Auto financiers across the nation are refocusing on alternative forms of vehicle ownership as the coronavirus economy continues to put pressure on sales and consumer sentiment. However, lenders can help relieve some of these immediate pressures via the subscription service model.
Widely regarded in the industry as an expert in the ridesharing space, Brian Allan, senior vice president of strategic partnerships at HyreCar, connects lenders and dealers to rideshare drivers looking for alternative forms of vehicle ownership. The company’s earn-to-own program allows drivers to secure short-term financing — 24 to 36 months — on vehicles they drive while working for services such as Uber and Lyft.
Every lender has been impacted by COVID-19 in some capacity as the pandemic has shuttered dealership doors, knocked down vehicle sales and forced 38.6 million consumers to file for unemployment in the last nine weeks. On top of that, the current economy has caused many consumers to feel uncertain about the immediate future and hesitant to commit to a traditional long-term loan — or even short-term lease.
To that end, Allan shared with Auto Finance News best practices for lenders and dealers, and how the subscription services business model is a modern solution to consumer affordability concerns. What follows is an edited version of Allan’s conversation with AFN.
Auto Finance News: Can you explain why subscription and on-demand rental options are vital offerings dealerships can leverage?
Brian Allan: As an automotive retailer for more than 30 years in Los Angeles with Galpin Motors, one of the things that I certainly saw as a trend in the last few years — up to when I retired from retail in 2018 — was consumers getting used to the idea of an on-demand rental model.
Dealers have been a bit hesitant because in the past most dealerships didn’t do well with renting cars. In fact, vehicle rentals typically were only around because of the loan service department. With that, it tended to be expensive and certainly not a profit center.
Today, technology has allowed the administration of management of rental vehicles, which can be easily operated through a dealership with very little tax on resources. Dealerships can leverage the inventory they have, and the resources they have with inventory that is typically idle or aged and offer the ability for a consumer to take what could be also known as an extended test drive.
AFN: How can the subscription service model serve as a precursor for consumers to ultimately finance or lease a vehicle?
BA: The crisis has certainly accelerated dealers looking for alternative revenue streams, and anything that they can do to help the consumer be more comfortable with the shopping process.
The idea is to remove anxiety and friction during an uncertain time. Crises tend to accelerate innovation — and on–demand rentals were starting to already increase and become an opportunity for progressive dealers. But now, with the consumer that may come to a showroom, whether it’s digital, through telephone or in person, the dealer can say: “Hey, if you’re not quite sure about the immediate future, how about taking this vehicle and paying for it as you use it?”
The model is not too dissimilar to many things that we do today — whether it’s Netflix or Airbnb, we’re getting used to utilization when we need it. Dealers can leverage technology platforms to offer this and, of course, sell more cars in the end.
AFN: How can lenders and dealers keep the sales and financing process more customer-centric and agile?
BA: Industry experts will say that digital retailing is going to save automobile retail and dealers need to pivot to that right away. Now, there’s certainly aspects of the truth of that. From a firsthand perspective, I know people still like to physically engage with an automobile.
The other thing that’s different from traditional e-commerce retail compared with buying a car is that return policy. When you order something online, not an automobile necessarily, a consumer can return it 30 or 90 days later. With an automobile, at best, some organizations offer a seven day return policy — and that’s only for used cars.
So the commitment when someone has to make a decision in a time of uncertainty — you buy it, you own it — that that isn’t quite as appetizing.
While digital retailing is important to engage customers online, the physical stores are still critical to complete a process. You can imagine a dealership that’s in position to say: ‘Hey, I understand you may not be ready to make a formal commitment, but how would you like to drive this vehicle for up to three weeks at an extremely competitive price, including all the costs except for gasoline?’ That’s very compelling. This is one of those silver linings that is accelerating unique alternatives for dealerships to engage with customers in a difficult climate.
AFN: In the past, the subscription service model had struggled. How has that changed?
BA: Subscription services struggled in the early days because most platforms were trying to leverage only new cars. However, all dealerships have to deal with depreciation and that is a critical component when seeing if a subscription is going to work because the dealer, in essence, is on the hook for the vehicle’s value.
Now, what’s changed? Well with COVID-19, we have a lot of underutilized service loaners and nearly new cars that are two and three year lease returns. These are perfect cars that have already incurred a significant depreciation. With subscription services there is a better opportunity to earn revenue on those vehicles that may be negative on your balance sheet, but now they’re producing revenue on a weekly or a monthly basis.
Further, we have telematics now that allow a dealership or vehicle fleet manager to monitor where the vehicle is, how many miles are on it, and, and have more comfort that their inventory is not just out in the wild.
AFN: Ultimately, what are tips for lenders and dealers to deliver that seamless sales to service processes?
BA: The dealerships need to have the culture and mindset of: Hey, I don’t have to sign the customer to a contract, whether it’s a lease or loan. And dealers need to have the mentality that if they develop the relationship, they can ultimately earn business.
From a customer–centric perspective, it is important to always put your feet in the customer’s shoes. I know that’s so cliche, but it really works. Technology is important, but company culture and technology have to be in sync. Dealerships that try to engage someone digitally, and then do old school things in person — if there’s not that consistency in culture, it’s going to fail.
For a dealer, technology is not going to replace you but it’s going to be like a bicycle that you use to make you go faster, but you’re still operating the pedals.
Editors Note: This feature first appeared in the June issue of Auto Finance News, available now.
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