Vice President
EFG Companies
In a widely anticipated decision, the Federal Reserve voted to raise interest rates this past December by 25 basis points.
And, of course, one of the first industries that will be affected by this rate hike is auto finance. As you re-assess your lending portfolio to take into account the new rates, it’s also the perfect time to evaluate how to differentiate your institution beyond rate alone.
With the interest rate hike, we can expect retail auto sales to begin to plateau in 2016. It wouldn’t be surprising to see little to no growth in overall unit sales next year. This trend will shape dealer business, as they will begin focusing more on customer retention and brand enhancement. This refocusing offers lenders the chance to differentiate their institution and grow loan volume through their engagement with dealers. The more business a given dealer has, the more opportunity you have to increase loan volume. Therefore, every lender should ask themselves, “How am I helping my dealer partners achieve their business goals?”
Evaluate your processes through the optics of building a relationship:
- Do you instill the value of providing superior service across your institution?
- Are your dealer partners well versed in how you fund and your funding requirements?
- How quickly does your institution respond to an application?
One of the concerns for every dealer is keeping their Contracts in Transit (CIT) numbers low. Meaning, once they submit a contract, they want it funded as quickly as possible. If they have too many contracts in limbo, it turns into an issue. One of the main reasons contracts stay in limbo is because the contract is missing a piece of required information. There are two things your institution can do to help dealers maintain low CIT numbers.
- Ensure the dealer understands all that is required to submit a contract to your institution. This includes documentation, consumer credit score, and, in general, contracts in which you specialize.
- When you receive a contract that is missing a piece of information, contact the dealer, rather than waiting for them to contact you. While it may be tempting to say, “that’s not my responsibility,” it actually is if you want to increase loan volume and build a solid long-term relationship with a dealer.
You’d be surprised by how simply focusing on providing superior service to dealers both establishes and increases relationships.
To further enhance your value proposition, ask the question, “How can I position my loans as a solution for current dealer challenges?”
One of the best ways to accomplish this is by structuring your loans with complimentary consumer protection products, like a vehicle service contract or vehicle return protection.
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. In addition, these products have the potential to help dealers increase customer retention and referrals, by helping consumers preserve their vehicle’s value and stay current on payments. This turns your institution from just another possibility to a point of differentiation for the dealership.
By focusing on providing dealer and consumer benefits with strategic F&I products, your institution has the enhanced opportunity to:
- attract and retain more dealership partners;
- increase year-over-year auto loan volume and financial control;
- expand per-month income;
- reduce default rates;
- decrease repossessions and collection costs; and,
- control compliance.
With almost 40 years of experience in retail automotive, EFG Companies knows how to position your institution as a strategic partner within the dealership space. Put our in-depth knowledge of dealership operations to work to make you a preferred lender for all your dealer clients and beyond. Contact us today!