Category: Business Growth

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Business Growth Economy F&I

Are You Prepared for Rising Auto Loan Rates?

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

Last year was a great year for the auto industry mostly because consumers from all credit tiers were able to secure financing for both new and used vehicles. According to the Federal Reserve, auto loan rates for new cars hit their lowest level in the last 40 years. Meanwhile, subprime lenders increased their share of the used vehicle market to nearly 56.7 percent by Q3 of 2013.

However, those low interest rates were paired with longer terms and higher loan-to-value ratios through the first quarter of 2014. Because of this trend, NADA analysts expect subprime lenders to react to the heightened risk of potential default associated with longer terms and begin to raise their rates in the second half of 2014. In other words, the subprime low APR bubble may be bursting.

With a rate increase expected in the latter part of this year, how are you preparing to keep your share of the market?

Lenders always have that drive to compete on rate. But, when you are unsure about the potential for significant rate volatility, how do you manage the impact on your loan volume?

In reality, the F&I manager will often look beyond rate and assess the overall benefit of conducting business and maintaining relationships with particular lending institutions. Here’s a quick self-diagnosis to determine how well insulated your business is to market rate fluctuation:

  • How available are our field reps to our dealers’ F&I Managers and how engaged are they in the dealers’ business?
  • How quickly and efficiently do we provide call-backs on decisions and fund loans for the dealers?
  • Do our loans help or harm the dealers’ ability to sell more vehicles and sell F&I products to increase dealership profit?
  • Are we committed to the automotive market long term?
  • Do we have a solid reputation in the area of customer service?

Your availability and active engagement with the dealer is critical.  Ensuring that your field reps are adding value to the dealer’s operation at every point of contact will keep your organization in a market position where dealers want to conduct business with you, regardless of rate-competitiveness.  Likewise, your paper buyers must provide timely call-backs and show a willingness to put deals together for the dealer.

Strong relationships between your buyers and the dealer’s F&I Manager combined with the efficiency of your loan approval process can keep you at the top of the dealer’s lender list through the peaks and valleys of rate movement.  The same thing goes for underwriting.  Streamlining the underwriting process and ensuring loans are funded efficiently builds equity in your company’s brand with the dealer.  The more equity you build in your brand with the dealers, the more insulated you become in a market with rate volatility.

In addition, the loan itself, in structure and added-value content, can build value in your lending institution, by encouraging the dealer to consider you as a primary lending source—regardless of market rates. Whenever possible, leaving room for the dealer to sell consumer protection products in F&I helps drive dealer profitability and may help mitigate loss for all parties on the loan.   Or, offering a loan that provides complimentary F&I products could be the differentiator that continues to drive loan volume your way.

In a market where your rates will increase and lending criteria may tighten, good lenders will find a way to add value to the dealer’s business, or find themselves becoming secondary sources in the marketplace.  Dealers want to know that a lender is committed to the market. They want partners that will demonstrate staying power through the ups and downs of the sub-prime market conditions.  A lender committed to the dealer’s business will earn his business.

Lastly, it’s important to maintain your reputation with the end customer. Consumers are savvier today than in the past. They actively research the majority of companies with which they choose to do business, including lending institutions. If your institution is known as having poor customer service, it’s likely that customers will jump ship and refinance with someone else the first chance they get. On the other hand, strong customer service tends to keep customers in the loan and willing to utilize your institution for future financing needs

With over 35 years of working hand-in-hand with dealers across the U.S., EFG Companies understands engagement with the F&I professional, the value of solid consumer protection offerings, and the intricacies of reputation management.

Find out how EFG can move your business beyond the APR race, drive value in the market, and increase revenue streams today.

Categories
Business Growth F&I

Looking for a Product Administrator? How are Their Reserves?

Cliff Eller, Executive Vice President, Product CommercializationWith the first quarter behind you, it’s time to evaluate your progress and plan for the rest of the year. As you seek to continually improve your auto lending processes, and determine new avenues of profit, you are probably conducting due diligence in determining whether providing consumer protection products with your loans would benefit your institution. In this process, it’s important to ensure that any product administrator with which you may choose to do business will enhance your credibility with dealerships and consumers. The best way to determine this is to start by looking at their reserves and whether their products are structured to handle any volume of claims no matter the market conditions.

In your review, keep the following questions in mind:

  • Is the product provider backed by an A.M. Best “A” Rated, underwriter?
  • How long have they been with their current underwriter?
  • Do they adequately price their products to manage the reserve to pay claims?
  • How is their customer service in their claims department?

When partnering with a product administrator, you want to be sure that their reserves are adequate in order to ensure that your customer’s claims are handled for the duration of the contract. One of the easiest ways to determine whether a product administrator will benefit your business is to look at their relationship with their underwriter.

First, find out their carrier’s A.M. Best Rating. This rating signifies the company’s financial strength and ability to meet its ongoing insurance contractual obligations. Simply put, if their underwriter is a reputable company that follows through on its obligations, it’s highly probable that your product administrator will as well.

However, that credit rating alone cannot convey the strength of the relationship between the product administrator and the underwriter. If the administrator has a relatively new underwriter, it’s a good idea to look into their history with others. Why did they make the change?

