Tag: consumer protection products

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
Economy F&I

Take the Risk out of Longer Terms

Contributing Author: Brien JoyceAs the auto industry continues to lead the nation in recovering from the Great Recession, we’ve seen credit standards loosen significantly throughout 2013 and 2014. While this has enabled more subprime consumers to get into both new and used vehicles, we’ve also seen the rising trend toward longer terms to keep payments lower.

The latest “State of the Automotive Finance Market” report from Experian paints a pretty interesting picture, where the average subprime consumer finances $27,528 for a new vehicle at a 9.39% APR for 71 months. This equates to a monthly payment of $424.

Think about that for a second: 71 months at $424.

According to that same report, the average auto loan term for new vehicles across all credit tiers reached 66 months for the first time. This is the highest average term since the company began publicly reporting data in 2006.

Clearly, more and more consumers are pushing for longer terms to get into the cars they want, and with longer terms come a higher risk of delinquency or default. Traditionally, lending institutions rely on a managed tiered-rate structure as a buffer against that risk. There are, however, other ways to help mitigate this risk.

Consumer protection products offer material protection against the risk of delinquency or default. Consider, for example, the inevitable event when a subprime consumer making that monthly $424 payment has a vehicle breakdown. It is likely that while they can normally make their monthly loan payment, they will now struggle to pay both the repair bill and their loan. So, they are forced to make a choice: pay for the repair or make their loan payment. They are most likely going to choose the first option, even if that means their credit might take a hit or their vehicle might be repossessed.

Now, if that same consumer had a vehicle service contract on their loan, they could eliminate or at least significantly reduce the cost of their vehicle repairs, allowing them to repair their vehicle and make their monthly loan payment. In addition, by including consumer protection products like a VSC on your loans, you also offer your dealership partners another way to increase revenue through the sale of additional F&I products and upgrades.

As long as terms continue to lengthen, lenders need to fortify themselves to ensure that the risk of default does not outweigh the potential income from their subprime portfolio. By pairing the benefits of consumer protection products with a well-executed rate structure, lenders set their institutions up to materially reduce the risk of default while at the same time, adding value to the loan for both consumers and dealerships.

With over 37 years of experience in innovating agile consumer protection products, EFG Companies knows how to develop the right mix of products and services to mitigate risk while making your loan more attractive to dealers and consumers. Whether it’s complimentary coverage or private-labeled consumer protection products, EFG has a proven track record of working with lenders to develop and implement these revenue-generating programs. Contact us today to find out how.

Categories
Business Growth F&I

Vehicle Dependability is on the Decline! Do You Know How to Leverage this Trend?

Contributing Author: Brien JoyceWith the pent-up demand and looser credit standards, customers have been flocking to dealership lots over the past year and a half. While that trend is expected to continue, dealerships have also seen a much more demanding consumer walk onto their lots. Since the recession, consumers have a tighter hold on their wallet and expect more value for their dollar.

Now, compound their hesitation with the widespread recalls and reports of vehicle failures hitting the news. Not only are customers more concerned with the level of service and value they receive from the dealership, but also with the dependability of available new model inventory.

According to the 2014 U.S. Vehicle Dependability Study from J.D. Power and Associates, for the first time in 15 years, owners of three-year-old vehicles reported more problems than did owners of three-year-old vehicles in the previous year. They attributed this drop in dependability to an increase in engine and transmission problems, particularly on 4 cylinder vehicles.

With vehicle dependability called into question, along with many high profile news stories around the OEMs and recalls, you can bet consumers are going to be even more circumspect when it comes to purchasing their next vehicle. Your dealership partners need a strategy to incentivize potential customers to purchase from them. Keeping in mind that retail sales volume has a significant impact on your loan volumes, think about this statistic from the J.D. Power Automotive Internet Roundtable – today’s car shoppers visit only 1.1 dealerships before making a purchasing decision, which is down from visiting three dealerships just five years ago.

Now think about how many of your dealerships partners are the ones with which consumers choose to do business. Going forward, the best way to keep your share of loan volume is to ensure that your dealership partners successfully sell to this new single-visit customer. But how?

The Answer: Keep it Simple —

  • Be available during dealership hours and not just 9 to 5, Monday through Friday.
  • Provide fast, consistent loan decisions.
  • Be willing to advance on consumer protection products that add value to the loan and take away customer concern.
  • Consider offering complimentary limited warranties that help extinguish customer hesitation.

With vehicle dependability called into question, the ability for your dealership partners to sell vehicle service contracts will be at the forefront of their minds in the coming months. Consumer protection products will not only mitigate customer concern, but also reduce the likelihood of defaults. This is especially important in the subprime space where a vehicle breakdown could cause a consumer to choose between making their monthly payment and repairing their car.

Of course, not all customers have the credit history to afford a loan that takes into account the vehicle cost and the traditional F&I products sold within the dealership. That’s where structuring complimentary limited offerings within your loan can take the lead. This way, the customer still gets coverage on some of the most important parts of their vehicle, your loan is better protected from default, and the dealership has the opportunity to upsell to different coverage levels to increase their profit.

Whether you can structure your loan advance to take the cost of selling F&I products into account, or provide complimentary limited offerings, your loan will stand out and keep you top of mind. Combine this with quality customer service and F&I managers will prefer to sell your loans.

With over 35 years of innovating nimble consumer protection products for dealerships across the U.S., EFG Companies knows how to structure your loan to stand out from the crowd. Contact us today to find out how.