I drove down ‘dealership row’ last weekend and was struck by the number of massive SALE banners and vehicle promotions. It’s that time of year when dealers are trying to move 2024 inventory to make room for the 2025 models. Fortunately, this year, they have some inventory to move – but face some stiff challenges thanks to high vehicle prices, stubborn interest rates, and hesitant consumers.
Industry forecasters expect third-quarter U.S. vehicle sales to be roughly flat compared to a year earlier. According to Edmunds’s estimate, automakers sold about 3.9 million new vehicles in the U.S. in the July-September period, 2.3% less than a year ago. Cox also forecasts a 2.1% decline, while J.D. Power predicts flat sales. The sluggish results would put automakers on pace to finish the year with U.S. vehicle sales of around 15.7 million—a slight increase from last year, when supply-chain snags were still hampering vehicle output but still off historic highs.
Contributing Author: Mark Rappaport President Sinplicity Division 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 for dealership websites 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.
Contributing Author: Brien Joyce Vice President EFG Companies
One of the hot topics at the 2016 NADA Convention was the much debated subprime bubble in relation to rising delinquency rates. Again, industry experts worked to calm everyone’s nerves about Fitch Ratings’ latest report, which brought to everyone’s attention that as of February, 60-day delinquencies had risen to 5.16 percent, the highest rate since 1996. Even so, experts have once again stated that there is no bubble and delinquency rates are rising at a healthy level in conjunction with vehicle sales.
However, with the Federal Reserve raising interest rates by 25 basis points this past December, and the expectation that rates will rise again later this year, it can be posited that lenders will tighten restrictions within the subprime space. The last thing anyone wants is for higher interest rates to coincide with rising delinquency rates, creating a perfect storm that could potentially cause that debatable bubble to pop.
As you evaluate your portfolio risk and determine the best go-forward plan to maintain your market share, consider looking at avenues outside of those traditional lending benefits commonly used by the industry, like APR. While the industry has typically competed for ground on APR, lenders, especially in the subprime space, often have their hands tied on how low they can go due to Federal Reserve rate increases and portfolio risk.
