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:
Contributing Author: Steve Roennau Vice President Compliance EFG Companies
A good portion of Experian’s latest State of the Auto Finance Market Report revolved around alleviating industry concerns that the auto market is looking more like it did right before the Great Recession. If you’ve been paying attention to headlines lately, you know that economists are worried about how quickly the subprime market is expanding and are asking if there will be another bubble to pop.
With those concerns in mind, lenders are especially concerned with the upward trend in auto delinquency. According to Experian’s report, finance companies experienced a 2.6% year-over-year increase in 30-day delinquent loans with a total balance of $6 billion.In addition, the top 10 states with the highest delinquency rates account for 32% of the total amount of delinquent loans.
With strong subprime growth and increasing delinquency levels, smart lenders are looking at how to level out their delinquency rates, or at least protect their loan portfolio from this growing risk. While some would argue that the best way to pad the portfolio is by increasing APR, there is another option that benefits the lender, the dealer and the consumer. That option is the use of complimentary consumer protection products.
With consumer protection products, like a vehicle service contract or vehicle return protection, consumers are protected from the high costs associated with a vehicle breakdown, or from the negative financial repercussions of instances like involuntary job loss. This same consumer protection also protects the loan. How? Consumers can continue to make loan payments if they don’t have to reallocate funds to cover costly mechanical repairs or cover living expenses on an unemployed budget.
Dealerships also benefit by setting up the F&I product presentation with a description of the benefits consumers will receive with their loans. This offers F&I managers an excellent springboard into presenting upgrade options or additional products to further protect the consumer. Your loan will essentially turn the conversation from strictly a sales presentation to a rewarding and productive discussion about the benefits of consumer protection products, and the value the dealership is providing.
Don’t feel like your only course of action to combat delinquency levels is to raise rates. Pair your loans with complimentary consumer protection products. They can help protect your loan portfolio, while also protecting your customers and providing your dealership partners with the ability to make additional F&I income.
With almost 40 years of experience in innovating compelling consumer protection products, EFG Companies knows how to strategically place the right product mix with your loan to achieve greater loan volumes. Find out how today!
Contributing Author: Steve Roennau Vice President Compliance EFG Companies
It’s been eight months since NADA released their Fair Credit Compliance Guidelines to help the retail auto industry navigate today’s increased focus on regulatory compliance. As the Consumer Financial Protection Bureau (CFPB) continues to aggressively seek out discriminatory practices, more dealers and lenders are implementing flat fee programs to help alleviate these concerns, including disparate impact (practices that seem neutral but result in negative impact to customers in a protected class).
While NADA has provided this guidance to dealers and lenders as they scramble to navigate a more stringent compliance operating environment, it also means that the opportunity to make finance reserve is slimming or coming to an end. For dealers, this means they now need to focus more on selling F&I products to enhance bottom line productivity. For lenders applying a flat fee, this means re-evaluating how to remain competitive against lenders who still operate under a traditional fee structure.
How are you positioning your institution to capitalize on evolving dealer demands and remain competitive?
Are you paying a competitive flat rate?
Are you either allowing room to sell consumer protection products or providing competitive products built into your financing options?
Are your field representatives actively supporting the dealerships with which you work?
Are your field representatives familiar with the dealers’ operations and the markets in which they conduct business?
Today’s indirect lenders have to compete on so much more than they are used to. Now, instead of just competing on APR, they contend with a flat fee markup and leaving room for the sale of F&I products. With all these considerations in play, it can be extremely difficult to determine how to structure your loan.
Consumers want low APR and the dealership wants to make money – that will remain constant. And, until everyone adopts a flat fee, dealers have a variety of options to choose from to achieve their goals. If you are a lender operating under a flat-fee markup, one of the best ways to differentiate yourself is to provide complimentary consumer protection products on your loans. With this option, dealerships still make money on the flat, as well as have the ability to maximize their profit potential by selling upgrades to the products on your loan. In addition, those same products protect your loan from unforeseen circumstances that could affect the consumer’s ability to make their monthly loan payments.
It’s also important to remember the value of good customer service. Making your field representatives available during dealership hours, providing swift loan approvals, and providing sufficient underwriting guidelines will go a long way to securing your business with the dealership.
Cultivating a strong working relationship with F&I managers has always separated good lenders from their competition. A lending institution may have the best rate or fee structure available, but if their representatives aren’t available and attentive, that lender will fail to see sustained loan volume from their dealership partners.
Finally, understanding demographics for the surrounding areas can help your field team better position your loan for any particular dealership. Demographics have changed significantly since 2008, and statistics like the type of employers in your area, home value trends and income levels can help paint a more comprehensive picture of their current and potential customers. With this information in hand, you have a better ability to provide lending services that support the dealership goals of selling more vehicles, and in turn increase loan volume for your institution.
With more than three decades of developing and delivering consumer protection solutions and go-to-market strategies, EFG Companies gives clients the edge in the market place. Put our agile product innovation and unmatched partner engagement in your court today.
