larger group of displaced consumers who may have recently lost their source of employment and even housing in the aftermath of Hurricanes Harvey, Irma, and Maria. In addition, dealers everywhere will feel the effects of the December interest rate hike.

Aside from re-evaluating your lending criteria, one of the best ways to help dealers address these issues is by structuring your loans with complimentary consumer protection products, like a vehicle service contract (VSC) or vehicle return protection.

Complimentary products such as these help alleviate some of those consumer concerns about purchasing a vehicle. Vehicle Return Protection enables them to return their vehicle without damaging their credit if unforeseen circumstances arise causing them to lose their source of employment. With VSCs, consumers saddled with a $1000 repair bill only pay a small deductible without damaging their monthly budget, enabling them to keep their vehicle on the road and make their monthly auto loan payment.

Structuring these products into your loans can help you re-evaluate your lending and risk criteria, making it possible to help dealers provide auto loans to those consumers who traditionally fall outside your lending parameters. This also helps make your auto loans more appealing to both dealers and consumers, by providing value outside of interest rate alone.

Loans with complimentary consumer protection products make it easier for F&I managers to familiarize consumers with the benefits of the product and position the upsell as just another way to extend those benefits, increasing dealership PRU. In addition, these products have the potential to help dealers increase customer retention and referrals, by helping consumers preserve their vehicle’s value and stay current on payments. This turns your institution from just another possibility to a point of differentiation for the dealership.

With more than 40 years of experience in retail automotive, EFG Companies knows how to position your institution as a strategic partner within the dealership space. Contact us today to put our in-depth knowledge of dealership operations to work to make you a preferred lender for all your dealer clients and beyond.

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