Economy | Lending Curve

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?

As President Obama and Congress nail out budget sequestration for 2013, businesses across the country are scrambling to determine how this will affect their productivity.

Political Pundits are anticipating the sequester will cost the economy upward of one million jobs in 2013 and 2014. While this might make you cringe when thinking about possible affects to the sub-prime auto loan market, it’s important to remember that coming out of a recession, there is pent-up demand.

According to recent stress tests conducted by Fitch Ratings, the U.S. auto market can withstand a hypothetical recession and material declines in used vehicle recovery rates. However, rather than just trying to withstand economic hardships, your competitors are looking for ways to turn those stresses in their favor.

How do you stand-out from the crowd among F&I managers beyond low interest rates?

Consider the following scenario.

An F&I manager has a customer who qualifies for financing through your institution and a competitor. While the competitor’s rate is slightly higher, they also offer complimentary consumer protection products that make their loan more stick (not to mention the opportunity to make money through upsell). Which rate do you think the F&I manager will sell?

Structuring your loans with F&I products that reflect current economic conditions and consumer needs not only make it easier for finance managers to sell, but also:

attract and retain dealership partners;
increase year-over-year auto loan volume and financial control;
expand per month income;
reduce default rates; and,
decrease repossessions and collection costs.

With over 35 years in administering consumer protection products and working hand-in-hand with dealers across the U.S., EFG Companies knows how to structure your loans to be more attractive in the F&I office with F&I products custom-tailored to match your dealership-partner’s demographics.

Find out how EFG can turn economic stress into increased revenue streams today.