Category: Economy

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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

Post-recession consumers are primed for F&I products. Are you taking advantage of this trend?

Contributing Author: Steve KleesWe have a paradox! More consumers are returning to the dealership to get out of their old vehicles; yet, there are more decade-old cars on the road today than since the depths of the recession in 2009.

If you’ve been following the news for the past two years, or even just the past month, there is not a doubt in your mind that the economy is improving and consumers are returning to dealerships. Both new and used car sales are up, and lenders across all credit tiers are seeing an uptick in loan volume.

According to the latest “Automotive Market Trends” analysis from Experian, the percentage of vehicles on the road predating the 2001 model year has reached its highest level since 2009. In fact, vehicles in that age group made up more than 28.3 percent of all vehicles on the road. To put this in perspective, before the recession, in 2008, that age group only made up 22.1 percent of vehicles on the road.

It’s understandable that during the worst of the recession, consumers held off on making big purchases like vehicles. With mass layoffs and companies filing for bankruptcy left and right, everyone was concerned about jobs and economic stability.

But now that the economy is expanding, shouldn’t consumers be trading up for a newer model?

According to Melinda Zabritski, Experian Automotive’s senior director of automotive credit, “While the growth in early model vehicles on the road is slowing, getting the most out of the vehicle they purchase still appears to be top of mind for consumers.”

After the recession F&I managers were faced with a more informed and demanding consumer. But what few have taken into consideration is that this could be a good thing. With consumers hyper-vigilant about stretching their dollars, and getting more value from the companies with which they choose to do business, dealerships and lenders have the opportunity to create lasting relationships by aligning with their needs.

The consumers sitting across from the F&I manager are knowledgeable and concerned about the difficulties involved in maintaining older model vehicles. Credit-challenged consumers especially feel the strain of costly mechanical breakdowns and most certainly understand the choice between fixing their vehicle and making a car payment, and therefore the benefits consumer protection products can provide.

By structuring your subprime loans with the option of consumer protection products like a vehicle service contract, you have the opportunity to differentiate your loans from the competition with both F&I managers and consumers. Depending on credit score, and income to debt ratios, many F&I managers find it difficult to secure enough financing to cover both the price of the vehicle and their F&I benefits. By considering an offer with limited complimentary consumer protection products structured within your loan, you can equip finance managers with an easy way to start the F&I conversation by emphasizing the value they are providing to their customer and capitalize on upgrade options to boost their bottom line.

With almost 40 years of experience in structuring successful consumer protection products, EFG Companies knows how to leverage consumer trends to successfully impact your business. 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.