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Frost & Sullivan: Dealers Need to Follow Auto Finance Industry's Lead

November 13, 2012

MOUNTAIN VIEW, Calif. — Changing consumer patterns are galvanizing the automotive point-of-sale (POS) finance market in the United States, a new report from Frost & Sullivan concluded.

Easier access to information, increasing social connectivity and higher levels of awareness among consumers has led to a shift in demographics and behavior, as well as higher vehicle sales. To leverage this strong demand and maximize revenues, lenders are offering customized leasing terms for automobiles, rapidly broadening the scope of the POS finance market.

In Frost & Sullivan’s strategic analysis of the U.S. automotive point-of-sale finance market, the firm found that the market's annual lending value was $340.77 billion in 2011 and estimates this to reach $440.21 billion by 2018.

Demand for used vehicles is nearly three to four times greater than what it is for new vehicles, the firm said, which expects new-vehicle retail sales to increase from 10.2 million in 2011 to 13.3 million in 2018. It also expects used-vehicle sales to rise from 24.4 million to 31.7 million in the same timeframe.

"The rise in second-hand sales drives the automotive POS finance market, as 70 percent of used units sold are financed through loans," said Frost & Sullivan Senior Research Analyst Ratika Garg. "The higher average retail price of vehicles and the introduction of new in-car technologies also sustain dependence on dealership financing."

However, the average miles traveled will decrease at a compound annual growth rate (CAGR) of 0.25 percent between 2011 and 2018, the report noted. This will boost vehicle longevity, reducing demand and curbing POS financing. Additionally, with consumers becoming more Internet-savvy, online and smartphone applications for direct auto loans are growing popular.

As competition among POS as well as loan origination channels intensifies, a long-term view on loan servicing, customer engagement and retention models is crucial. Dealers need to establish a robust and engaging customer retention model to foster trust and drive top-line growth.

"Value-added finance products, such as loans with free insurance, rebates or discounted repairs, will attract and retain customers," concluded Garg."Employing mobile and iPad applications to make vehicle purchase an enjoyable, social experience will also enhance consumer loyalty."

 

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