Tag: J.D. Power

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Is Your Auto Loan Affordable?

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

According to a recent study from Bankrate.com, the average new-car price tag is too high for the majority of medium-income U.S. households. Here’s the breakdown:

In May, Kelley Blue Book updated the average new-vehicle transaction price to $33,261.

Using that transaction price, Bankrate applied the traditional 20-4-10 rule to conduct the study – i.e.:

  • a down payment of 20 percent
  • a four-year loan
  • principal, interest and insurance payments accounting for 10 percent of the household’s gross income

From looking at your own portfolios, you probably know that the majority of American consumers don’t put 20 percent down on their vehicle, and they are often financing for upwards of seven years. The fact that consumers don’t use the 20-4-10 rule should give you a good picture of the state of American finances in comparison to vehicle prices.

It should come as no surprise that Bankrate’s study came back showing that only one metro area could afford the average-priced new vehicle – Washington, D.C., where the median income is nearly $100,000.

Despite the fact that, according to Bankrate, most households can’t afford to purchase a new vehicle, new unit sales are still on par with last year’s levels. The most recent LMC Automotive/J.D. Power forecast puts 2017 new vehicle sales volume in the low 17 million-unit range for the year.

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Economy

Help Dealers Help You

Mark Rappaport President Simplicity Division EFG Companies
Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

The first quarter has come and gone, and lenders and dealers alike are still seeing red flags in retail auto, and subsequently, the auto finance market. According to J.D. Power:

We have the wrong supply for current demand.

Vehicle production is not aligned with consumer demand. Manufacturers produced more sedans when buyers were in the market for crossover utility vehicles (CUVs). Because of this, half of all auto brands, and six out of 10 vehicle models lost sales volume in Q1.

Overall supply is much greater than demand.

Dealer inventory closed out Q1 at 4.1 million units, representing an increase of approximately 300,000 units from Q1 of 2016, and a half-million unit increase from 2015. What causes concern here is that analysts depict today’s consumer demand as identical to that of 2015, meaning supply is much greater than demand.

Incentive programs aren’t aligned with demand.

Industry-wide, the average manufacturer incentive for Q1 was $3,900. This comes after closing out 2016 with incentives as high as $4,000 per vehicle. Comparatively, these incentives are even higher than those in 2008/2009, when dealers needed anything possible to close just one sale.

In the midst of all this, loan terms continue to get longer.

Loans terms continue to lengthen, with 72 month terms accounting for 33.9 percent of new-vehicle sales. As you well know, this doesn’t bode well for defaults and delinquencies down the line.

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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.