Lending Curve
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2014 marked another record year for auto sales, and subsequently more lenders expanded their portfolios into the subprime realm. With dealerships having an average of 10 lenders with which to place loans (according to Dealertrack technologies), lenders are now concerned with sustaining 2014 results and staying ahead of the pack. Smart lenders have taken the opportunity to increase loan volume by tapping into a rising dealer need and providing complimentary consumer protection products on their loans. Examples include vehicle return, limited powertrain, tire and wheel coverage, etc. with an option to sell upgrades. However, this also means that lenders need to be extremely selective as to whom they choose as their F&I product administrator. That company’s customer service will ultimately directly affect dealership, and therefore lender, profitability.
With 2015 just ramping up, now is the time to pay attention to what makes a product administration partner reputable and dependable. Those proof points can help overcome consumer concern in the F&I office, as well as increase customer retention for both your institution and your dealership partners.
Proof points to pay attention to include the company’s investment in customer service training and technologies, customer service awards and recognitions, and professional certifications like the National ASE Blue Seal of Excellence. However, what really sets a product administrator apart is transparency. When evaluating whether your product administration partner is holding you back, consider whether they provide information on:
Great News! The auto industry continues to break sales records! According to a report from Urban Science, the average number of sales per dealership in the U.S. is on track to hit an all-time record of 904 units, based on vehicle sales of 16.2 million. As far as subprime growth is concerned, according to CNW Research in July, the auto industry experienced a 25.5 percent year-over-year increase of subprime buyers. And, Edmunds determined that 77 percent of car buyers in the same month financed their vehicle purchase through the selling dealership.
With sales and indirect lending up, both lenders and dealers can be tempted to take a step back and relax. However, a new ground war is brewing around compliance and consumer perceptions.
The Consumer Financial Protection Bureau (CFPB) has continued to focus its efforts on the dealership finance process since fining Ally Financial, earlier this year. Recently, the CFPB fined First Investors Financial Services Group, Inc., which primarily operates in the subprime auto finance segment, $2.75 million for providing inaccurate information to credit reporting agencies. The CFPB and the Federal Trade Commission have also made it easier for consumers to post formal complaints regarding their treatment during the dealership finance process.
In addition, a recent survey of online shoppers by Kelley Blue Book found that:
Analyzing the contradictory nature of consumer perceptions versus market statistics can leave you with a head ache, but it’s important to take their considerations seriously. Even though consumer perceptions are not directly affecting their decisions once they get to a dealership, consumers can easily file formal complaints and online reviews after the fact, which can have long-lasting and severe repercussions.
Certainly, the perception issue needs to be definitively addressed as the CFPB continues its campaign against dealer markup, but what does this mean for lenders?
The onus to change consumer perceptions does not lie solely on dealerships. Lenders can also re-evaluate their customer/dealer service to ensure they consistently provide dealers with an indirect lending model that meets consumer demands. Lenders need to ask themselves how they can act as an extension of the dealership:
While these are pretty straightforward, you’d be surprised at how many lenders struggle with consistency in these areas. Your availability and active engagement with the dealer is critical. Ensuring that you provide a quick turn-around process and secure enough funds to meet dealer demands will keep your organization competitive and help dealers cultivate a positive brand image.
In addition, providing complimentary consumer protection products, like a vehicle service contract or vehicle return, on your auto loan will directly address consumer concerns about getting the best deal. Never before have consumers held on to cars as long as they are now. After dealing with significant vehicle repairs, consumers are now shopping for more than just APR. They are looking for the deal that provides the most for their money. With strategic F&I products paired with your loan, consumers will know that their investment is protected should an unforeseen mechanical breakdown or job loss occur.
For instance, with vehicle return, consumers coming out of the recession know they are protected if for example, they lose their source of income. This program allows consumers to return their vehicle to the selling dealership should unforeseen circumstances occur, like involuntary job loss.
Providing complimentary consumer protection products on your loans will also
make the F&I process smoother, allow for dealerships to make money on upgrades,
and protect your loan portfolio from the risk of delinquency or default.
With nearly 40 years of experience in innovating profitable solutions in the dealership space, EFG Companies knows how to differentiate your business and create sustained loan volume. Find out how, today!
