Tag: EFG Companies

Categories
Uncategorized

EFG Companies in Subprime Auto Finance News: Motorsports Sales Ripe for Fruitful Subprime Growth This Year and Beyond

ImageBy Nick Zulovich, Editor

IRVING, Texas – Steve Klees sees motorcycles and other powersports equipment sitting at dealerships and can’t help but think there are possible scores of potential subprime buyers for those items if more finance companies chose to delve into that market.

Klees, who is the senior vice president of specialty channels with EFG Companies, explained his thinking to Subprime Auto Finance News earlier this summer.

“Think about one out of every seven or eight customers the dealer pays from leads to come on the lot, and they can’t take delivery because they can’t obtain credit through the dealership,” Klees said.

“That’s a big market opportunity that’s out there for those companies that are aggressive and understand where the opportunity is,” he continued.

With the situation in mind, EFG Companies announced it has been selected as the premier product provider by MotoLease, 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.

MotoLease has partnered with EFG Companies’ Motorsports Division to enhance its lease offering with a goal of aggressively increasing market share. EFG private labeled its vehicle return program, the award-winning program behind Hyundai Assurance, along with its vehicle service contract and roadside assistance.

Starting in June, under the SelectGuard brand, all MotoLease leases will include complimentary limited coverage, including six 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,” MotoLease managing partner, Emre Ucer said.

“EFG demonstrated agility and innovation within their product development and administration that we felt would greatly enhance our ability to achieve our goals,” Ucer continued.

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, EFG Companies believes 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 customers 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 is designed to 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.

“If you take higher-end bikes with an average unpaid balance of somewhere between $14,000 and $15,000, the margin opportunity for lenders – which I think is really interesting in the motorsports space – is significantly higher, maybe even two to three times higher than it is on the auto side that’s so highly competitive,” Klees said.

“I don’t think you’re going to see losses that are any different. I don’t think you’re going to see delinquency rates get higher. I think there might be worrying on how to collect those properly and getting back collateral. But it’s a highly profitable, high margin opportunity that I believe is being missed,” he continued.

Klees recalled that Harley-Davidson Financial Services, the captive he called the “bellwether” of the motorcycle space, held about 28 percent of its overall portfolio in subprime in 2006. Klees noted that penetration softened dramatically during the recession and recovered to only about 7.5 percent last year.

“While it’s come back really strong for retail automotive, there is still a gigantic gap in the subprime motorsports financing business that just isn’t back to what the current needs are,” Klees said.

“I think a lot of lenders withdrew from it,” he continued. “The major attraction for subprime lenders was to get back into auto because it’s a business that they knew very well prior to the recession. There are also higher balances. Motorsports have really been ignored.”

P2 C4“In that five-year, six-year span, Harley stayed around for their dealers as the captive, but we have a whole generation of finance managers now that have become used to using only the captive as an example,” Klees said.

“They haven’t really expanded out to see who is in the market and who is ready to play. It just hasn’t bounced back due to the lack of search on the part of dealers and the lack of interest on the part of lenders. But there is a tremendous opportunity,” he added.

Klees also touched on who these potential subprime buyers might be. He mentioned a large amount of possible buyers who didn’t even have a credit history before the recession or individuals who saved as much of their money as possible during the economic downturn. “Those are your target demographics,” he said.

And potential buyers who took various kinds of hits to their credit during the recession?

“Those that were bruised have recovered, and they understand that the value that they get with a purchase is critical,” Klees said.

“I think there is a better opportunity now than there was six years ago when everyone departed,” he added, noting the Motorcycle Industry Council projected retail sales of 385,000 units this year, possibly rising to about 410,000 units in 2015.

Categories
Business Growth

Subprime Competition is Heating Up!

Eric Fruithandler, Senior Sales Executive, Specialty ChannelAccording to the latest data from Experian and Equifax, subprime market share increased 4.15 percent year-over-year, with independent auto financing capturing the majority of the market.

As the subprime market continues to expand, the industry has also seen more independent financing companies backed by private equity firms pop up. Competition is heating up and lenders are continuing to loosen their standards. While the experts at Equifax see this as a sign of “health” in the sector, many lenders see competition as another hurdle they must face in the quest to build loan volume.

So, how can lenders protect themselves from loss of marketshare?

If financial institutions continue to increase their loan cap which inconsequentially increases APR, eventually consumers will be unable to sustain the high loan payments that come with their new vehicle. In addition, not all lenders are willing to extend a $20,000+ loan to subprime consumers and compete on rate. Rather than falling into the trap of over-extending themselves, financial institutions are learning how to compete on the value of their loan.

In terms of being valuable to their dealership partners, this means:

  • providing accessible lending representatives during dealership hours;
  • having a quick turn-around on loan decisioning;
  • providing understandable guidelines on the types of consumers that are eligible for their loans;
  • implementing a quick and efficient funding process; and,
  • making the F&I manager’s job easier.

Seems pretty straightforward right? You’d be surprised at how many lenders struggle with consistency in these areas. While ease of access and clear guidelines are important in simplifying the F&I process, smart lenders understand that making their loan valuable to the consumer outside of pure APR can significantly alleviate the pressure on the F&I manager and increase the dealership’s PRU.

