Categories
Economy F&I

Take the Risk out of Longer Terms

Contributing Author: Brien JoyceAs the auto industry continues to lead the nation in recovering from the Great Recession, we’ve seen credit standards loosen significantly throughout 2013 and 2014. While this has enabled more subprime consumers to get into both new and used vehicles, we’ve also seen the rising trend toward longer terms to keep payments lower.

The latest “State of the Automotive Finance Market” report from Experian paints a pretty interesting picture, where the average subprime consumer finances $27,528 for a new vehicle at a 9.39% APR for 71 months. This equates to a monthly payment of $424.

Think about that for a second: 71 months at $424.

According to that same report, the average auto loan term for new vehicles across all credit tiers reached 66 months for the first time. This is the highest average term since the company began publicly reporting data in 2006.

Clearly, more and more consumers are pushing for longer terms to get into the cars they want, and with longer terms come a higher risk of delinquency or default. Traditionally, lending institutions rely on a managed tiered-rate structure as a buffer against that risk. There are, however, other ways to help mitigate this risk.

Consumer protection products offer material protection against the risk of delinquency or default. Consider, for example, the inevitable event when a subprime consumer making that monthly $424 payment has a vehicle breakdown. It is likely that while they can normally make their monthly loan payment, they will now struggle to pay both the repair bill and their loan. So, they are forced to make a choice: pay for the repair or make their loan payment. They are most likely going to choose the first option, even if that means their credit might take a hit or their vehicle might be repossessed.

Now, if that same consumer had a vehicle service contract on their loan, they could eliminate or at least significantly reduce the cost of their vehicle repairs, allowing them to repair their vehicle and make their monthly loan payment. In addition, by including consumer protection products like a VSC on your loans, you also offer your dealership partners another way to increase revenue through the sale of additional F&I products and upgrades.

As long as terms continue to lengthen, lenders need to fortify themselves to ensure that the risk of default does not outweigh the potential income from their subprime portfolio. By pairing the benefits of consumer protection products with a well-executed rate structure, lenders set their institutions up to materially reduce the risk of default while at the same time, adding value to the loan for both consumers and dealerships.

With over 37 years of experience in innovating agile consumer protection products, EFG Companies knows how to develop the right mix of products and services to mitigate risk while making your loan more attractive to dealers and consumers. Whether it’s complimentary coverage or private-labeled consumer protection products, EFG has a proven track record of working with lenders to develop and implement these revenue-generating programs. Contact us today to find out how.

Categories
EFG Companies

MotoLease Selects EFG Companies as Their Premier Product Provider

– Product Offering Designed to Increase Lease Volume While Driving Profit and Customer Loyalty for Motorcycle Dealers-

MotoLease LogoEFG Companies, the innovator behind the award-winning Hyundai Assurance program, announced today it has been selected as the premier product provider by MotoLease, LLC. MotoLease is a financial services company that offers unique consumer leasing programs through MotoLease authorized dealers. The company designs solutions exclusively for the motorcycle and powersports markets to help even the most credit-challenged riders.

SG-logo_aiMotoLease has partnered with EFG Companies’ Motorsports Division to enhance their lease offering with a goal of aggressively increasing marketshare. EFG private labeled their vehicle return program, the award-winning program behind Hyundai Assurance, along with their vehicle service contract and roadside assistance. Starting this month under the SelectGuard brand, all MotoLease leases will include complimentary limited coverage, including 6 months vehicle return and 12 months roadside assistance, with the option to upgrade.

“Going into 2014, we knew we had to get ahead of industry trends, and leasing gives customers the ability to get into a bike without having the extra financial burden of an outright purchase,” said Emre Ucer, Managing Partner, MotoLease, LLC. “EFG demonstrated agility and innovation within their product development and administration that we felt would greatly enhance our ability to achieve our goals.”

