The United Auto Workers strike at a few U.S. manufacturing plants has consumed the daily news cycle over the past few weeks. While new vehicle inventory has largely recovered from the pandemic-induced supply chain issues, dealer principals are closely watching how events unfold before adjusting year-end plans.
As dealers face an uncertain 4th quarter, consumers are also casting a sideways glance at their economic future. According to the Experian State of the Automotive Finance Market Q2 2023 report, auto loan delinquencies rose past pre-COVID levels and new vehicle values continued to climb while LTV decreased. While the Federal Reserve held interest rates steady this month – for the second time this year – rates remained at a range of 5.25 percent to 5.5 percent, the highest level since 2001. But auto lenders continue to take their pound of flesh as the average auto loan interest rates across all credit profiles ranged from 5.18 percent to 14.08 percent for new cars and 6.79 percent to 21.32 percent for used cars.
Americans owe $1.56 trillion in auto loan debt, according to the Federal Reserve Bank of New York, accounting for 9.2 percent of American consumer debt. The average payment for new vehicles was a record-high $742 in the second quarter of 2023, with loan terms up to 74 months, according to Experian. Think about paying $742 every month for the next five years on possibly two vehicles. A lot can happen during that time, including layoffs, unexpected repairs, theft, accidents, etc.
While it might be easy to use overall high car prices as the proverbial scape goat for today’s record loan amounts, payments, and terms, the true picture is much more complicated. Buyers who over-paid for a vehicle during the short-supply pandemic years now find their original loan amount remains much higher than the decreasing value of that car. This means, people are returning to dealerships in a negative equity position and lenders are loathe to take on the negative equity, seeing it as another risk of default. What steps can dealers take to support their customers while continuing to move units?
EFG’s Regional Vice President of Agency Services, Ryan Musgrove spoke with the EFG training team in the most recent episode of the F&I Talk Outside the Box Podcast to answer that very question. Their overarching message was simple. Make sure your team is practicing consultative selling!
Selling the customer – not the car!
Your team is incentivized to sell vehicles. But do not fall into the trap of selling the wrong vehicle and risk a potential negative equity situation when your customer can no longer afford the payments. Having an up-front discussion about their financial position early in the selling process can avoid a bad situation in the future.
Having the right group of lender partners can also prove beneficial when matching the right vehicle to the buyer. First-time buyers or thin-file clients may need alternative methods of financing to get the right deal. Forcing every buyer into the same lending model is never a good idea.
And do not forget to include vehicle and debt protection products. These tools are invaluable when it comes to keeping the unit on the road and protecting all parties in the event of unanticipated challenges including vehicle breakdown, total loss, or even unemployment.
As you approach this critical fourth quarter, make sure your team is well prepared to sell – not just take the order. Our proven team of EFG trainers bring years of sales experience to your team. At EFG Companies, we are more than an F&I provider, we are your business partner with years of expertise in the retail automotive industry. Contact us today to learn more about how our team can help you achieve your winning strategy.