Interest Rates Dampening Your Loan Volume?

According to Edmunds, interest rates on new-vehicle loans are expected to soar to their highest point in eight years. In an interview with F&I and Showroom Magazine, Jessica Caldwell, Edmunds Executive Director of Industry Analysis, stated, “We’re starting to see a trickle-down effect from the rate increases happening at the federal level. The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and, as a result, we’re seeing loans that were formerly between 2 percent and 3 percent being pushed up into higher APR brackets.”

New vehicle APR averaged 5.2 percent in February, representing a 4.9 percent year-over-year increase. Let’s not forget that we are expecting more rate hikes from the Federal Reserve in the coming months.

Combine this rate increase with a plateau in retail auto sales, and we can expect lenders to become more aggressive to shore up their dealer relationships. At the same time, dealers are highly attuned to customer retention and brand enhancement. To differentiate you institution and grow loan volume, consider how you are helping dealers address their concerns.

Evaluate your processes from the point of view 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.

1. 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.
2. 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 limited powertratin protection 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 more than 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.