Categories
Economy

Will Interest Hikes Impact Dealerships?

Earlier this month, the Federal Reserve increased its interest rate by a quarter of a point, and signaled they planned six more increases throughout the year. In response, banks with large auto loan portfolios raised their prime rates from 3.25 percent to 3.50 percent. The theory behind this is relatively straightforward. By raising the federal funds rate a domino effect takes place, slowing demand for goods and tapping the brakes on inflation. Whether directly or indirectly, a number of borrowing costs for consumers will also rise.

Prices for new and used vehicles have skyrocketed so much in the past year that an increase in interest rates may seem like small potatoes. The average interest rate on new car loans was 4.39 percent in February, relatively flat from a year ago, according to Dealertrack. The average for used vehicles was 7.83 percent in February, down from 8.25 percent. Car buyers taking out loans for a new vehicle borrowed an average of $39,721 in 2021, an increase of over $4,000 from a year earlier, according to Experian. As a result, monthly loan payments hit a record high of $644.

Car loans tend to track against the five-year Treasury, which is influenced by the federal fund rate. But the rate a consumer pays is based on credit history, the type of loan, down payment, type of vehicle and other factors. Those buyers with poor credit could pay more than 20 percent over the prime rate. For a consumer qualifying at the prime rate, a quarter point increase on a $40,000 loan is about $5 a month, or another $300 over the life of a five-year loan. For a buyer at subprime or worse, a quarter point increase could make a significant difference on the type of vehicle, the terms of the loan or even a “no-go” decision to purchase a vehicle.

Categories
Dealership Training F&I

A Revolution is Coming

Contributing Author: John Stephens Executive Vice President EFG Companies
Contributing Author:
John Stephens
Executive Vice President
EFG Companies

Can you remember the last time you walked into a fast food restaurant and they filled your drink order? It was a short few years ago when the restaurants started handing you a cup and you dispensed the ice and your drink of choice.  The shift happened as consumers demanded a better, quicker experience.  Now, order kiosks are being introduced to eliminate further wait time.

While established dealership vendors have built iPad and Docupad platforms to improve the overall customer experience in the transition to F&I, this segment of F&I technology is about to burst with robust competitive offers. Startups are now beginning to appear on the scene with full online financing capabilities. In addition, manufacturers are now investing in online financing technology.

In December of last year, AutoNation launched its first online financing offering, allowing customers to value a trade-in vehicle, determine payments and apply for credit.

In June, CarMax, Inc., the biggest U.S. used car dealer, announced the rollout of a new online financing initiative to help customers pre-qualify for financing before entering the dealership.

In October, Automotive News reported on a dealership in California that was using Express Storefront, an online-buying platform from Roadster that allows shoppers to select a vehicle, get approved for credit, sift through F&I options, and set up vehicle delivery.

Even Equifax is dipping their toe in the online financing product market. This past month, John Giamalvo, the vice president of dealer services at Equifax, spoke at the National Remarketing Conference, discussing his company’s soft-pull tab that allows customers to get a free credit report without affecting their credit. In his presentation, Giamalvo stated that he sees growing evidence that car shoppers are ready to do more of the financing process online.

Also in November, a partnership between Drive Motors, RouteOne and Dealertrack made headlines with a collaboration that resulted in an online checkout feature for dealership websites. The feature allows customers to structure their deal online before finalizing and taking delivery of the vehicle. This creates a 24/7 sales funnel, where customers submit their information at any time of day or night. The information automatically populates into the dealership’s Dealertrack and RouteOne platforms, saving an enormous amount of time in the store.