According to the latest report from the Motorcycle Industry Council, first-quarter sales were down 0.2 percent (or 118 units) from Q1 2013, and the motorcycle market dropped 14.7 percent in Q1 2013 from the year before. While yearly sales have stabilized since the Great Recession, they have not bounced back yet.

“MotoLease had significant opportunity to adapt their lease product to both dealership needs and customer concerns,” said Glenice Wilder, Vice President of EFG Motorsports. “Our private-labeled product offering takes on that opportunity by providing consumers critical protection against unforeseen circumstances and setting the stage for dealers to increase their profitability with upgrades.”

With the combined effect of American consumers still being wary of the economy and motorcycle sales dependency on discretionary income, dealerships need a significant value-add to incentivize consumers to make a motorcycle purchase. MotoLease recognized this need and understood that providing limited complimentary consumer protection products would significantly enhance the value of their leases.

This new offering from MotoLease and EFG will enable dealerships to better provide customers options when making a purchasing decision, while at the same time increasing profit per lease sold and customer loyalty.

Categories
Business Growth F&I

Vehicle Dependability is on the Decline! Do You Know How to Leverage this Trend?

Contributing Author: Brien JoyceWith the pent-up demand and looser credit standards, customers have been flocking to dealership lots over the past year and a half. While that trend is expected to continue, dealerships have also seen a much more demanding consumer walk onto their lots. Since the recession, consumers have a tighter hold on their wallet and expect more value for their dollar.

Now, compound their hesitation with the widespread recalls and reports of vehicle failures hitting the news. Not only are customers more concerned with the level of service and value they receive from the dealership, but also with the dependability of available new model inventory.

According to the 2014 U.S. Vehicle Dependability Study from J.D. Power and Associates, for the first time in 15 years, owners of three-year-old vehicles reported more problems than did owners of three-year-old vehicles in the previous year. They attributed this drop in dependability to an increase in engine and transmission problems, particularly on 4 cylinder vehicles.

With vehicle dependability called into question, along with many high profile news stories around the OEMs and recalls, you can bet consumers are going to be even more circumspect when it comes to purchasing their next vehicle. Your dealership partners need a strategy to incentivize potential customers to purchase from them. Keeping in mind that retail sales volume has a significant impact on your loan volumes, think about this statistic from the J.D. Power Automotive Internet Roundtable – today’s car shoppers visit only 1.1 dealerships before making a purchasing decision, which is down from visiting three dealerships just five years ago.

Now think about how many of your dealerships partners are the ones with which consumers choose to do business. Going forward, the best way to keep your share of loan volume is to ensure that your dealership partners successfully sell to this new single-visit customer. But how?

The Answer: Keep it Simple —

  • Be available during dealership hours and not just 9 to 5, Monday through Friday.
  • Provide fast, consistent loan decisions.
  • Be willing to advance on consumer protection products that add value to the loan and take away customer concern.
  • Consider offering complimentary limited warranties that help extinguish customer hesitation.

With vehicle dependability called into question, the ability for your dealership partners to sell vehicle service contracts will be at the forefront of their minds in the coming months. Consumer protection products will not only mitigate customer concern, but also reduce the likelihood of defaults. This is especially important in the subprime space where a vehicle breakdown could cause a consumer to choose between making their monthly payment and repairing their car.

Of course, not all customers have the credit history to afford a loan that takes into account the vehicle cost and the traditional F&I products sold within the dealership. That’s where structuring complimentary limited offerings within your loan can take the lead. This way, the customer still gets coverage on some of the most important parts of their vehicle, your loan is better protected from default, and the dealership has the opportunity to upsell to different coverage levels to increase their profit.

Whether you can structure your loan advance to take the cost of selling F&I products into account, or provide complimentary limited offerings, your loan will stand out and keep you top of mind. Combine this with quality customer service and F&I managers will prefer to sell your loans.

With over 35 years of innovating nimble consumer protection products for dealerships across the U.S., EFG Companies knows how to structure your loan to stand out from the crowd. Contact us today to find out how.