Last week, we took a look at some of the findings from J.D. Power’s 2014 Canadian Dealer Financing Satisfaction Study, which revealed that despite a slight decline from last year, overall satisfaction for lender performance remains high with dealers. In an effort to take a little deeper look behind the numbers, Canadian auto dealer interviewed Mike Buckingham, Senior Director, Automotive Finance Practice at J.D. Power. We asked him what some of the study’s findings reveal about the auto finance business today and where the industry might be headed as we edge closer toward the end of another decade. Here’s what he had to say:
HE: Despite the decline in two segments (prime retail credit and sub-prime retail credit), overall dealer satisfaction with lenders remains high. What do you think are some of the reasons for this?
MB: Overall, I think it boils down to a few things. Firstly, if you look at the environment today, dealers are fairly bullish. Conditions are still very good. On top of that, in relation to dealer satisfaction, lenders are continuing to invest in technology, in people and enhancing their product offerings. The result really is designed to help dealers facilitate more vehicle sales, so that’s an important consideration.
HE: Were there any significant factors that distinguished those lenders that ranked at the top of the survey from those further down the list?
MB: When you look at the list by virtue of alignment with the OEM and the brands the dealer is retailing, I do think captive finance lenders do hold an advantage over non-captives and banks. Coupled with higher levels of leasing the product offering is very robust. This represents a good starting point, particularly on the new car side. On the used car side of the equation, we do see shifts happening in satisfaction where banks seem to perform better than captives do.
HE: Why do you think that is?
MB: I think it boils down to the fact that OEMs and captive finance companies are more geared to supporting new vehicle sales so when you’re looking at the banks, they are competing more on an open market basis. They have got very good processes and people in place, plus they tend to have a little more advantage in pricing power, important because used cars are such a big factor for franchised dealers as a profit centre. The banks are seen as doing a very good job in providing the right tools, technology, product offerings and pricing.
HE: There appears to be an increasing emphasis from lenders on really tailoring their services to particular dealer clients. Do you think that has been a significant factor in the increase in overall satisfaction?
MB: In a word, yes. Among high-performing lenders, a key factor has been people skills. Staff are doing a really good job at building relationships, whether it’s at the underwriting desk or funding, whether its through an internal or external point of contact via their sales teams. Everybody is out there vying for business and you’re starting to see more and more customized, market-based solutions. At J.D. Power, we’ve done some segmentation by volume and saw that the high-performing lenders are really getting more personalized in underwriting and funding, as well as being more active in terms of participation, both within the marketplace and with their dealer clients.
HE: It was noted in the 2014 study that floor planning satisfaction was ranked higher on average than prime retail credit. What do you think are some of the reasons for this?
Mike Buckingham
MB: By way of background, there’s been a continuing trend, both in Canada and the U.S. of floor planning satisfaction performing better than retail. If you look at floor planning — with exception of the financial crisis of 2008-09 where there were liquidity issues — the market is pretty stable. Lenders are participating and are very focused on it. Floor planning, perhaps for lack of a better word is sticky whereas in prime retail, there tends be ebb and flow when it comes to the best pricing and best service, whether it’s month-to-month or quarterly. In floor planning there’s also a greater emphasis on self-service, meaning dealers tend to manage floor planning in a similar way that consumers do with online bank accounts. Additionally, those individuals who work in floor planning tend to be more seasoned and knowledgeable — the level of support is very good. There are also less variables to contend with because transactions are only underwritten once, unlike the flow of business that comes into a dealership. There’s no question that you will have your good days and your bad days — everybody is out there working with pricing spreads that are extremely tight on floor planning. It really is a space where all lenders really do their best to satisfy their clients.
HE: It was also noted that overall satisfaction in sub-prime lending dipped slightly from last year. Do you think that’s partly due to a perceived need for greater understanding and training related to the sub-prime market?
MB: Although we saw an overall decline in satisfaction in the sub-prime space, there are some big, really robust players in this market. I think the issue with sub-prime is that is still a niche product and although more dealers are getting into it, the programs are often not as easy to understand compared with the more traditional prime products. Dealers will need more help and support as consumer expectations continue to rise and the sub-prime market grows.
HE: Do you think there are some areas dealers see where lenders can continue to improve the products and services they provide?
MB: Retention is definitely one area we see. The higher performing lenders are working with dealers to find ways to keep customers coming back, either selling or leasing another vehicle to them. Those that take this strategy will be one step ahead and will be more appreciated by their dealer clients. We’ve discovered some interesting statistics when it comes to auto leasing. This year for example, we’ve seen some lenders driving over 50 per cent of leases from previous terms, so I think retention is one area where you’re likely to see more and more emphasis.
HE: Do you think we will see overall lender satisfaction continue to rise?
MB: If we look at it from J.D. Power’s scale of 1000, when it comes to prime retail, the highest ranked lender this year was at 954, an increase of six points from 2013. I think you will see the average move up as dealers continue to increase their level of service to their customers and lenders become more focused.
To take a look at the actual study results from J.D. Power’s Canadian Dealer Financing Satisfaction Study, which we posted on July 2, click here.
