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What might fuel this change is an emerging pricing software tool. It is designed specifically for the auto financing industry. It is a game-changing approach that creates a competitive advantage for auto financing sources and dealers by revealing valuable insights about the impact of price on customers and performance. It also enables pricing executives to make decisions within a strong compliance framework.
Based on an analysis of historical data and an understanding of current pricing and performance, the software can review a series of peak performance objectives and how these objectives compare to baseline performance. It provides visibility into the impact of each objective and helps determine which objective to pursue for the portfolio, product or particular segment. Auto financing sources can basically combine their art with science in changing prices. This enables a more targeted dealer/customer-centric approach to pricing.

Auto financing sources must also make decisions on policies and “financeable” products as part of their financing package for dealers. These policies, including those relating to reserve, advance amounts, terms, etc., will impact the banks and auto financing companies’ level of competitiveness. This also applies to the exception policies granted. Moreover, the number and type of “financeable” products allowed can also help or hurt an auto financing source when it is looking to build volume. While one policy cannot grow or shrink volume tremendously, all policies and procedures can have some effect on business.

Financing Promotions can also be offered by auto financing companies. The most common and visible are the subvention programs offered through captives. Volume-based incentives and retail-wholesale incentive programs are often available. Other consumer-focused programs include financing offers designed for specific groups, such as college grads.

Procurement: Mergers, Acquisitions and Portfolio Purchases

“Procurement” could represent several new growth strategies — mergers and acquisitions (which are almost always acquisitions), intra-company divisional integration and portfolio purchases. Mergers and acquisitions often lead to an expanded footprint, sometimes not.

Capital One Auto Finance grew by design with its purchases of Summit Acceptance, Onyx Acceptance, PeopleFirst, followed by Hibernia Bank and North Fork Bank. When Wachovia bought WFS Financial, it did so with the intention of growing the auto financing portfolio. However, when it bought SouthTrust Bank, the bank exited the auto leasing industry. Then there’s Wells Fargo Bank, which merged with Wells Fargo Financial Acceptance to create a new Wells Fargo Auto Finance division.

Portfolio purchases have become more common, with the Key Bank portfolio being sold to Capital One and Bank of America being among the largest and most visible. Additionally, whole loan sales are becoming less rare with the largest sold between GMAC and Bank of America. Many smaller deals are being sold on a frequent basis with a variety of “packaging options” available.

Partnership: Dealer Relations and Financing Partners

Lastly, growth can be gained through “Partnerships.” The most obvious partnership for an auto financing source is with its dealers. It is certain that dealers would say they are looking for buying consistency, long-term commitment, reliability and dependability. They are also looking for auto financing sources to understand their business needs. In reality, dealers with a short-term strategy (and memory) look only for the lowest price. Dealers with a longer-term viewpoint are looking for financing “Partners.”

With the consolidation of lender operations, the evolution of dealer financing platforms, auto decisioning and other technologies, the direct relationship a bank or company has with its dealers has changed dramatically. The number of touch points with dealers has decreased over the last several years. Some financing sources see this as an opportunity to grow by allowing more direct contact with the bank or company. Not all financing sources see it this way, but there are those who view dealer relations as their No. 1 competitive advantage.

“Partnerships” created with other financing companies also represent business. Pass-through and private-label programs allow a bank or company to provide a wider range of financing to dealers with an adequate amount of transparency. The awareness of these partnerships with the dealers will vary by type of program and by execution. The goal of these partnerships is to allow finance companies to move toward full-spectrum lending without having to build the infrastructure to support it.