Looking at how long the company has been with their current underwriter or whether they flip from one to another can tell you about the company’s viability in the market. If they can’t maintain a long-term relationship, they may be inadequately reserved, putting the underwriter at greater risk. Looking at the company’s history of underwriters will display a pattern. If they’ve only worked with strong underwriters, their products are probably handled properly. If they can only attract weak underwriters, the chances exist that they could be mishandling the structure and pricing of their products.

Another area to evaluate is their reserve structure. While inexpensive products are attractive initially, that low cost could negatively affect the funds put in reserve to pay claims. Find out how much income from each product sold goes towards paying claims. Ask how many claims are paid each year, and take a look at their Better Business Bureau rating. If the BBB is inundated with consumer complaints about unpaid claims, that could point to a potential claims issue that adversely affects your customer.

One way to determine whether the reserves are handled appropriately is to find out how the underwriter’s actuaries assist in the process of pricing the products. The actuary’s primary role in this process is to protect their company from the negative impact of having too little money to pay claims. So, they would be the most stringent about making sure the reserves are appropriately priced to accommodate the associated claims exposure.  If they sign off on product pricing and structure, that’s a good indication that the reserves are set up correctly.

Lastly, look at their customer service in their claims department. How fast are incoming calls answered? How quickly do they process a request? How often are calls abandoned? These statistics paint a picture of the customer experience. If customers spend most of their time waiting for their call to be picked up, or their request to be processed, you can bet that they will associate that bad experience with both your loan and the dealership who sold it. This obviously negatively affects the customer experience. Even though their claim is adjudicated by a third party expert, which is a positive, your dealership partners and your brand are essentially the face of that product administrator.

With over 36 years of innovating consumer protection products, EFG Companies knows how to structure F&I products that increase your profit and keep enough in reserve to handle whatever the market throws our way. That’s why we’ve maintained one relationship with an AM Best A rated insurer as our underwriter since our inception. Find out how our consumer protection solutions and go to market strategies will give you the edge you need to succeed in today’s market.

Categories
Business Growth F&I

Are You Relevant in the Market?

CalloutThe news is in! According to the latest “State of the Automotive Finance Market Report” from Experian Automotive, vehicle loan delinquencies are down, nonprime, subprime and deep subprime lending volume is up, and we’ve reached a record level of open loan balances.

Everyone is looking to reap the benefits of a healthy market. However, while consumers are relying more heavily on financing and continuing to make their monthly auto loan payments a priority, they are still highly value conscious. With a healthy market, you might think this doesn’t matter as much. Even with increased competition, there are plenty of consumers getting back in the car market. With a solid number of closed loans each month, there’s nothing to worry about, right?

Eric Fruithandler, Senior Sales Executive, Specialty ChannelBut, what if you could do more? What if you could blow that increased competition out of the water? The good news is you can by focusing on what the American consumer wants – value. The value-driven consumer from the recession didn’t go away once they had more money in their pockets. Instead, much like the consumers after the Great Depression, they kept their new outlook and their money. Now, when consumers walk into a dealership, they aren’t just looking for a new car, they are looking for a new experience that puts their needs first.

Now consider your loans and where they fit into this picture.

  • Do your loans reflect the value proposition of your dealership partners?
  • Do F&I managers understand the benefits your loan poses for their customers?
  • Is the loan funding process simple and efficient?
  • After loan closing, do customer relationships foster repeat business and referrals?

The indirect loans that sell the best aren’t necessarily the ones with the lowest rate anymore. Instead, they are the loans that make an F&I manager’s job easier by setting them up with a value proposition. This value proposition starts with their experience securing the loan and ends with the loan’s benefits. Think about the customer experience after loan closing, could that experience be turned into a value proposition?

Put yourself in the shoes of the consumer. What’s important to you when shopping for a loan?

  • Ease of making payments
  • The ability to view quickly your loan balance
  • When calling with a concern, the ability to speak with a real person
  • Mobile banking

While each of these things might seem standard, you would be surprised how many consumers don’t even know how to make their first payment and end up starting their auto loan experience off on a bad foot. With this information in hand, the F&I manager can more easily demonstrate their commitment to the customer as they present a loan with the confidence that the customer will be taken care of.

Beyond what you already do, there is also significant opportunity to relate your loan to dealership needs and customer concerns. F&I managers can tell you, it is not easy trying to sell consumer protection products by themselves. Too many customers walk in with pre-conceived notions about the legitimacy of the products sold in the F&I office. One of the easiest ways to you can help them overcome this setback is with complimentary F&I products, which put the F&I manager in a positive position with their customers, enabling them to increase product penetration with upgrades.

While these products allow consumers to avoid unexpected expenses that may inhibit their ability to make a car payment, they also provide you with increased income potential per loan funded. By offering complimentary consumer protection products, you have the opportunity to increase the relevancy of your loan to dealerships and consumers, thereby increasing the number of your loans and your bottom line.

At EFG, we know how to pair the right mix of products with your loans to achieve maximum success. But beyond product development and administration, we also act as an extension of our client’s business to ensure their relevancy in the market.

Contact us today to find out your loan volume can exceed expectations.