As disruptions ranging from rapid digitalization to widespread inventory shortages shake the automotive industry, success for auto dealers continues to be defined by how well teams can adapt and embrace change. 

It’s not just how consumers are researching and buying vehicles that’s evolving – they’re increasingly opting for remote and digital purchasing options. What consumers are shopping for is also changing, fueled by factors including changes to consumer finances, government regulations and shifting product mixes from OEMs.  

To navigate today’s changing automotive retail landscape and adapt to changing car buying behaviors, proactive dealers are turning to data to look ahead and plan their next steps to understand what influences car buying decisions. 

In this blog post, we identify three current market trends affecting car buying behavior in 2021 that are critical for dealers to consider while planning ahead, including:  

• - Increased demand for mid-size vehicles

- Growing interest in EVs 

• - Benefits of captive loan penetration 

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• Increased Demand for Mid-size Vehicle Models

While sedan sales in the U.S. have been slowing for a number of years, American’s shift to mid-size vehicles reached a new milestone in 2021. For the first time in recent years, mid-size vehicles captured more share of registrations in January than compact vehicles, according to research from IHS Markit.  

This movement away from sedans and compact vehicles is in part fueled by an ongoing shift in consumer preferences toward sport utility vehicles. In the same report, IHS Markit noted that in January 2021, mid-size utility vehicles were 60% of mid-size vehicle registrations, up from 56% a year earlier. 

This consumer car buying trend  is even more evident in the luxury space, where SUVs represent 64% of the total segment according to earlier research from IHS Markit. Combined with sedans, with a share of 27%, these two styles account for 91% of all new luxury vehicle deliveries. 

With consumer demand high and new vehicle inventories still strained, it’s critical dealers take a data-driven approach to inventory management. By leveraging predictive marketing technology, dealers can identify localized car buying trends and areas of demand to both turn their new inventory faster and acquire in-demand pre-owned models in the process. This includes identifying which makes and models have consistently sold well in the past, as well as which customers in your portfolio are most likely interested in the vehicles you currently have on your lot. 

New Interest in EVs

Like SUVs, growing consumer interest in electric vehicles spurred by seemingly endless factors has been well documented in recent years. However, IHS Markit reported consumer adoption reaching new heights in 2020 as EV loyalty climbed to 55%, increasing from only 34% five years ago.

This growth is expected to continue, with U.S. sales of EVs expected to exceed a 3.5% overall market share in 2021 and climb to a more than 10% share in 2025, according to IHS Markit. On a global scale, IHS Markit forecasts EV sales to grow by 70% in 2021.

From sales to service work, dealerships will be critical to electrification on a mass scale, explains NADA President and CEO Mike Stanton. “There’s 17,000 franchised dealers waiting to sell electric vehicles, excited to sell electric vehicles,” says Stanton in a recent video dispelling the myths surrounding dealerships and EV sales. 

In an earlier blog post, Stanton notes dealers’ attitudes toward selling and servicing EVs has changed considerably in recent years, using Cadillac as a real-world example of dealerships embracing change. Dealerships will be critical to widespread electrification explains Stanton, offering “a large, expansive network of retailers and service providers who are experts at marketing locally, and who are invested in the future sales and service opportunities that these products promise.”

Greater Captive Loan Penetration Offers New Opportunities

As the industry continues to recover, many OEMs and dealers remain focused on maintaining customer loyalty as buyers return to market. Loyalty is playing a larger role at the brand-level, explains IHS Markit. And despite the pandemic, loyalty rates remained relatively high in 2020. 

This may have been, in part, driven by attractive OEM incentives, namely low and no-interest loans with extended terms and payment deferrals offered by many automakers at the peak of the pandemic. As a direct result of these incentives, new vehicle purchases via captive loans spiked. While the captive share of financed new vehicle registrations has continually increased over the past few years, captive loans represented 51% of new vehicle registrations that were financed in 2020, according to IHS Markit. 

With captive loans facilitating about 90% of leases in 2020, these buyers represent numerous opportunities for brands and dealers alike. By facilitating leases, captive customers will naturally return to market faster, with lease terms about half of that of an auto loan. Further, IHS Markit research finds lessees are typically more loyal to brands when they do return to market, providing dealers both continuous sales opportunities, as well as a sustainable source of CPO vehicles from those coming off-lease. 

