Wells Fargo & Co. is mulling the switch to a flat-fee dealer compensation model to provide consumers “pricing clarity,” Senior Executive Vice President of Community Banking Mary Mack said at Deutsche Bank’s Global Financial Services Conference last month.
“Normally, the response in our industry around pricing clarity is more disclosures,” she said. “What we said is, ‘Let’s just rethink the way we price.’” In the case of Wells Fargo Auto, that rethinking might mean switching to “straight flat pricing,” working with dealers “so it’s good for them and good for customers,” she added.
One Memphis, Tenn.-based dealer told Auto Finance News that Wells Fargo implemented flat pricing about two months ago. “Our team has been satisfied with the way [flat pricing] is starting to simplify and speed up the buying process with consumers,” said Kent Ritchey, president at Landers Ford Lincoln Mercury, noting that Fifth Third Bank and TD Bank also use flat-fee pricing models. “I can tell you every major lender we do business with is talking about it, and some are still trying to figure it out,” he said.
Some dealers are less optimistic about a shift in compensation structure. “This is an extremely competitive business, and a bank can lose marketshare overnight with a participation change,” Paul Ritchie, president of Hagerstown Honda and Kia, told AFN. Ritchie said the dealership does “quite a bit of business with Wells Fargo” using a rate-participation arrangement. “If Wells [Fargo] switches to a flat-fee plan, they will lose a lot of business, including ours,” he said.
A flat-fee compensation model prevents dealers from increasing — or “marking up” — the interest rate on a deal, which shrink profits, said Saif Kadri, sales manager of Carson Nissan.“Wells Fargo is very picky about whom they give their loans to,” Kadri said. “They already have a 2% markup cap, so we can only add 2% on top of the [approved] rate.”
Wells Fargo Auto’s portfolio dropped 15.6% last year to $45.1 billion, according to Big Wheels Auto Finance Data 2019.
