The Strong Preference for Dealership Financing May Be Shifting
According to FICO’s 2019 Consumer Survey of Vehicle Financing, most U.S. car buyers (63%) opted for dealer-arranged financing in 2018. That’s down from 73% a year earlier. More concerning is that for their next purchase, only 40% said they would inquire at the dealership.
Meanwhile, according to a J.D Power study, the number of consumers acquiring vehicle financing online more than doubled in 2018 to 13%, up from 5% in 2017. It is expected to nearly double again in 2019.
While dealer arranged financing continues to be the epicenter for auto loan customers, why are more customers willing to leave the dealership for financing? Three primary reasons: (1) Empowered, convenience-driven consumers want more control over where and with who and how they do business. (2) New business models and digital finance technologies introduced by lenders and some of the disruptors are attractive to buyers. (3) Much higher satisfaction scores among those consumers who secured direct financing outside the dealership.
What can dealers do? Think about what the consumer wants, not what you want them to do. Give the customer what they want, or the competition will. Nearly half of U.S. customers consider just one lending source before making a decision. Be aware of how consumers prefer to shop for vehicle financing options and adjust your technology investments accordingly.
Adopting digital retailing tools to satisfy customers who prefer more of a self-serve process is one way many dealers are attempting to protect and grow finance penetration. According to a Cox Automotive Study, 90% of US buyers are payment buyers. If most shoppers want to know what their monthly payments are and what financing terms will be before they decide on a specific vehicle, make it easy and convenient for shoppers to find the information they are looking for. It just makes sense. The more customers know, the more comfortable they are. The more comfortable they are, the more likely they are to buy.
This is the promise of digital retailing. Digital retailing is the combination of technologies and workflows that enables the online shopper to move themselves down the funnel by creating a clear path that gets them closer to the sale – and pick up where they left off when they get to the dealership.
In our own 2018 dealer survey, 63% of dealers cite the F&I time delay as the biggest obstacle to customer satisfaction and loyalty, as well as to dealership profits. Since more consumers than ever before are initiating the loan process online, it would make sense for dealers to get in on the action and offer qualified finance information online. And most of them agree. In fact, 62% of dealers recognize the opportunity for improvement when it comes to transitioning online shoppers to dealer-initiated financing. The #1 area for improvement they cited? “Quoting consumer qualified payment terms online.”
By changing when and how the shopper is introduced to “qualified” payment information and dealership financing options, the combination of technology and data enable the dealer and the consumer to come together much faster. The two-way transparency is a trust multiplier. And the sooner finance gets involved in the deal (digitally or otherwise), the more confidently and profitably the deal can be structured. The ‘deal’ transparency also increases finance penetration – and improves the speed and quality of the customer’s transition from the dealer’s website to the dealership and thru F&I, increasing profits and customer satisfaction.
Today’s leading dealers are accepting an auto retailing evolution is inevitable and realizing the pain of not changing is greater than the pain of changing. The dealers that reduce the friction in the negotiation and finance steps of the buying process will maintain/grow market share and win with consumers, today and in the long run. Evolve at your own pace. Future-proof your business. If protecting F&I penetration and profitability is important to your dealership, check out the ‘Digital Finance SOS: Is Digital Retailing the Answer’ Infographic here.
*Data based on FICO’s 2019 Consumer Survey of Vehicle Financing, J.D. Power 2018 U.S. Consumer Financing Satisfaction StudySM and dealership surveys conducted by eLEND Solutions.