As many of these OEM programs have faded away, it’s now up to dealers to ensure they can identify and engage customers who are preparing to return to market with attractive financing offers tailored to their unique purchasing situation. This starts with your very first customer touchpoint, underscoring the importance of data-driven dealership marketing technology. 

Ensure your sales and marketing teams can identify which customers in your database will likely return to market soon, as well as detail any financial considerations that may dictate their purchase. Your marketing messaging should speak to these pain points and build on that customer’s brand loyalty, exchanging bait-and-switch deals for personalized and transparent offers including any available OEM CPO programs, automotive financing terms or other special offers.

If 2020 taught us anything, it’s that while we certainly can’t predict the future, planning for your dealership’s success in the future requires you to look at the past. By understanding the car buying trends shaping customer buying behaviors in 2021 and beyond, dealers are empowered to identify areas of opportunity in their market – even in the uncharted territory ahead.   

This year has been a wild ride, to say the least. Dealerships have done their best to keep up with changing consumer trends and tightening margins, all while staring down the barrel of uncertainty related to COVID-19 protocols and other external factors. Still, dealers and consumers alike have proven to be resilient, bucking some auto sales and financing predictions from earlier in the year. 

While continued marketplace fluctuations make exact predictions surrounding the future of automotive sales and financing nearly impossible, there is plenty of data and forward-facing insights available for proactive dealerships to add critically-important updates to their processes and help cement future success – no matter what lies ahead.

Opportunities exist inside the dealership in 2021 – including in the F&I office. In this blog post, we analyze the state of automotive finance market, including:   

– Changes to current buying preferences
– What’s happening with finance at the dealership level
– How to prepare for future F&I success

The Realities at Dealerships

When asked about their future buying plans earlier in the year, many buyers responded they were delaying their purchase – though not canceling their purchase plans completely. Throughout the summer, consumers increasingly responded positively to impressive manufacturer incentives like 0% financing. By the end of May, one industry study found a whopping 90% of new vehicle shoppers believed it was the ideal time to get a great deal on a vehicle.

According to new findings from IHS Markit, these aggressive manufacturer incentives effectively offset the impact of COVID-19, impacting the U.S. automotive finance market by moving customers away from leases and toward loans. Of the lease customers who returned to market this past January/February, 75% leased again. Between March-July, this number dropped to only 67%, driving up the loan mix from 25% at the start of the year to 33%. 

Similarly, purchasers who returned to market and purchased again jumped from 89% in the early months of the year to 92% in recent months.

With new vehicle inventory still limited for much of the U.S., many of these OEM programs are beginning to fade away, putting the pressure of offering attractive automotive financing options back on dealerships. This means auto dealerships must ensure they’re engaging customers with firm financing offers on all new vehicle sales, highlighting the importance of having your marketing, F&I and sales teams all directly connected and communicating effectively. 

As consumers continue to report being financially impacted by the pandemic, proactive F&I involvement is critical, starting with those first customer touchpoints. Ensure your marketing addresses any identified financial pain points customers demonstrate before they come in, including available OEM CPO programs, automotive financing terms or other special offers.

Addressing Changes in Buying Preferences

With a surge in financial stressors and a dramatic decrease in the number of new vehicles populating lots around the world, pre-owned vehicles are in the spotlight like never before. Proactive dealerships are taking pre-owned sales more seriously, especially when it comes to financing.

According to NADA’s 2020 midyear report, many dealerships have been taking steps and making progress in growing their F&I market penetration, rising from 54.5% in 2010 to 77.8% in 2020. With new vehicle benchmarks set around 80-90%, there’s still plenty of room to grow when it comes to pre-owned vehicle financing. 

Ensure your F&I team is focused on pre-owned opportunities and is regularly communicating with your sales team. Just as with new vehicle sales, it’s critical to introduce F&I involvement in the initial stages of the buying process, capitalizing on offers like extended warranties and wrap coverage to ensure customers their pre-owned purchase will be covered for the long-haul. 

