Dealership bill payment specialists who discussed the service during the D2022 Industry Summit busted myths about the segment and reminded others in the automotive industry of its value, especially under current market conditions.
In fact, automotive consumers need payment services more than they have for decades, said panelist David Engelman, CEO of bill payment service SMART Payment Plan.
Though such services have been around for years, he said many dealers still see them as innovative.
No Time Like Now
“In 20 years, I’ve never seen conditions that make our products more valuable,” he said, citing one statistic that put a recent average monthly car payment at $720. “The average American has a difficult time fitting a $720 payment into their budget.”
The problem, which along with negative-equity challenges won’t disappear quickly, is why panelists said it’s crucial for dealers to consider payment services now. “People are paying $15,000 over MSRP. All things will be harder for customers now and in the next three to five years,” said Jonathan Perry, vice president of sales and marketing for Line/5. “I don’t think we’ve seen something like this ever. It’s not like in ’08, ‘09 and it will be fixed in 24 months. Hopefully we can mitigate that in the next six to seven years.”
Panelist Brenda Kereakes, senior vice president of national sales at PayLink Direct, which offers interestfree payment plans and service contracts, said the need for zerointerest financing is growing due to rising interest rates.
“People are forced to keep their cars longer and are buying more preowned vehicles. Some breakdowns are beyond the consumer’s ability to pay out-of-pocket.”
Other Profit Vehicles
Dealers, meanwhile, must stop relying on car sales for the bulk of their revenue and widen their lenses to services to keep consumers coming back to the dealership, said panelist Robert Steenbergh, founder and CEO of AutoPayPlus, which offers flexible loan payment plans.
“They need to look at other profit centers,” he said. “Eventually, fewer sales will catch up with us.”
Engelman said data consistently show that when lower, easier payments are offered, consumers buy an average of one to two more products.
As for vehicle service contracts being part of that bigger revenue pie, Perry said different approaches can help bridge the gap for many customers and that dealers must find ways to capitalize on cash car sales for which the buyer has no money left for products.
“I think it’s good for (customers) to have multiple options … I see spreading out vehicle service contract loans to get it as low as possible so people can still afford it. If stuff gets more rough, the vehicle service contract will not be first thing they cancel.”
And the panelists said tighter conditions are likely to settle in.
“The inventory levels are going to rise,” Engelman said. “And I don’t think there’s an economist in America who’s not predicting a recession in 2023.”
Myth Be Gone
One idea dealers and others should banish from their minds is that payment plans are for any customer, not just those in the subprime category, the panelists strongly agreed.
Engelman called the myth the most common misperception about payment services.
“We do have a few subprime stores where we get a great penetration rate,” he said. “But 98% of customer credit scores are from 650 to 800. The customer is simply looking for a more affordable payment.”
Perry agreed. “The majority of deals are all about offering flexibility for the customer. It’s nothing to do with credit scores. We have Mercedes and BMW stores … where I guarantee the customer has the money to do that, but who wants to drop that kind of money right now?”
Dealers, whose sales volumes are starting to fall due to rising interest rates, must focus on retaining customers and facing shifting realities, Steenbergh said.
“(Customers) are pushing in ways we’ve never been pushed before. The higher-end customer understands what negative equity is and wants to trade their car in a couple of years.”
One way to keep consumers coming back is product-only financing, Perry said. “If the customer vehicle is serviced at the store, they’ll purchase their next vehicle at that store.”
Kereakes said PayLink Direct has a mix of flexible solutions to retain customers and to help them keep on top of payments. Those include taking any type of payment that works for the borrower, except, so far, crypto currency. We have been deferring payments for natural disaster victims and making contract changes – “anything to help keep that customer active.”
“We text the consumer before their first payment is due,” she said, “and when they have an expiring credit card, decline payment, and past-due.”
Another way to help customers stay current on payments is to match payment plans with the borrower’s own pay schedule, panelists said.
Perry, for instance, said Line/5 offers biweekly and even weekly payment plans to customers. “We don’t ask how much they want to buy the car for. We ask what they want their payment to be. It’s kind of the same thing on the product.”
Engelman said his staff trains dealers to ask how often consumers get paid and to give them options that match that pay schedule.