The Industry's Leading Source For F&I, Sales And Technology

Compliance

To Catch a Customer

Optimists at the NADA and the AFSA conferences believe the industry is primed to sell a million more vehicles this year than in 2012. But as one dealer rep said, it’s going to take a unified effort to make that prediction a reality.

April 2013, F&I and Showroom - Feature

by Gregory Arroyo - Also by this author

The NADA’s leadership takes a tour of the show floor at the association’s annual convention.
The NADA’s leadership takes a tour of the show floor at the association’s annual convention.

When asked for his prediction for new-car sales this year, Ron Lamb produced a line graph tracking new-vehicle sales through the Great Recession. The president of Reynolds and Reynolds Co. then pointed to the 16 million-unit trajectory the industry was headed on before the economy collapsed.

“If you calculate the rough math of this dropoff, there are 20 to 23 million vehicles that didn’t get sold,” he said. “There’s almost a year and a half of retailing that’s still out there.”

In February, at the National Automobile Dealers Association (NADA)’s annual conference in Orlando, Fla., finance executives, vendors and even dealers talked freely about what they feel could be a banner year for car sales. For attendees of the American Financial Services Association (AFSA)’s Vehicle Finance Conference a day earlier, it was already a familiar sentiment.

Attendees of both shows offered good reasons for their optimism: Auto finance is back, the average age of vehicles on the road is at historic highs, the housing market is rebounding and product is on target — factors the NADA’s chief economist, Paul Taylor, cited when he offered his 15.3 million-unit prediction for this year.

But the factors standing in the way of Taylor’s forecast also became apparent over the course of industry’s weeklong get-together.

Challenges Revealed
During the two-day Vehicle Finance Conference, the AFSA polled its attendees, the majority of whom were lending executives. They were asked to rank the main issues standing in the way of the 15 million-unit mark. The No. 1 concern: government regulations.

“I thought because we got to Reg. Z that that was the last regulation we’d have,” joked Forrest McConnell, president of McConnell Honda and Acura in Montgomery, Ala., and the NADA’s 2013 vice chairman.

“There is a need for regulation, but there’s a limit,” he continued. “Personally, I think we’ve gone past that limit.”

JM&A, which is celebrating its 35th anniversary, continues to push its Auto Sales2, a CRM tool that mines a dealerships data to identify customers who may be eligible to trade or upgrade their vehicle based on inventory and incentives.
JM&A, which is celebrating its 35th anniversary, continues to push its Auto Sales2, a CRM tool that mines a dealerships data to identify customers who may be eligible to trade or upgrade their vehicle based on inventory and incentives.

In the room were representatives from the Consumer Financial Protection Bureau (CFPB), including Richard Hackett, the bureau’s assistant director. Hackett is tasked with overseeing the installment and liquidity lending markets. He restated the areas the bureau is interested in, including credit reporting agencies, the buy-here, pay-here industry, sales to military personnel, negative equity advertising, and privacy issues. He also announced that the CFPB would soon issue guidance on lender policies related to dealer participation.

About a week later, Bloomberg reported that “at least four” finance sources, including Ally Financial, were warned they could face lawsuits under the Equal Credit Opportunity Act (ECOA) for policies that allow dealers to mark up interest rates in exchange for services rendered.

Hackett’s appearance at the Vehicle Finance Conference also came 42 days before the CFPB issued a bulletin stating that finance sources that allow for dealer markups could be held liable for unlawful, discriminatory pricing.

“We recognize that the people in this room are critical to the economy, and that the [asset-backed securities] market for the industry is robust and growing without federal assistance,” Hackett said. “Our job is to spot trends. We have a congressional mandate to protect consumers and we will continue to do so.”

The Vehicle Finance Conference also revealed another challenge when organizers staged a live focus group. On the stage were nine car buyers from Florida who described their online shopping experience. Some panelists said they spent up to three months comparing vehicles, but the majority said the first call they made to inquire about vehicle financing was to their credit union. Seven of the nine shoppers said they stuck with their credit union’s finance offer.

