More than 60 million Americans make up the millennial generation — those born between 1980 and 1994. Millennials represent one of the largest generations in history. While this group won’t reach their peak earning age until 2020, they already represent 25% of the total buying power in the U.S., according to a recent study by TransUnion.
Financially, this group won’t reach their peak earning age until 2020. However, millennials already control a large chunk of liquid assets, an amount that is forecast to grow to $7 trillion by 2020. By 2025, they are expected to generate 46% of all U.S. income. In the retail automotive space, 20% more millennials open auto loans and leases than generation X, and they are on track to outpace baby boomers by 2020.
While this generation’s buying power is increasing, they have much different challenges than previous generations, especially when it comes to student debt. Outstanding student loan debt stands at $1.31 trillion, spread out over 44.2 million Americans. The average monthly student loan payment is $351. This debt, combined with the fact that millennials entered the job market in one of the worst recessions of U.S. history, is largely attributed as the reasons why millennials are late bloomers when it comes to buying vehicles and houses. The average worker in the 24-36 age group earns $10,000 less than their parents’ generation did at the same age, which is roughly 20% less purchasing power.
So, how should auto lenders modify their business processes to capture more of this valuable market? If lenders are going to bring these millennials into the fold, they’re going to have to meet them halfway.
Balancing Risk vs. Reward
Increased debt means more risk for the lender. According to TransUnion, there are more nonprime millennials (59%) than Gen X (54%), representing a larger risk. However, millennials are opening auto loans and leases at a rate 2 – 3% higher than Gen X. So, how do you balance the risk vs. reward?
One strategic way of appealing to this generation while also protecting your auto loan portfolio from risk is to structure your auto loans with complimentary F&I products, like a vehicle service contract (VSC) or vehicle return protection. These products protect consumers from unforeseen circumstances that can negatively affect their ability to make their car or house payments.
For example, a VSC gives consumers more control over their monthly budget by taking care of unexpected expenses related to a vehicle breakdown. Meanwhile, vehicle return protection offers consumers a safety net to relieve their lease or loan obligation when unforeseen life events occur, like:
- involuntary unemployment;
- physical or mental disability; or,
- critical illness, etc.
Beyond reducing risk, offering consumer protection products on your loans allows you more control on product pricing and gives you a driving differentiator with your dealership clients as they work to increase their relevance with millennials.
With heated auto finance competition, dealerships have a variety of lenders from which to choose for pretty much any credit tier. When choosing between your institution and another with the same rate, the loan with protection products and the opportunity to increase dealer profit through upgrades will have quite a leg up on the competition.
Balancing the risk versus reward of appealing to millennials isn’t rocket science. It simply takes thinking for solutions outside of the traditional lending box. EFG Companies has been innovating consumer protection products for close to 40 years. We know how to keep you relevant with the current generation with F&I strategies that target the concerns of today’s consumers. Contact us today to find out how.Like This Post