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.