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Money for Nothing, Leads for Free

April 2011, F&I and Showroom - Feature

by Rich Apicella

When I talk to dealers and lenders about consumer-direct auto financing, it reminds me of that old Dire Straits song, but without the “chicks.” Many dealers and indirect lenders oppose it, but for different reasons. What both sides have in common is that their opposition misses the most important constituent of all.

Dealers are concerned about yet another assault on their profitability, while indirect lenders often fear the dreaded “channel conflict” will harm relations with their dealers. What’s missing from the equation is the most powerful force of all — the consumer. So, rather than arguing about direct vs. indirect, we should get to work on the only winning long-term strategy that exists: the one built around the consumer.

The impact of changing consumer behavior is already evident in our finance business. As they do when shopping for a vehicle, consumers are turning to the Internet to make their auto financing decisions. Supporting this migration is a recent study conducted by Kelley Blue Book, which found that 57 percent of survey respondents intended to research vehicle financing options online.

Even more telling is the fact that 50 percent of survey respondents said they planned to obtain pre-approval through a bank or credit union, while only 34 percent said they planned to wait and arrange financing through their dealer. Given that about two-thirds of vehicles purchased today at franchised dealers are indirectly financed, the disparity is clear.

Google search traffic provides further signs of this migration. Combining the keyword “auto” “car” or “vehicle” with “loans,” “credit,” “finance,” “financing,” “refinance,” “leasing,” “payment,” “rates” or “calculator” yields more than 5.5 million results. Adding the term “bad credit” raises that number to more than 6 million results.

So what do consumers want when it comes to auto finance? Given the fact that every car buyer’s situation is unique, there’s no easy answer. However, after reviewing how consumers research this topic, five attributes stand out: control, transparency, speed, convenience and rates. The ramifications in the F&I office are profound. For a successful consumer-driven model to work, dealers and lenders must understand this and organize their people, processes and IT capabilities differently than they do today.

Lenders Responding, Opportunities Arising

A number of lenders have responded by building and operating a consumer-direct channel. In fact, a Google search for “car loans” returned at least four national indirect lenders on the first page. The fact is, many indirect lenders I’ve talked to have either built a channel or are considering building one in the near future. But it’s not just consumers who are pushing them to do so.

In the name of increased income and profits, Wall Street and lending executives have become proponents as well. Competitive forces also are at work, as indicated by the share growth of credit unions and the proliferation of Internet-only auto finance sites. So, for a variety of reasons, lenders are being compelled to offer direct products.

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