Preparing for 2021 Opportunities and Beyond

Perhaps one of the most visible impacts on dealerships in 2020 was the rapid adoption of digital retailing. Research from IHS Markit finds 61% of consumers who purchased during the peak of the pandemic did so at least partially, if not completely, online. Dealers have the opportunity to take this approach even further in 2021 by bringing other elements of the dealership online. 

In the previously mentioned survey, respondents who purchased at the dealership in 2020 ranked negotiating a vehicle price and securing F&I products among the top 5 touchpoints they would have liked to have completed online. 

Ensure your BDC is equipped with the tools and information needed to both identify qualified, prospective buyers and seamlessly connect them to your F&I team. From here, ensure your F&I team is prepared to offer services virtually, including options like video chats and e-signing. 

Taking F&I processes online allows dealers to appeal to new consumer behaviors and improve efficiency, reducing some of the friction typically seen in F&I offices that could negatively impact results. Its critical dealers embrace digital solutions that automate steps in the process, such as pre-filling forms and documents, such as credit applications. 

Offering F&I services virtually isn’t simply a “nice to have” option for dealers – it offers serious benefits to your bottom line, especially with uncertainty still on the horizon. A study in April 2020 by NADA discovered a 58% increase in F&I profits from February to April for buyers who worked through a digital purchase process, where traditional dealerships only saw a 35% increase over the same time. 

While what exactly 2021 will hold for dealers may be uncertain, the past year has proven dealerships that take a proactive approach to adapting sales and automotive financing processes have every opportunity to succeed.

Like every other department, pre-pandemic life likely looked vastly different for auto dealerships’ F&I teams than it does now. Even with vehicle affordability concerns on the rise, record-high credit scores made financing relatively simple in most cases. 

As automotive dealerships continue ramping back up, a question many auto dealerships are asking is: what’s stayed the same and what’s changed in dealership F&I as a result of the pandemic?

In this blog post, we share four best practices to improve your car dealership’s post-pandemic F&I results by:

• – Staying connected to your lending sources

• – Connecting with customers on finances before the transaction begins 

• – Reinforcing your dealership’s customer experience culture

• Taking the time to train your team 

Stay Connected to Your Lenders

It’s always been important for your F&I team to be closely connected to the banks and finance companies your auto dealership uses the most. But with current economic factors in play and the variety of special programs lenders have in place to deal with them, this has become more critical than ever. 

Dealership leaders should make sure their F&I teams are watching every move lenders make and that they’re communicating the highlights to your sales teams so they’re prepared to answer shoppers’ questions and start financing discussions with the most current information, which is changing rapidly.

Challenge your F&I team to know each lender’s stipulations, their maximum advance guidelines, what book value they use, their relative affordability for subprime shoppers and many other lending guidelines and other factors that help you put together packages and get applications approved quickly and cleanly.

Connect on COVID-19 Auto Finances at the Start

Previously mentioned economic challenges emphasize the importance of F&I professionals having a clear, up-to-date view of their customers’ financial history, especially what may have happened to them in the first half of 2020.

The pandemic and its associated public health measures created sharp economic shocks for many American households, with 870,000 jobs lost in March and 20.5 million in April (according to the Bureau of Labor Statistics). But while people weren’t working, they also weren’t spending as much money. This was good news for credit scores: American consumers have paid down their credit cards during the pandemic. After hitting a record high in February, consumer credit card debt is now down to its lowest level in three years.

F&I professionals should make sure they take the time to learn up front to connect with customers and have a transparent conversation about their current financial situation, both to determine whether specific lender programs may apply, as well as to identify potential trouble spots and ensure every risk is transparently laid out on the table.

Establish a strong digital retailing process that includes F&I, such as offering options like e-signing or video chats for customer interviews. This may require investing in new dealership tools and solutions – a definitively worthwhile venture. A recent NADA study found dealerships with an established digital retailing process saw F&I profits rise 58% on new vehicles in April compared to February, versus 35% at dealerships that didn’t offer digital retailing.

Reinforce a Dealership Culture Driven by Customer Experience

One benefit from an auto dealership customer experience (CX) culture from an F&I perspective is it helps reduce chargebacks. When F&I pros ensure the customer is satisfied with the products and services they receive in the F&I room, those customers are less likely to cancel their products in a few months. 

