Contributing Author: John Stephens, Senior Vice President, Dealer Services, EFG Companies
As the nation continues to recover economically, we’ve seen the subprime market steadily expand. The debate rages on whether to slow or halt this expansion before a subprime bubble forms. Be that as it may, more people who experienced hardship over the last few years are returning to dealerships looking to replace their car, or get into a car for the first time.
For dealers, it’s easy to gain distance from the circumstances that drove more people into the subprime space and to only focus on numbers like PRU, penetration, sales volume, etc. But, as you evaluate your dealership’s future, it’s time to step back and take a deeper look at what consumers are dealing with.
Yes, the unemployment rate has dropped, but that does not mean everyone who lost their job in the recession have returned to a comparable position. The most recent report from the Bureau of Labor and Statistics states that 6.6 million Americans are classified as “involuntary part-time workers” – those working part-time jobs due to economic reasons.
Couple that with the student debt crisis facing the United States and the picture of the subprime consumer becomes clearer. As of November last year, average student loan debt approached $30,000 according to the Institute for College Access and Success (TICAS). Since 2008, TICAS estimates average student debt increased by an average of 6 percent year-over-year.
Now, many Americans who once had, or believed in the future of stable, full-time positions can now only find part-time work, or work for much less pay than they previously received or expected. College graduates are still the most underemployed of all age groups. According to U.S. Census data by the Georgetown University Center on Education and Workforce, approximately 40 percent of unemployed workers are Millennials, which is greater than both Generation X and Baby Boomers. In addition, Millennial Branding and PayScale state that 34 percent of millennials who hold a PhD report being underemployed compared to 27 percent of Generation X and 25 percent of Baby Boomers. It’s no wonder with crippling student debt and a lack of well-paying jobs that Millennials still have a negative savings rate.
Why is it important to look at these stats? Because as dealers, your decisions directly impact consumers across all credit tiers. Today’s consumers have graduated from the school of hard knocks, and they’ve repeatedly vocalized that they want to know that someone is looking out for them. The companies who’ve recognized this and adapted their products and services to meet this need have seen significant capital gains.
Many of today’s subprime consumers are essentially good people who’ve fallen on hard times. After they pick themselves back up, they will remember how they were treated when they were struggling – and they will be that much more loyal to the companies who treated them well.
Evaluate how your dealership is working with subprime consumers to provide them a prime shopping experience. Grow your ability to service today’s subprime consumers by training your sales and F&I departments to work together to ask the right questions to get consumers in the right car with the right financing for their needs.
Develop relationships with your subprime lenders and ensure your F&I managers understand which consumer groups fit best with each lender, so they can more effectively pair their customers with the right lender.
Do your utmost to ensure that your subprime consumers’ entire ownership experience is one of dignity and respect. You know these consumers are going through an uncertain time in their lives. That’s why they are subprime. Give them a sense of stability and protect your loans from the risk of default with complimentary consumer protection products like a vehicle service contract or vehicle return.
Products like these can potentially enable subprime consumers to stay current on their auto loan payment when unforeseen circumstances occur, such as a vehicle breakdown. By providing a sense of security from life’s unpredictable nature, you are giving consumers a tangible service of significant value. Beyond directly addressing pressing consumer needs, these products also have the potential to increase your bottom line through the sale of upgrades.
As a dealer, you have the opportunity to increase repeat and referral business, as well as generate an immediate increase in PRU by focusing efforts around taking care of the consumer. Tightening customer service policies and providing consumer protection products have the potential to reap long-term results.
As the innovator behind the award-winning Hyundai Assurance Program, EFG Companies knows how to enable your dealership to reflect today’s consumer needs and capitalize on your efforts. Contact us today to find out how.