Why “Penny- Perfect” Payments Simply Don’t Cut It

One of the most talked about themes at this year’s NADA 2022 conference was the notion of “penny-perfect payments.” It seemed as if this was the new buzzword replacing “digital retailing” from just a few short years ago.

The concept is quite simple. Technology providers are now empowering their OEM and dealer clients with the insights necessary to provide the customer with an accurate, right down to the penny, payment. This is designed to ensure each transaction has the best chance of seeing the goal line and creating a true win-win scenario for the customer and the dealer.

But, a penny-perfect payment on a non-competitive lender program can cost thousands.

Unfortunately for those who have focused on penny-perfect payments, it may be too little, too late. The technology of today has far surpassed “penny-perfect,” and those competitors who understand this are cleaning up.

The problem with simply leveraging a penny-perfect payment is that it’s not a true Scientifically Perfect Solution. Unlike a penny-perfect payment, a scientifically perfect solution is the very best fundable, defendable, and transactable penny-perfect payment. On average, the difference between a penny-perfect payment and the scientifically perfect solution is more than $50 per month — in many scenarios it’s in excess of $100 per month. This $100 per month difference isn’t a big deal on a $400,000 Ferrari, but it’s a HUGE deal on a $50,000 everyday car. An example from a recent study shows a penny-perfect payment variation of $125 per month between the best available program and the captive. The best penny-perfect payment was $665 and the best captive penny-perfect payment was $790. If a consumer receives a quote of $665 from one dealer and $790 from another, which one will he choose? Yes, that was a rhetorical question — the consumer is going to select the more affordable transaction.

As an industry, we absolutely must get this right from the onset. This starts with the OEMs and ad tech firms, flows to the various digital retail channels, and ultimately down to the dealership’s desking/CRM/DMS. The industry is at a crossroads. One direction leads to no change, one direction leads to consistent payments throughout the consumer journey that are penny perfect yet wrong, and the optimal direction provides every consumer a scientifically perfect solution for every touchpoint.

The tremendous turmoil throughout the entire automotive industry is the catalyst that is forcing every player in the ecosystem to choose a direction. Some are working tirelessly and devoting tremendous resources to take the optimal path. Others are working just as hard, and spending just as much money, implementing imperfect solutions. Thankfully, very few are doing nothing.

It is nearly impossible to predict what is going to happen during the next 12 to 18 months. One thing for certain is our industry will be forever changed and those visionaries who understand the importance of perfection will be the ones who end up on top.

ABOUT THE AUTHOR: Rusty West is president of Market Scan Information Systems and has more than three decades worth of experience developing leading data and technology-based solutions for the automotive industry.