Automotive News - May 13, 2024 - 34

34 * May 13, 2024
FINANCE AND INSURANCE
AFFORD
continued from Page 19
Vehicle prices have been on the rise since
the pandemic and supply chain shortages
of 2021. Now that it's clear high prices
aren't going away anytime soon, how is affordability
driving consumers' financing
behavior?
It's not just higher vehicle prices shifting shoppers'
financing behaviors but also higher interest
rates. We're seeing vehicle shoppers focus more
on the total cost of the vehicle rather than their
monthly payment.
Customers, particularly those in higher credit
tiers, are gravitating towards shorter term loans
in hopes of securing a lower interest rate. As a
comparison, in the fourth quarter of 2023, the average
interest rate for a 48-month loan was 4.2
percent, while the average interest rate for a 61to
72-month loan was 7.5 percent.
Dustin Gingerich
Q: How is affordability impacting customers'
attitudes in the finance and insurance
office? What are they saying about affordability?
How is it impacting your ability to
sell add-ons and protection products?
A: I think the affordability problem is increasing
skepticism. It is also making people think they
aren't going to be able to trade as often.
People are definitely complaining about the affordability
concerns, but they are not really
blaming us. Most people are mad at or blaming
the government.
How can finance managers work with the
affordability-conscious buyer in 2024?
Be completely upfront and honest. Educate
your customers and treat them with respect.
They are going to check you on everything.
Vehicle prices have been on the rise since
the pandemic and supply chain shortages
of 2021. How is affordability driving consumers'
financing behavior?
People are keeping cars longer and waiting for
rates to " come down. " High-credit tier people are
putting down large sums of money and financing
much shorter terms. Mid- and low-credit tier
Kevin Filan
Q: What do you think the long-term impacts
of the affordability crunch will be on
the auto finance market?
A: Vehicle prices and interest rates remain stubbornly
high, and it's putting many consumers -
especially those in the near- and nonprime credit
segments - at risk of being priced out of the
vehicle market.
If these trends continue, automotive lenders
and dealers will need to adapt their strategies to
keep inventory moving, support upward credit
mobility and secure the automotive industry's
future. This will likely involve extending loan
terms for both new and used vehicles.
We are already seeing increases in 72-month
and 84-month loans - they're becoming the
new 60-month loan. It will also involve dialing
up incentives on new vehicles, such as dealer incentives,
cash rebates or lower interest rates at
the start of the loan, to encourage sales.
What do you think will happen with lending
standards this year? And what will that
mean for the different credit tiers?
As long as inflation persists and interest rates
stay elevated, automotive lenders will likely
maintain their tightened lending standards.
While liquidity continues to be a limiting factor,
lenders are also rightly zeroing in on increases
in delinquencies and defaults in their
existing auto loan portfolios. Additionally, many
lenders are doubling down on credit scores
in the loan decisioning process to avoid risk, but
they may be missing out on worthy borrowers in
the process.
How can finance managers work with the
affordability-conscious buyer in 2024?
Institutions and finance managers need to focus
on delivering the three F's in their lending: Be
fair, be fast, be flawless.
Consistent use of a lending enablement solution
will aid finance managers' efforts to fairly
structure, price and decision every application. It
will also help them meet consumers' and dealers'
long-standing desire to speed up the approvpeople
are pushing terms out as long as possible.
al
process.
By delivering quick, personalized offers and
counteroffers, finance managers can secure interest
and build trust with affordability-conscious
buyers before they get cold feet. And when
it comes to predicting risk more accurately, lending
enablement solutions can do what manual
underwriting and limited or stale data cannot.
David Lawrence
Q: How is affordability impacting customers'
attitudes in the F&I office? How is it
impacting your ability to sell add-ons and
protection products?
A: At the dealership level, we are truly just now
starting to see an affordability issue.
In 2022 and most of 2023, most customers returning
vehicles were in equity and interest rates
were historically low. This allowed the consumer
not to feel the full impact of the overall industry
rise in [sticker price] on most vehicles.
Moving into 2024, [sticker prices] have continued
to rise; at the same time, interest rates are
up and the used-car market has normalized,
and customers rarely have equity or have inequity.
How
can finance managers work with the
affordability-conscious buyer in 2024?
