Meet the demand to drive
Faster financing fuels auto dealer sales.
The year 2019 had the highest spike in auto loan delinquencies since 2011.
Nearly simultaneously, a Federal Reserve Bank consumer credit survey revealed another emerging trend. The number of auto-loan rejections had spiked 8.1% year over year, resulting in a 7.1% increase in the number of denied auto loans for the preceding 12-month period.
Then came coronavirus (COVID-19) in early 2020. As the Fed cut interest rates to a range of 0-0.25% to buoy up a sinking economy, consumers flooded back to the auto market in May. However, with little room for profitability in the ultra-low rate environment, and the likelihood of rising defaults, many financial institutions backed out of consumer auto loans.
As a result, dealers have been left looking for innovative solutions to meet customer financing needs.
Auto lenders welcome customers back
Despite a lingering pandemic and record-breaking jobless claims, auto dealers faced high demand in many markets in July, following a non-fleet sales increase of 63% in May.
Auto lenders may have had something to do with rising sales. As many financial institutions pumped the brakes on financing vehicle purchases, auto dealers gave the green light to creditworthy buyers, cutting commissions on vehicle loans to offer ultra-low rates and special incentives.
However, while the practice brought buyers back to the dealership, dealers still face more than a few challenges with financing a sale.
First is the declining number of financers accepting new auto loans. While consumers with good credit are benefiting in the current environment, those with a few glitches in their credit history have not been so lucky.
PNC Financial Services Group Inc., for example, told dealers in March that it would no longer fund loans to individuals with a credit score below 660, and it is not alone. In June, Wells Fargo terminated contracts with hundreds of independent auto dealerships.
Second is the consumer’s expectation for a quick, efficient sales transaction. More than half of consumers are dissatisfied with the time it takes to purchase a car, and the time it takes to fill out paperwork is still the No. 1 point of customer frustration with the buying process. Finastra details how to create a pain-free lending experience in a new e-book, The Pain Free Consumer Loan (download your complimentary copy here).
Considering that satisfied customers are more likely to return to the dealership for service and maintenance, auto dealers need a streamlined funding solution focused on inspiring customer satisfaction and loyalty.
Finding a better lending solution
According to the Cox Automotive annual Car Buyer Journey study, consumers are increasingly dissatisfied with the price they are paying for a new vehicle. As a result, dealers are under escalating pressure to deliver low interest rates or value-added deals.
Unfortunately, the financing process also continues to be a low point in the customer journey, eliciting dissatisfaction from nearly 60% of Cox Automotive survey participants. Applying for financing and filling out paperwork took longer than expected for 64% of participants. In fact, customers were left idle an average of 40 minutes, providing plenty of time for shoppers to change their mind and exit the buying process.
These findings underscore the need for two things. First, dealers need access to a quality pool of lenders. Second, they need to streamline the lending process to deliver a highly satisfying customer experience from the first point of contact through the closing of the sale.
Increasing customer satisfaction is essential for future profitability as most auto buyers will return to a dealership where they have had a positive experience to fill future buying needs, according to the Cox Automotive study.
This is where a point of sale portal, such as Finastra’s Fusion Consumerbot, makes sense for auto dealerships. Fusion Consumerbot streamlines the lending process and reduces customer frustration to encourage repeat business and more referrals.
The simplified mobile access allows dealerships to submit buyer applications in minutes and receive offers on the spot. With a dynamic, interview-like application, dealers and customers are intuitively guided through the process based on each input.
The customizable point-of-sale solution simply integrates with dealer software and systems within minutes for a seamless lending experience, carrying the borrower’s application efficiently through to closing and servicing. It is a win for dealers as well, providing access to the offers they need to fuel sales.
As credit unions continue to tighten lending standards, Fusion Consumerbot opens doors to financing for auto dealerships and the customers they serve, enhancing profitability and helping to encourage growth even in difficult times. Contact Finastra to learn more about providing a seamless consumer lending system.
Steve Nicoll leads the sales strategy for Finastra’s commercial and consumer lending solutions. He has been with Finastra and the financial services industry for 20 years. Steve holds a Bachelor of Business Administration (B.B.A.) focused in Marketing from University of Washington, Michael G. Foster School of Business.