Instill a CX-driven culture by training your F&I team to design deals and offer add-on products based on a customer’s best interests. It’s not that F&I shouldn’t be maximizing gross profit PRU through profitable markups or selling add-ons, but they should be making sure the customer understands and is comfortable with their interest rate and they’re identifying and selling add-ons that the customer needs.

The result will be a customer who is less likely to default on a poorly structured deal, less likely to cancel useless add-ons and more likely to remain loyal to your dealership for service and their next purchase.

Make Time for Dealership F&I Training 

High-quality F&I requires more training than arguably any other role in an auto dealership, except for service technicians. With sales volume down, this is a great time to both get your F&I team training that will help them grow in their roles, as well as update F&I-related dealership training for your new and pre-owned sales teams.

This could mean participating in lender updates, third-party sales training, product-specific training, internal role-playing training to help prepare for specific circumstances or more; whatever makes the most sense for your car dealership. 

One simple and low-cost dealership F&I  training method is simply to videotape an F&I transaction – either live or mock – and walk through it with the staff involved to identify areas of potential improvement. Have them explain why they made the choices they did at key points in the presentation.

Contact your dealership’s service and technology providers to inquire about any included in-person dealership training programs or remote opportunities. Mastermind, for example, provides ongoing, personalized car sales training to all our dealer partners to ensure every member of their team gets the most value from our product suit.

The state of the automotive finance market, like the rest of the automotive industry, is one of upheaval and complexity. The good news is the automotive industry is beginning to rebound, and car shoppers are returning to auto dealerships.

While a shifting marketplace adds complications for dealers who are trying to get their doors all the way open and their people back to work, it also creates opportunities to make up lost ground elsewhere by making gains in F&I in the new environment.

In this blog post, we’ll explore these opportunities and assess the state of the automotive finance market in 2020, including:

• – How consumers are re-entering the automotive finance market

• – What the shifting balance between new and pre-owned sales means for the automotive finance industry

• – What changing consumer shopping behavior means for online automotive financing

The Car Buyer Come Back

Predictions that consumers had largely only paused their car shopping, rather than cancelled their purchase plans, appear to be holding true as shoppers began returning to auto dealerships in May. According to Google, consumer search interest for “is it a good time to buy a car?” was nine times higher in March and April of 2020 than it had been in January and February.

Rising consumer interest appears to be driven by generous manufacturer incentives, including zero-percent financing. In fact, a recent study by AutoTrader found 9 out of 10 new vehicle shoppers believe right now is the best time to get a good deal on a new car. 

However, many of the most generous OEM programs are expected to sunset soon, as the lack of new-vehicle inventory limits their usefulness. That will put the onus of delivering attractive automotive financing back on dealerships, highlighting the importance of having an F&I team connected directly to your new and used sales teams and making a firm financing offer part of the car sales process.

Before the pandemic, affordability was consumers’ greatest concern. Widespread layoffs, furloughs, salary cuts and other household economic shocks have made that an even more immediate issue for many shoppers. Prioritize proactive F&I involvement in the early stages of the car sales process, starting with your first marketing touchpoints.

Using Used Cars to Grow F&I Profits

The pre-owned market will increase in importance for the rest of 2020 thanks to a combination of OEM production disruptions, increased used-vehicle supply from massive rental car defleeting and consumers being more cautious with their spending. That means dealers must ensure they’re taking pre-owned automotive financing more seriously than ever before.

According to NADA’s annual surveys, dealers have been making steady progress at capturing pre-owned automotive finance business, growing their used F&I market penetration share from 54.5% in 2010 to 77.8% today. That’s approaching the 80-90% average figure for new vehicle F&I that has been the benchmark for the past decade and beyond, and it’s a reason why F&I gross as a percentage of all pre-owned sales is up industry-wide almost 25% from 2010.

To capitalize on current automotive finance trends, focus on marketing F&I products such as extended warranties and wrap coverage to offer price-conscious consumers longer term peace of mind. 

Putting Automotive Financing Online

While three-quarters of pre-owned sales were financed through dealer F&I in 2019, that doesn’t mean 2020 will follow suit. That trend was already being challenged by the growth of online shopping. A 2019 FICO study found that 28% of consumers plan to apply for automotive financing online for their next car purchase, while 32% plan to visit a financial institution and 40% plan to use the dealership. 