Here at LaFontaine, we believe that the earlier
we get involved with any buyer - but especially
an affordability-conscious buyer - the more
successfully we can understand and navigate
their needs. The dealer has to use all the tools at
our disposal to get the consumer the best terms
and conditions on their lease or purchase.
Are customers using digital F&I options to
prepare for affordability concerns and constraints?
Many
consumers love digital retailing, but also
many more are unaware it even exists. LaFontaine
makes sure we offer both options to the customer
and allow them to build their own payment
down to the penny. If they choose, the vehicle can
be delivered to them or picked up in store with
the penny-perfect payment that they selected.
Ken Sopp
Q: What do you think the long-term impacts
of the affordability crunch will be on
the auto finance market?
A: A good portion of the population can't afford
even the lowest-priced cars, and so many people
are choosing not to purchase or enter the
market at all. Additionally, there is the segment
who are holding on to their older cars for much
longer because they can't afford used cars.
As affordability continues to be a big issue,
manufacturers will need to consider repricing
to bring back demand and offering more entry-level
cars because lack of access to lower-cost
cars is a big problem.
In terms of auto financing, I expect to see elevated
interest rates for a while. But the reality is
that lenders cannot go further out on terms;
they are already so extended, so vehicle prices
will really need to come down for the market to
continue to be viable.
What do you think will happen with lending
standards this year? And what will that
mean for the different credit tiers?
With an uptick in delinquencies, lending standards
will continue to be tighter this year. Access
to money for consumers is becoming more challenging
and those with lower credit scores will
have an even harder time getting a loan. This is
because lenders with money to lend are increasingly
careful about who they're lending to and
remaining tough on approving loans to lower
credit tiers.
How can finance managers work with the
affordability-conscious buyer in 2024?
Finance managers should offer leasing as a
vehicle finance option. Payments are generally
lower and terms are much more flexible. Leasing
was less utilized during the COVID-19 pandemic
as [automakers] and captives had no
reason to incentivize programs with supply so
low.
The percentage of new cars leased is rebounding
in 2024. This is important for today's buyer
who is more focused on monthly payments than
overall sales price and who may have to compromise
on that dream vehicle for now due to high
prices and interest rates, and who may not want a
long-term commitment with his [or] her nondream
vehicle.
PRODUCTS
continued from Page 31
affordability on new-vehicle
purchases along with rising repair
costs and opt to drive their cars longer.
Tailored, transparent
A popular way dealerships are
contributing to their overall
profitability further is by structuring a
wealth-building program where
dealers own, market, sell and retain
underwriting and investment income
through their own branded F&I
program. These are known as dealerowned
warranty companies.
Besides greater profit potential, the
big benefits of this type of program are
the ability for a dealer to tailor their
own F&I offerings and pricing, deposit
claim reserves directly into an
investment account of their choosing
without passing through an
administrator and consult personally
with their trusted financial adviser to
maximize returns and access capital
through disbursements and loans.
The F&I products associated with
this leading wealth-building
opportunity can range from service
contracts and limited warranties to
ancillary products such as road
hazard and appearance protection
allowing the dealership to establish its
own pricing.
This enables stronger profit levels
compared with manufacturer-driven
warranties.
In addition, there are other very
attractive wealth-building programs
that can drive profits for a dealership's
long-term investment and legacy
strategies. Reinsurance programs
such as controlled foreign
corporations and noncontrolled
foreign corporations allow dealerships
to earn F&I-generated claim reserves,
taking advantage of investment
income and a favorable tax
environment.
Compliance adherence
In an era marked by heightened
regulatory scrutiny and consumer
empowerment, partnering with a
company that insists on maintaining
compliance and transparency is
nonnegotiable.
F&I products and dealer wealthbuilding
strategies, when presented
ethically and transparently, serve as
valuable tools for meeting regulatory
requirements. It also builds trust with
customers.
Realizing the full potential of F&I
product sales and wealth-building
structures requires more than mere lip
service - it demands investment in
staff training and technology.
Equipping sales teams with
comprehensive product knowledge
and effective selling techniques
empowers them to engage customers
confidently and ethically.
By prioritizing F&I product sales and
legacy wealth building, dealerships
can fortify their financial position,
strengthen consumer relationships,
ensure regulatory compliance and
drive sustainable growth even in the
most demanding business climates.
https://libertyautousa.com/liberty-shield-vehicle-service-contract.html
Automotive News - May 13, 2024

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