One of the panelists who didn’t was identified only as Nanette. She made clear her distrust of dealers and was set on financing through her credit union — until she met the dealership’s F&I manager. She liked the quick meet and greet he conducted with her before jumping into his process, and she appreciated the patience he showed throughout. Ultimately, he rewarded her with a lower rate.

“My finance guy was great,” she said, noting that he had won her trust.

Nanette added that she was overwhelmed by the amount of paperwork she had to read and sign. Her fellow shoppers agreed, recommending that dealers use their websites to educate consumers about the F&I process and the amount of paperwork they’ll need to digest and acknowledge with a signature.  

And that’s what finance sources and even software providers lining the aisles at the NADA Convention and Expo were focused on. As for F&I product providers, the CFPB’s focus on dealer participation has them focused on weaning F&I offices off of finance reserve.

Credit Unions Open for Business
Tony Boutelle, president and CEO of Credit Union Direct Lending (CUDL), was in the audience during the focus group. After the panel, he was quick to note that 78 percent of the panelists stuck with credit union financing. He then described what his company is doing to help both dealers and credit unions capture the business.

Richard Hackett, the CFPB’s assistant director, took part in a panel discussion during the AFSA’s Vehicle Finance Conference. Serving as moderator was Bill Himpler, the association’s executive vice president.
Richard Hackett, the CFPB’s assistant director, took part in a panel discussion during the AFSA’s Vehicle Finance Conference. Serving as moderator was Bill Himpler, the association’s executive vice president.

“What we’re trying to do is make it easy on the dealers,” he said, noting that CUDL processed 2.3 million loan applications and originated more than 600,000 auto loans last year.

Boutelle explained that CUDL is focused on driving a deeper integration into the finance process. Last year, the company rolled out a portal that gave dealers access to credit reports from 700Credit. It also teamed up with Open Dealer Exchange to drive a better DMS connection with ADP and Reynolds. The company also is working to improve its AutoSMART marketplace, which he said can pre-approve customers for a vehicle loan simply by entering a vehicle’s VIN.

Boutelle also hinted that F&I products could soon become part of that pre-approval process, and revealed that a new version of the firm’s AutoSMART marketplace is being tested in Canada.

“Credit Unions are back making loans,” Boutelle said. “During the downturn, banks got out first, but [credit unions] stayed in back in 2009. Then regulators came down hard on credit unions. It’s just now loosening up.”

Looking at year-end totals, Melinda Zabritski, director of automotive credit for Experian Automotive, said total loan balances reached a six-year high in the fourth quarter 2012. But she noted the market still favors prime customers, with the subprime market now accounting for 33 percent of the business. Prior to the Great Recession, the segment accounted for about 40 percent.

“The market is strong right now. It’s not back to 2005 to 2006 sales figures, but the market is coming back strong,” Zabritski said. “But it’s the high population states covering most of the balances.”

Comment

  1. 1. Brian [ April 29, 2013 @ 10:16AM ]

    This looks interesting.

  2. 2. Trevor Schumann [ September 07, 2013 @ 04:29PM ]

    What we are witnessing is the death of our profession. Slowly but surely, credit unions are increasing their market share of car loans. Meanwhile customers are more sensitive to the mkt then ever before, and know with increasing accuracy and certainty what rates they should qualify for. Dealer participation will continue to dwindle until it ceases to exist. Meanwhile our friends in Washington don't understand the difference between causation and correlation and make us out as bigots and ultimately aim to eliminate dealer reserve entirely. The industry has never been more transparent to consumers but as long as we continue to make enough to provide for our families Washington won't be happy. Perhaps more disturbing credit unions and insurance companies are leveraging their position to sell service contracts and other products. In the age of information it is only a matter of time before we are left with only the scraps of customers who have already been solicited by both their credit unions and insurance companies for the same products which we offer them. I am not saying this is the apocalypse, but what I am saying is this will be the slow death of our industry, not with a bang but with a whimper.

 

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email: