Category: Economy

Categories
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
Economy

It Doesn’t Matter Whether the Economy is Up or Down

Contributing Author: Steve KleesWith the government shutdown and impending national default, companies and consumers alike are avidly watching for updates on the status of the economy. Will it plunge? No one knows and everyone is talking about it.

But look at it this way, there have always been ups and downs and there always will be. Rather than letting the rollercoaster take you for a ride, concentrate on what you can do to consistently increase loan volume.

Whether the market is on an incline or going through a loop-de-loop, your auto loan is compared with three to five competitors. What do you have to offer to ensure an application pulls through into a loan?

Competing on rate alone puts pressure on your margin and sets a benchmark for a competitor to come in and meet it or beat it. The key to consistently pull through loans is to concentrate on your efficiencies:

Superior Service

  • How quickly does your institution respond to an application?
  • Are your loan officers courteous and respectful when speaking with dealership personnel?
  • Do you instill the value of providing superior service across your institution?

The Value Proposition

  • Does your loan make it easier for the F&I manager to upsell consumer protection products to boost their margin?
  • Does it provide consumers with value beyond interest rate that insulates them from significant impacts to their savings?

You’d be surprised how simply providing quality service establishes lasting relationships with both dealerships and consumers. By focusing on customer service, rather than just numbers and rates, you are more likely to close more loans and increase the number of dealerships presenting your loan.

But beyond customer service, providing tangible value to both your audiences puts you miles ahead of the competition. How do you do this? One of the best ways is with complimentary consumer protection products, such as a limited powertrain warranty or vehicle return.

Complimentary products such as these set the stage for upsell opportunity, making it possible to increase your margins as well as the dealership’s PRU. By providing a valuable service to the end-consumer, it’s easier to familiarize them with the benefits of the product and position the upsell as just another way to extend those benefits.

Of course, the savvy consumer will only believe in the products with the best reputation. That’s why it’s important to shop around for the best product administrator. Good administrators, such as EFG Companies, have established themselves in the industry as being customer-centric. When evaluating potential administrators, pay attention to their claims paid, and timeliness of payment. Administrators like EFG know that a good product doesn’t just benefit a lender, or just a dealership, it benefits everyone. And, they make sure everything from product development to administration and claims adjudication follows this principal.

So, how do you fortify your business to stay on track in a volatile economy? Focus on efficiencies within both your application processes and supplement your loan with consumer protection products backed by that same focus on efficiency.

Get off the roller coaster and chart your own course with EFG.

Contact us today!

Categories
Economy

Why Should They Choose Your Loan?

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

The Challenge: Differentiation!

According to the latest State of the Automotive Finance Market Report, nonprime, subprime and deep-subprime new vehicle loans increased to 27.5 percent market share in Q2. This is a 25.4 percent year-over-year increase. In addition, nonprime, subprime and deep-subprime used vehicle loans experienced a 54.5 percent year-over-year increase in Q2 market share.

But with the good, comes the bad. As loan volume increases, lenders are presented with two challenges: increased competition and higher delinquency rates. With an influx of financial institutions putting together sub-prime financing packages and June auto loan delinquencies increasing by 5.5 percent, it’s important to ask how you are tackling these challenges presented by an expanding market.

Consider this:

Loans that offer complimentary consumer protection products can help you address the challenges of increased competition and delinquency control, while also providing additional streams of revenue.

Said another way:

The dealerships you work with have a variety of other subprime lenders from which to choose. What do you have to incentivize F&I managers to present your loan offering to their customers? Why should the customer choose your loan offering? You can’t always offer the lowest rate, so what makes you different?

Financing options offering complimentary F&I products with upgrade opportunities provide significant benefits to all parties involved.

  • Benefits to F&I Managers: Starting the F&I process with a loan paired with complimentary consumer protection products puts the F&I Manager in a positive position with their customers, enabling them to sell consumer protection products as upgrades, thus improving profit potential.
  • Benefits to Consumers: Consumer protection products allow consumers to avoid unexpected expenses that may inhibit their ability to make their car payment.
  • Benefits to Lenders: Upgrade options provide increased potential for profit opportunity for lenders, and by protecting the customer, mitigates loss exposure.

With over 35 years of consumer protection product insights, EFG Companies works side-by-side with subprime lenders like you to administer the right mix of F&I products providing the greatest return to you and your dealership partners.

Don’t You want to know how?