Since then, the COVID-19 pandemic has pushed many consumers into new comfort zones of handling more and larger transactions online, as well as limiting the appeal of physically going to a bank or credit union to take out an auto loan. 

This highlights the importance of making sure your “digital dealership” prominently includes automotive financing options. Ensure your dealership’s BDC is prepared with the tools and information needed to seamlessly connect customers to your F&I team. Consider ways to simplify and improve the digital F&I experience, such as offering options like e-signing or video chats for customer interviews. 

Getting your car dealership’s digital retailing process up-to-speed may require investing in new dealership solutions, but in today’s highly competitive market, the potential benefits can’t be ignored. A study by NADA found F&I profits rose 58% on new vehicles in April compared to February among respondents with a digital retailing process, versus 35% at dealerships that didn’t offer digital retailing. 

Today’s car shoppers are deeply concerned about affordability, more informed than ever before about the finance and insurance (F&I) options available, are less willing to spend time dealing with paperwork, expect a personalized sales experience and are willing to walk away from a long-time business relationship if they’re not happy with how they’re treated. When your customers measure their dealership experience, the time they spend on F&I decisions and paperwork can make or break your customer satisfaction index (CSI).

F&I is a critical component of dealership revenues and profits. According to NADA data, the F&I process generates about a quarter of dealerships’ gross profit across new and used vehicle sales. Roughly nine out of every 10 new-vehicle purchases involve F&I, with more than 45 percent including a service contract.

This means there’s more pressure on your dealership’s F&I team to get things right.

Fortunately, there are 3 steps your dealership can take to make F&I more valuable both for your business and your customers. In this blog, Mastermind discusses:

1. - Why F&I matters to your customers

2. - How to make F&I a valuable contributor to customer experience 

3. - The important connection between sales and F&I

1. Why Customers Care About the F&I Experience

We’ve written before about the overall state of F&I in the auto industry, but it bears repeating: Financing has always been a pain point for consumers, but the evolving nature of sticker prices and financing products means affordability now tops auto shoppers’ concerns. 

This is the practical reason customers care about F&I as a component of their car buying experience. The other reason customers care is because it’s their least favorite part of the process of buying a car. The reasons customers dislike dealerships’ F&I experience range from it being cumbersome to the embarrassment of having to discuss personal finances with a stranger to the ever-present fear they’re getting ripped off.

For dealers committed to building a culture driven by customer experience, F&I must be a focal point of the overall customer experience strategy. This includes not only employee training and feedback processes, but also ensuring your team has the right information and tools at hand to make the experience as fast and frictionless as possible.

2. Why the F&I Department Matters  

According to FICO, 46 percent of U.S. consumers ranked “one-stop shopping” as the #1 factor for choosing dealership financing. To meet buyer expectations, dealers need to ensure their F&I process is as efficient and convenient as possible. Failure to do so risks the entire sale. 

For one in six customers in the U.S., just one bad experience is enough to get them to stop doing business with a company they’d previously been happy with. In the dealership environment, this means you can’t even take loyalty customers for granted when it comes to their F&I experience.

Among other factors, that means paying attention to not only what’s being sold, but how your team is selling it. For instance, one traditional sales model that drives many F&I rooms is what’s known as the “300%” rule of selling 100 percent of your products to 100 percent of your customers, 100 percent of the time. That may have worked in a time when the salesperson was the primary – if not only – source of information for the consumer on F&I options, but it’s not an effective model for today’s Internet-first consumer. 

In an era where the federal government has websites warning against credit life insurance products, F&I teams need to take a more personalized approach to which customers are open to being presented with the full suite of potential products and which have come into the dealership knowing what they want and just want to get the paperwork done. 

In conjunction with this, many dealers focus on constantly increasing how much of the F&I process they can accomplish before the customer ever arrives. If your dealership has committed to predictive marketing powered by an automotive sales platform such as Market EyeQ, much of the “homework” has already been done, since the analytic-driven personalized offers that brought the customer in the door are the basis for any F&I discussions.

