Experian’s latest State of Auto Finance Market Report made headlines recently, painting a rosy According to the NADA Used Car Guide, more than 3 million vehicles will reach the end of their leases in 2016. This represents a 35 percent jump in off-lease volume. With such a huge increase in reliable, late-model, pre-owned vehicles, the industry has already seen used vehicle prices drop to become more competitive. Now, dealers are more concerned with maintaining front-end profitability while still being competitive.
Meanwhile, lenders are dealing with their own competitive struggle. Many are watching the auto finance market closely to determine when to tighten lending requirements. Some are already beginning to pull out of the subprime space. And, all lenders are determining how to remain competitive while also being compliant with the Consumer Financial Protection Bureau.
Outside of rates, one of the best ways to remain competitive in the auto finance space is by helping dealers accomplish their profitability and competitive goals. With a higher pre-owned inventory, more dealers are looking to utilize certified pre-owned (CPO) programs to differentiate their offerings and increase front-end profitability.
Now, what does this have to do with you? As a lender, you already know the benefits of financing CPO vehicles over pre-owned vehicles. CPO vehicles are more thoroughly inspected.
They typically come with a limited vehicle protection plan, and are less likely to break down, alleviating the financial strain on consumers having to choose between fixing a vehicle and making a payment.
However, what about financing the lease of a CPO vehicle? Now I know what you are thinking. The used-car market, in general, is more heavily populated with less reliable vehicles, and near-prime and subprime customers. That’s why traditional financing rates tend to be higher on used vehicles and leasing is all but non-existent in that space.
But, we’re not talking about traditional pre-owned vehicles, we’re talking about CPO vehicles. Remember, all those reliability benefits already make CPO vehicles a cut above the average pre-owned vehicle, and that drives pricing. It affords the dealer a greater profit opportunity and the lender a much better financial position in the vehicle as well.
In addition, think of all the dealer benefits and how those relate to you. A recent Cox Automotive Analysis of Experian data demonstrates:
- Consumer loyalty is higher for CPO than non-certified pre-owned vehicles.
- Consumer loyalty is higher for leasing than purchasing.
Higher customer loyalty often equates to reduced risk of default or delinquency because they are more invested in the vehicle. Just like with new vehicles, leasing CPO vehicles also provides dealers with: shorter trade cycles, which equals shorter terms for the lender; constant communications to keep consumers engaged, which equals keeping the vehicle and its monthly payments top-of-mind for consumers; and, higher service drive retention, which equals a more reliable vehicle being financed.
Funding leases on CPO vehicles is starting to make more sense, right? Let’s take it one step further. In addition to funding CPO vehicle leasing, consider funding consumer protection products on your CPO leases. This gives you more opportunities to fill dealer needs, further differentiating you from the competition.
With consumer protection products on your loans and funding CPO leases, you set the stage for F&I managers to increase dealership profitability by upselling F&I products. In addition, you are further protecting your loan portfolio with vehicles and products that protect consumers from unforeseen expenses due to vehicle breakdowns.
So which makes more sense to you? Sticking with the same old techniques to woo dealer and consumer business, or providing dealers with out-of-the-box solutions that increase both your and their bottom lines, while protecting your loans?
With almost 40 years of experience in retail automotive, EFG Companies knows how to position your institution to secure more loans from your dealer partners with market-differentiating programs that increase bottom-line profitability and customer loyalty. Contact us today to learn more.
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