The pandemic has been a global event with unprecedented impact on our industry. We learned that in these times, our customers demand convenience, efficiency, and speed in the buying process. Online transactions have become an expected part of the purchasing experience. Through it all, dealers have embraced digital tools to create a smooth car buying experience. 

The latest studies showed that nearly all the car buyers in the market start their research online, regardless of how they ultimately complete their purchase.

Fewer and fewer respondents completed each subsequent phase of the research process online. After submitting a lead form, the shopper either continues the process online or moves in-store.

The results showed that even though some purchasers end up buying online, the majority of them visited the store to complete their transaction. 

 

Did you complete your entire vehicle purchase online? 

How you can apply this your dealership:

 

Online research is one of the most important parts of the car buying process. A potential buyer needs to find the right vehicle, calculate payment estimates, and even start the credit application which is an important phase while they’re shopping for cars. There’s a higher chance to complete the sale when the applicants submit an application rather than just visiting your website or calling you for further information without filling out your online application.

This only can happen if you provide them with the right amount of information and convenience as they’re engaging with your website or your online inventory.

 

During the “research” phase, when consumers find a car on your website that they’re interested in, calculate payment estimates, and a credit application can play an important role until they finalize their purchase with you– whether online or in-store.

UNDERSTANDING THE ONLINE BUYER 

 

“11.63% of respondents said they completed their last vehicle purchase online. This subset of customers was asked again if they visited the dealership for any reason at all, and 77.59% still had to visit the dealership for one reason or another. Meaning of the total survey respondents, a mere 2.56% purchased 100% online. When asked about their online purchase experience, their satisfaction level was above average, with a score of 7.97 on a 10-point scale. 39% said convenience was the driving factor.”

 

The good news is consumers are willing to pay more for their vehicle if the dealership offers the following portions of the deal online:

As the studies show, the customer needs to be able to structure their deal on your website. 

Therefore, Ontario Underwriters are introducing an exciting new product to help you sell cars. We are offering our dealer partners an opportunity to add a link from their website (on other online presences such as Facebook, Kijiji, etc.)to a customized credit application. To Learn more about the product:

 

 

 

 

Reference:

REYNOLDS&REYNOLDS. (n.d.). Car buying unfolded. Reyrey.com. Retrieved April 21, 2022, from https://www.reyrey.ca/en/cp/retail-anywhere-report?utm_campaign=RR-CAN-ENG-RetailAnywhere_SY22_Q1&utm_source=RA_Car_Buying_Stats&utm_medium=CAD_Mar22 

 

Time to raise the red flag about what’s coming up, and how to manage the inevitable.

As a general principle, the non-prime market did somewhat well over the course of the pandemic, due to government aid.

The help consumers received during the COVID-19 crisis led to increased purchases for vehicles and even power sports. There was an increase in value for many reasons, and the price for used vehicles actually jumped about one per cent month-over-month—for power sports as well.

With government aid, many consumers were able to save more and spend more on things like more expensive vehicles. Some of these consumers are subprime, and specifically subprime consumers buying vehicles that are more expensive today.

The problem with this, that will inevitably present itself before us in the near future, is that consumers that buy into these more expensive vehicles will have a much higher negative equity when they want to resell or repurchase a new vehicle and trade-in that vehicle.

The problem we have today is not related to consumers getting approved at credit, because the credit approval and the default rates have been great. There is no issue with the markets as it is today.

But every lender knows that what is coming soon are rising (general) inflation rates—and higher interest rates mean consumers that are in non-prime will be the first to be impacted due to having purchased a vehicle over market value.

The whole non-prime market will see this potential issue coming fairly soon, where people will want to get out of those very expensive payments. And when they return those vehicles to a store or to try to sell them, they will be losing quite a lot, because their interest rates are higher and the vehicle price is higher. Therefore, their negative equity will be much higher.

This is a problem we are creating right now—that we created as of around last November, December, and into January. These consumers are buying high with high interest rates, and we are creating an impact that—in a few months from now, or years, or maybe a year or two—will have a lot of people buying vehicles with huge negative equities.

So for now, dealers are happy to sell vehicles during what may otherwise be a difficult period, with the vehicle inventory issue and other pandemic-related challenges. The problem is that we are shoveling negative equities, and we are not going to see such a nice scenario in a few months from now.

There is something coming—there is a wave coming, or it is already here. And what I can say is that I’m certain about that.

If you become more selective on prime,  then the non-prime segment will just grow by itself.

There will be more non-prime in the coming months and years because the interest rates will be higher. Therefore, consumers will be stuck with payments and it will be complicated and challenging for dealers that are not decoding non-prime, to cater to that segment. And the reason being is that the files will get more complex.

Dealers in the market will be choosing their consumers much more wisely, because they will not be able to afford issues with clients delaying payments since their interest rate will be high. They will become more narrow in terms of the actual prime consumers they want, which will raise the non-prime segment.

That’s the effect. If you become more selective on prime, then the non-prime segment will just grow by itself. There will be more non-prime consumers in the future, and with higher negative equities.

The challenge with that is that dealers need to secure the right inventory and the right employees to deal with the more complicated files that will result from this situation.

It’s not a simple prime approval—it will require expertise. Some dealers have that expertise, but I expect artificial intelligence technology to become a key or important player in this overall situation.

These types of tools, like predictive AI, are being adopted by some dealers to help with loan-matching and customer credit management, so that more consumers are approved, and dealers don’t leave money on the table.

And this year, dealers must investigate and implement this new technology, as well as prepare their non-prime processes for the coming months. Unprepared dealers will struggle with non-prime, they will pay a high price for experienced non-prime business managers, and their sales volumes will suffer as a result.

 

 

 

 

dealer, C. auto, & Hobbs, A.-M. (2022, February 22). Decoding the subprime lending market for 2022. Canadian Auto Dealer. Retrieved April 11, 2022, from https://canadianautodealer.ca/2022/02/decoding-the-subprime-lending-market-for-2022/

In the car industry we can be mystified when we see good finance applications are rejected. People just move on to the next deal and don’t give it much thought while they could make the deal work . 

If a finance manager can understand why certain deals get rejected at first, it can help dealers find some hidden opportunities for rejected applications.

Automatic rejections from a lender are often accepted as: “Consumer does not fit the lender criteria.”, without more information. Sending the application from one lender to another until the finance manager closes the file, only hurts the applicant’s credit.

Lenders see a different credit bureau than the finance managers and have their own internal scoring system. A finance manager will rarely know the actual internal score of a customer with that lender.

Lenders might decline a file that is not structured based on that lender’s specific criteria. The decision made by the lender is 90 percent based on the data that the finance manager puts in their system. It is very important for dealers to have a deep understanding of credit in order to figure out if their clients will be declined or approved prior to submitting. 

Dealers have to be aware that when you send a finance application, approximately 2 out of every 3 deals are decided automatically regardless of an approval or decline. These transactions may never be seen by a person. 

For example, there was an applicant who applied for a car loan while under bankruptcy. On the credit bureau you could see a vehicle repossession happened nine months after the bankruptcy, but in fact it was included in the bankruptcy. The lender’s system was  triggered to decline the application, however it was only bad timing and not another issue on the credit file.

Ontario Underwriters are confident that we can provide your customers the best finance option for their situation. Our licensed financial agents will consider each lender’s financing requirements when working on each deal. We know how to navigate your finance deals and help you to make the most out of each deal.