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Products: Full-Spectrum Lending Only Part of Trend
Offering new “Products” to dealers or customers can also allow an auto financing company to grow. Dealers arrange retail installment, lease and balloon contracts on behalf of auto financing sources. In the past, it has been generally clear as to what type of paper an auto financing source would purchase. More recently, auto financing banks and companies have chosen to extend criteria either up or down the credit spectrum or have become a full-spectrum financing source by moving in both directions simultaneously. There is much to learn from dealers and auto finance companies on how successful this strategy will be with originations and servicing processes varying both ends of the spectrum greatly.

New technology and processes are also allowing auto financing sources to differentiate themselves in a Product-like fashion. For example, the implementation of e-contracting and e-processing has already become a means to gain a competitive advantage against other financing sources. It has also become a way to improve dealer satisfaction. Decisioning and funding times have become a race on the originations side. There will likely be other ways in the future in which technology will allow financing sources to gain an edge with their dealers. While dealers will not judge a financing source on the amount of technology it has implemented, they certainly will evaluate their financing sources on what that new technology can do for them. That’s why auto financing companies must be alert to how they can meet customer needs.

Direct financing product offerings allow an auto financing source to build brand equity and consumer relationships. While these products do not provide a revenue stream to the dealer and may even be viewed as a competitive product to the dealer, more full-spectrum and nonprime auto financing companies are introducing these products. Some are doing so in defense of their own territory, others as a full-out growth strategy.

Finally, additional dealer financing products can strengthen dealer-customer relations. These dealer financing products may include floor plan financing, capital loans, equipment loans, cash management services and wealth management and planning. While captives tend to have a deeper penetration of floor plan accounts, banks can often provide a more-rounded offering of financial services.

Pricing and Promotions: Competition Leading to Changes

Pricing and policies can be modified to promote an auto financing source’s portfolio volume and growth. Often this is done in reaction to competitive activity. However, pricing and policy changes must be made carefully for a number of reasons. First, dealers are looking for consistency and dependability from their financing sources. Constant changes in pricing and policies can quickly work against this desire. Also, in order for auto financing companies to be reliable, they must remain profitable.

As the concept of a non-profit, auto-financing source has yet to emerge, auto financing sources must look for ways in which to offer the best product pricing within their own limits of survivability and profit. New tools have emerged to help auto financing companies measure this (see side bar on page 60).

Dealers often ask for consistency and buying depth from their auto financing sources. One area in which auto financing sources can improve consistency is with pricing. In fact, in a recent pricing survey of the top 21 auto finance executives, 81 percent plan to improve pricing processes in the next year.