Coke vs.Pepsi. Apple vs. Microsoft. McDonalds vs. Burger King.
The corporate world is often fueled by rivalries, companies who compete against each other for marketshare, top-dog status, and the unofficial title of the most cool and innovative.
In auto finance, the biggest rivalry used to be between banks and credit unions. I can remember an Auto Finance Summit event years ago where a roundtable discussion session talking about the differences between banks and credit unions nearly turned into a shouting match as both sides spent the time pointing out all the reasons the other group had it better. Credit unions do not pay taxes so could therefore offer better pricing, executives from banks complained. Banks had cheaper costs-of-funds, credit union executives lamented, and could therefore offer better pricing. The two sides went back and forth for nearly an hour.
I came across an article recently that shared a unique perspective about how creative rivalries can spark innovation and a competitive fire. The article notes that runners often run up to five seconds per kilometer faster when one of their rivals is entered in the same race.
Reading that article, I wondered where the competitive rivalries in auto finance existed today. They definitely exist at local dealerships, where lenders — banks, credit unions, and finance companies — battle one another for loan applications from consumers. And while that does often spark competition, such as price wars, those rivalries are too localized to bring about innovation within the auto finance industry.
I’m not saying that the auto finance industry needs people to develop a white-hot burning hate for one another in order for it to thrive. For example, the distance between Ally Financial and Toyota Motor Credit Corp. for the top spot among auto lenders is razor thin. That’s a great place for the industry to start.
The article I mentioned above cites how while Michelangelo was hired to paint the ceiling of the Sistine Chapel, Raphael was commissioned to design the tapestries in the famed church. Knowing that his work was going to hang underneath his rival’s, Raphael pushed himself to “creative brilliance.” Creative brilliance sounds like something that the auto finance market could benefit from.
Coke vs.Pepsi. Apple vs. Microsoft. McDonalds vs. Burger King.
The corporate world is often fueled by rivalries, companies who compete against each other for marketshare, top-dog status, and the unofficial title of the most cool and innovative.
In auto finance, the biggest rivalry used to be between banks and credit unions. I can remember an Auto Finance Summit event years ago where a roundtable discussion session talking about the differences between banks and credit unions nearly turned into a shouting match as both sides spent the time pointing out all the reasons the other group had it better. Credit unions do not pay taxes so could therefore offer better pricing, executives from banks complained. Banks had cheaper costs-of-funds, credit union executives lamented, and could therefore offer better pricing. The two sides went back and forth for nearly an hour.
I came across an article recently that shared a unique perspective about how creative rivalries can spark innovation and a competitive fire. The article notes that runners often run up to five seconds per kilometer faster when one of their rivals is entered in the same race.
Reading that article, I wondered where the competitive rivalries in auto finance existed today. They definitely exist at local dealerships, where lenders — banks, credit unions, and finance companies — battle one another for loan applications from consumers. And while that does often spark competition, such as price wars, those rivalries are too localized to bring about innovation within the auto finance industry.
I’m not saying that the auto finance industry needs people to develop a white-hot burning hate for one another in order for it to thrive. For example, the distance between Ally Financial and Toyota Motor Credit Corp. for the top spot among auto lenders is razor thin. That’s a great place for the industry to start.
The article I mentioned above cites how while Michelangelo was hired to paint the ceiling of the Sistine Chapel, Raphael was commissioned to design the tapestries in the famed church. Knowing that his work was going to hang underneath his rival’s, Raphael pushed himself to “creative brilliance.” Creative brilliance sounds like something that the auto finance market could benefit from.
I like the post, Mike.
I think you are seeing those competitive juices flowing locally, rather than nationally. You know the drill: some lender will come in to the market and start “buying” share. That exercise generally gets the target painted on the lender’s back — and it’s Coke v. Pepsi, only on a local scale. I’m not sure, but I suspect that’s enough to get Raphael riled up to win.
Mike,
Good post. There is a difference in the economics. Five (5) banks now control over half the bank deposits and it is oligopoly versus competition notwithstanding the other bank players in the market (I realize that car loans are assets but the deposit angle (liabilities) is very important). The rules are different. And, while you mention the captive finance companies, the approach to source loans is different. The captives and non-banks rely more on lower credit quality, pricing (in many forms), and lower collateral value and what is financed. They are not distinct tiers of separation between bank approvals and non-bank finance company approvals but there is a difference in the approaches that they use to get business. Example: before the bank consolidations, most banks had a car dealer owner on their boards. Today it may be on an advisory board but banks still have an opportunity for a closer relationship. It is easy for an owner to direct the F&I manager to send business with similar approvals to his favorite bank. When a dealer shotguns the request for approval, there is still an opportunity for the dealer to limit the number to whom it was sent. Finally, bank deregulation and consolidation has eliminated most of the real competition (including innovation) among banks because their are no egos involved anymore of the top executives. Few people can name the top executives of auto finance at banks and auto finance companies and no one lives in the same town with that person or plays golf at the same club so there is no psychological competition. Additionally, the auto unit executive is in competition primarily with their company goals and personal goals and not with the goals of the others. That was not the case before de-regulation. Perhaps if a third party kept the main players in the news on areas that really spur competition, then your comment would be even more valid. I always enjoy your posts – you are always thinking.