Tag: subprime

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
F&I

Are You Prepared for a Buyers’ Market?

Contributing Author: Brien JoyceA few years ago, you may have been one of the few lenders in your area aggressively offering subprime loans. While the automotive market was struggling, you had the advantage of being one of the only subprime options available to those consumers who were in the market to buy. With limited supply, you had better opportunity to increase your profit margins with minimal effort.

Now, the tables have turned. The subprime market expanded exponentially in 2013. According to Automotive News, executives at General Motors stated that in December, subprime accounted for 7.5 percent of their sales volume.

As more big banks and captives enter the ever-expanding subprime market, you no longer have the same market advantage with Dealers. In essence, we’ve left the seller’s market and entered a buyer’s market. With so many available options, consumers have a better opportunity to shop for the best rate and terms. Naturally, smaller subprime lenders will have a harder time competing on rate alone with larger institutions.

Whether direct or indirect, it’s time to move past rate-only marketing strategies and compete on the value of your loan or your institution. Dealerships and consumers alike are more likely to work with lenders that make their lives easier. For dealerships, this means a quick turn-around on loan approvals, availability during dealership hours (not just bank hours), and providing a loan that consumers will find valuable.

It is actually possible to succeed at captivating both consumer and dealer audiences at the same time. Loans offering complimentary, short term or limited F&I products that reflect a dealer’s consumer base position them to effectively increase profit and customer retention. Consumers will be more confident with doing business with the dealership and in their financial future. In addition these loans may benefit you by helping to mitigate potential loss.

For example, if a customer experiences a mechanical breakdown within the first six months after purchasing a vehicle, they could potentially struggle with the financial burden of paying for both extensive repairs and their monthly auto loan payment. With a six-month complimentary vehicle limited vehicle service contract, that burden could be significantly reduced, allowing them to repair their vehicle without putting a significant strain on their finances and affecting their ability to make their payment on their car loan.

The complimentary product also makes it an easier conversation for the dealership up to give their customers the option to upgrade to potentially the entire length of the loan. This protects you, the customer, and significantly increases dealership profitability.

To determine your value to your dealership partners, conduct an internal audit of your loan closing procedures with these questions in mind:

  • How quickly do we respond when the dealership submits an application?
  • Are we always available when an F&I manager needs us?
  • Are we courteous and professional when working with a dealership?
  • Do we provide solutions to help our dealership partners succeed?
  • Do our loans give the dealership additional credibility with their customer base?

In this highly competitive market, your value proposition is your differentiator. By focusing on enhancing the value of your loans through good customer service and targeted F&I products, you can significantly increase efficiencies for both for you and your dealership partners.

With over 36 years in innovating and implementing proven go-to-market strategies in the dealership space, EFG Companies understands the importance of your value proposition. Which is why EFG structures its products and services to not only provide value to you, but also dealerships and the end-consumer. Our unmatched client-engagement model goes well beyond simple product innovation to mitigating liability through superior claims processes, and continuous training and follow-up.

Find out how EFG can help you break through the competition. Contact us today.