The first quarter has come and gone, and lenders and dealers alike are still seeing red flags in retail auto, and subsequently, the auto finance market. According to J.D. Power:
We have the wrong supply for current demand.
Vehicle production is not aligned with consumer demand. Manufacturers produced more sedans when buyers were in the market for crossover utility vehicles (CUVs). Because of this, half of all auto brands, and six out of 10 vehicle models lost sales volume in Q1.
Overall supply is much greater than demand.
Dealer inventory closed out Q1 at 4.1 million units, representing an increase of approximately 300,000 units from Q1 of 2016, and a half-million unit increase from 2015. What causes concern here is that analysts depict today’s consumer demand as identical to that of 2015, meaning supply is much greater than demand.
Incentive programs aren’t aligned with demand.
Industry-wide, the average manufacturer incentive for Q1 was $3,900. This comes after closing out 2016 with incentives as high as $4,000 per vehicle. Comparatively, these incentives are even higher than those in 2008/2009, when dealers needed anything possible to close just one sale.
In the midst of all this, loan terms continue to get longer.
Loans terms continue to lengthen, with 72 month terms accounting for 33.9 percent of new-vehicle sales. As you well know, this doesn’t bode well for defaults and delinquencies down the line.
Your Role in Helping Dealers Navigate Industry Trends
With dealers struggling to keep pace with last year’s levels, your institution is probably beginning to see a reduction in loan volume. To that end, what are you doing to help dealers achieve their business goals?
Now, more than ever, it’s important that you think beyond rate and loan term. After all, you want to be competitive and protect your loan portfolio at the same time. Those two goals are already stretched tight with current lending standards.
Consider how your institution helps dealers serve their consumer base, and how you can better act as an extension of the dealership team. Evaluate your institution based on this service model checklist:
- Are lending representatives accessible during dealership hours?
- Do dealers have understandable guidelines on the types of consumers that are eligible for your loans?
- Beyond automatic approvals, what are you doing to speed up turn-around time for loan decisioning?
- Are lending representatives reaching out to dealerships when they receive incomplete applications?
- Do you have a quick and efficient funding process?
- How is your institution making the F&I manager’s job easier, and helping dealers sell more units?
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. If a dealer group knows its F&I managers can rely on your lending institution for availability, communication, and approachability, and if your institution makes it easier for them to sell F&I products, it can be assumed that they will be more inclined to work with you over the competition.
In addition, a strong relationship may provide F&I managers greater opportunity to sell consumer protection products. In fact, some lenders are making this process even easier for F&I managers by adding complimentary products to their loans. Complimentary products should create an opportunity to upsell to more inclusive protection products, driving dealer profitability and ultimately customer retention.
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 more than 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!