Mid year check up for used car financing
As we navigate through 2024, the automotive financing landscape is heavily influenced by persistently high interest rates, significantly impacting the used car market.
Despite recent rate cuts, interest rates for automotive remain elevated, posing substantial challenges for consumers and dealership F&I offices alike.
Many Canadians, with 51 per cent just $200 away from monthly financial shortfall, find it increasingly difficult to manage car payments amidst a high cost of living.
This financial strain has softened the used car market this June compared to last year. Elevated financing costs directly affect car sales, necessitating a crucial role for F&I managers.
With sales volumes down, the focus shifts to maximizing gross profit per deal, though this is challenging due to the significant impact of any additional costs on monthly payments.
Compounding these difficulties is the scarcity of used cars. Inventory shortages from recent years mean fewer lease returns and previously new cars are cycling back into the market, limiting the availability of pre-owned inventory.
In response, F&I managers must be strategic, offering flexible financing solutions and comprehensive financial advice to help customers manage high costs. Extending loan terms, highlighting trade-in values, and promoting trade-in programs can make deals more appealing in a high-interest climate.
The recent government budget report underscores ongoing economic challenges, including inflation, which reduce disposable income and tighten household budgets.
This financial squeeze makes managing high car payments even more difficult, further softening the market.
In response, F&I managers must be strategic, offering flexible financing solutions and comprehensive financial advice to help customers manage high costs.
Interest rates are expected to remain high throughout 2024, potentially not decreasing significantly until 2025, which means consumers must navigate a tough economic landscape when deciding to finance a vehicle.
These economic conditions also strain dealerships, which face increased operational costs from acquiring inventory to maintaining facilities. Rising costs necessitate that F&I managers maximize profitability on each transaction.
The competitive landscape is shifting; fewer buyers can afford new vehicles, intensifying competition in the used car market. Dealerships must differentiate themselves through competitive pricing, superior customer service, and innovative financing options. This adds another layer of responsibility for F&I managers, who must ensure their offerings stand out.
Consumer behaviour is evolving in response to these financial pressures. More buyers are turning to online platforms to compare prices and financing options before visiting a dealership. This shift requires F&I managers to be well-prepared to discuss and negotiate financing terms that meet the needs of informed customers. Providing transparent and flexible financing solutions is key to winning their trust and business.
Increased scrutiny on customer credit profiles also complicates the market. Lenders are being more cautious, often requiring better scoring applications for an approval.
This trend forces F&I managers to work closely with lenders to find solutions for customers with less-than-perfect applications. Educating customers on improving their credit scores and offering products that help rebuild credit can enhance customer loyalty and satisfaction.
As we face the economic hurdles of the second half of 2024, the role of F&I offices will continue to be vital for dealership profitability, but if there’s one thing F&I managers are good at, it’s their uncanny ability to turn even the trickiest financial situations into profitable deals.
Looking ahead, dealerships should continue to leverage the creativity and problem-solving skills of their F&I teams.
By focusing on customer-centric strategies and embracing digital tools, they can stay competitive and build stronger relationships with their clients. This proactive approach will not only help them navigate the current economic challenges but also position them for long-term success in an evolving automotive market.
References
- Chat News Today. (2024, June 5). Vehicle financing will be more affordable with interest rate cut, industry experts say. Retrieved from Chat News Today.
- iA Financial Group. (2024, March). Car market outlook for 2024. Retrieved from iA Financial Group.
- Global News. (2024). Will car prices come down in 2024? Industry experts share their outlook. Retrieved from Global News.
- Cox Automotive Inc. (2024). Cox Automotive’s Forecast: 2024 – A Return to Normalcy in the U.S. Auto Market. Retrieved from Cox Automotive.
- Nationwide. (2024). 2024 Economic Trends Impacting the Auto Industry. Retrieved from Nationwide.
- Car Deal Canada. (2024). When will car interest rates go down? Retrieved from Car Deal Canada.
- BNN Bloomberg. (2024). 51 per cent of Canadians $200 away from not making ends meet, MNP report finds. Retrieved from BNN Bloomberg.
- Government of Canada. (2024). Budget 2024. Retrieved from Government of Canada.
- CTV News. (2024). Should I buy a new or used vehicle right now or wait? Retrieved from CTV News.