Market EyeQ’s insights into your prospects and customers – powered by data from IHS Markit, CARFAX, TransUnion and more – give F&I teams a starting point for building an attractive set of offers, products and terms that fit the customer’s individual wants and needs. Market EyeQ’s insights eliminate the need to try to sell everything, allowing the F&I team to focus on selling the most appropriate products and delivering an excellent customer experience.

3. Improving the Relationship  Between Sales & Finance

One major opportunity for improvement in the F&I customer experience is to simplify and refine the handoff between sales and finance. Some dealers are improving the sales and finance relationship by making the showroom salesperson the primary touchpoint for F&I services, but there’s a growing consensus the training requirements alone for the two roles make this an extremely challenging model to do correctly. 

Instead of loading showroom sales teams with additional responsibilities, a more sustainable option of reducing the disconnect for customers between sales and financing is to base both processes on a sales platform like Market EyeQ that ensures everyone is working from the same information and insights about the customer. With these dealership data mining tools in hand, your F&I team can start with the right marketing offer, minimize the paperwork and time involved and improve your customers’ experience in their least favorite part of your dealership.

Are you looking for ways to improve your customers’ F&I experience without sacrificing your dealership’s bottom line? Contact us today for a demonstration of how Market EyeQ can help.

Don’t close down your F&I department just yet, as it turns out the dealer-assisted loan might not be dead after all. Despite what some media reports recently claimed, your ability to put customers into the right financing for the right vehicle will continue to be a critical component of the dealership sales process for the foreseeable future. In this article, we’ll break down everything dealers need to know about the current state of automotive financing.

Automotive Industry Reports on Financing

In early March, Automotive News and other media outlets reported on a survey from credit scoring analytics firm FICO that found dealership-acquired financing was down 10 percent in 2018 from just a year earlier, at 63 percent from 73 percent in 2017. More concerningly, the survey said only 40 percent of surveyed consumers planned to acquire financing for their next vehicle through their dealership. Obviously, this kind of massive – and incredibly fast – transition in the relationship between dealers and consumers concerned many dealers who see F&I as a critical component of their interactions with their customers.

However, a lot of questions were quickly raised about FICO’s survey results, which didn’t seem to reflect dealers’ actual experiences. Few dealers had reported seeing a 10 percent drop in finance deals in 2018, and captive lenders weren’t reporting similar figures.

What the Data Says, The Real Report

NADA’s economists dug into the question, and it appears the issue isn’t that consumers aren’t getting financing through their dealers any more, but rather consumers apparently aren’t very good at remembering or explaining how they got their vehicle financing. Despite what the 510 consumers surveyed by FICO told researchers, the much more comprehensive JD Power Power Information Network (PIN) dataset, which includes millions of transactions from 14,000 participating dealers across the country, showed dealer-assisted financing had held roughly steady from 83.1 percent in 2017 to 83.7 percent in 2018.

In short, FICO collected the responses they were given and the media reported the results in good faith, but the reality appears to be that consumers are still reliant on dealers to walk them through a financing process that continues to confuse them, even with all the options for research and shopping available to them.

Automotive Financing Lessons Learned

There’s also a related lesson here in that just as good data is far more helpful than consumers’ anecdotal input for industry researchers when consumer finance is involved, so too does good data help dealers work with individual customers to find the right financing for their personal situation – whatever they may think that is. Dealers know from experience customers can run the gamut from wildly optimistic to wildly pessimistic about their personal financial status, which is why it’s critical to make solid data a part of the sales process as early as possible.

Looking beyond their survey results, FICO’s industry experts identified just this form of data-driven finance engagement as a real opportunity for dealers. “There’s certainly a lot of opportunity for lenders to improve the digital process,” said Ken Kertz, senior director and practice leader of auto and motorized vehicles at FICO in an Automotive News article. “We’re still seeing that the dealer is the epicenter, and customers would prefer simplicity and preapproved offers with rate subvention and incentives.”

It’s good to hear that dealers are still at the epicenter of the automotive finance process. The more dealers put good data at the center of their own processes, the longer that will continue to be true.
automotiveMastermind centers our products and services around advanced data analysis that drives sales with personalized marketing and unparalleled CX. To learn how we can transform your dealership, contact us to set up a demo.