Of everyone in a dealership, the F&I manager has the toughest job. Consumers walking into the showroom are already interested in buying a car. Consumers in the service drive are there because they need service. For the most part, consumers in the F&I office never even thought about consumer protection products when contemplating the purchase of a vehicle. They walk through the door with defenses raised and skepticism turned on high.

Now imagine the F&I manager was equipped with a loan that provided the consumer complimentary consumer protection products, like a vehicle service contract. Instead of starting the conversation trying to overcome high consumer skepticism with a sales pitch, they are positioned as an advisor. As the F&I manager discusses the type of loan the consumer qualifies for, they have the easy transition into the F&I selling process as they explain all the benefits that come with the loan. At the conclusion, they can then ask if the consumer would like to extend the benefits to the full term of their loan. As you can imagine, this is a much easier sell.

In addition, the value that consumer protection products bring to the table assure the customer that both the dealership and the lender recognize the worth of their business no matter their financial position.  This significantly enhances both the financial institution and dealership’s brand in the eyes of consumers, resulting in increased customer loyalty and referrals. All of this, of course, means increased business and revenue for you and your dealership partners.

With over 37 years of experience in innovating agile consumer protection products that give our partners an edge in the market, EFG is your key to driving business and increasing loan volume. Contact us today to turn the heat up on results.

Categories
Business Growth Economy F&I

Are You Prepared for Rising Auto Loan Rates?

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

Last year was a great year for the auto industry mostly because consumers from all credit tiers were able to secure financing for both new and used vehicles. According to the Federal Reserve, auto loan rates for new cars hit their lowest level in the last 40 years. Meanwhile, subprime lenders increased their share of the used vehicle market to nearly 56.7 percent by Q3 of 2013.

However, those low interest rates were paired with longer terms and higher loan-to-value ratios through the first quarter of 2014. Because of this trend, NADA analysts expect subprime lenders to react to the heightened risk of potential default associated with longer terms and begin to raise their rates in the second half of 2014. In other words, the subprime low APR bubble may be bursting.

With a rate increase expected in the latter part of this year, how are you preparing to keep your share of the market?

Lenders always have that drive to compete on rate. But, when you are unsure about the potential for significant rate volatility, how do you manage the impact on your loan volume?

In reality, the F&I manager will often look beyond rate and assess the overall benefit of conducting business and maintaining relationships with particular lending institutions. Here’s a quick self-diagnosis to determine how well insulated your business is to market rate fluctuation:

  • How available are our field reps to our dealers’ F&I Managers and how engaged are they in the dealers’ business?
  • How quickly and efficiently do we provide call-backs on decisions and fund loans for the dealers?
  • Do our loans help or harm the dealers’ ability to sell more vehicles and sell F&I products to increase dealership profit?
  • Are we committed to the automotive market long term?
  • Do we have a solid reputation in the area of customer service?

Your availability and active engagement with the dealer is critical.  Ensuring that your field reps are adding value to the dealer’s operation at every point of contact will keep your organization in a market position where dealers want to conduct business with you, regardless of rate-competitiveness.  Likewise, your paper buyers must provide timely call-backs and show a willingness to put deals together for the dealer.

Strong relationships between your buyers and the dealer’s F&I Manager combined with the efficiency of your loan approval process can keep you at the top of the dealer’s lender list through the peaks and valleys of rate movement.  The same thing goes for underwriting.  Streamlining the underwriting process and ensuring loans are funded efficiently builds equity in your company’s brand with the dealer.  The more equity you build in your brand with the dealers, the more insulated you become in a market with rate volatility.

In addition, the loan itself, in structure and added-value content, can build value in your lending institution, by encouraging the dealer to consider you as a primary lending source—regardless of market rates. Whenever possible, leaving room for the dealer to sell consumer protection products in F&I helps drive dealer profitability and may help mitigate loss for all parties on the loan.   Or, offering a loan that provides complimentary F&I products could be the differentiator that continues to drive loan volume your way.

In a market where your rates will increase and lending criteria may tighten, good lenders will find a way to add value to the dealer’s business, or find themselves becoming secondary sources in the marketplace.  Dealers want to know that a lender is committed to the market. They want partners that will demonstrate staying power through the ups and downs of the sub-prime market conditions.  A lender committed to the dealer’s business will earn his business.

Lastly, it’s important to maintain your reputation with the end customer. Consumers are savvier today than in the past. They actively research the majority of companies with which they choose to do business, including lending institutions. If your institution is known as having poor customer service, it’s likely that customers will jump ship and refinance with someone else the first chance they get. On the other hand, strong customer service tends to keep customers in the loan and willing to utilize your institution for future financing needs

With over 35 years of working hand-in-hand with dealers across the U.S., EFG Companies understands engagement with the F&I professional, the value of solid consumer protection offerings, and the intricacies of reputation management.

Find out how EFG can move your business beyond the APR race, drive value in the market, and increase revenue streams today.