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J.D. Power: Speed No Longer Top Consideration When Selecting Finance Sources


DETROIT — When it comes to choosing lender partners, dealers value the type of relationship they have with their finance sources over the speed of their services, according to J.D. Power’s 2016 U.S. Dealer Financing Satisfaction Study.

Jim Houston, senior director of the automotive finance practice at J.D. Power, said finance sources need to shift from a transactional relationship with their dealers to a more consultative one.

“Speed has been king and the area lenders have traditionally focused on, but as the market gets tougher, lenders need to center their attention on their relationships with dealers, or they are going to lose business,” Houston said.

The first step to success, Houston noted, is communication. According to the study, fewer than half of dealers receive consistent sales rep calls or visits from their finance sources — both of which can boost overall satisfaction by as much as 6.8% and 7.5%, respectively. However, it’s not just about frequency, he added. The nature of the calls or visits is what really adds value to the relationship.

“Dealers value a lender that can help them handle the tough issues and solve those outside-the-box situations,” Houston said. “This is where having the right people focused on their dealers and helping them execute their strategic plan is essential.”

There are three things that dealers want from their lenders but aren’t necessarily getting on a consistent basis, Houston noted. Dealers want their lenders to maintain consistent performance among their dealer relationship managers, identify their best dealers and prioritize those relationships, and to focus on areas most important to dealers. Finance sources that are able to meet these expectations, he added, will reap a greater share of the business.

The study also found that there was a correlation between high satisfaction ratings among finance sources and how much business dealers send to those respective lenders over the next year.

Sixty-two percent of dealers who indicated they were 90% or more satisfied with a lender said they would likely increase the amount of business they would send to that lender over the next year. However, as soon as satisfaction with a lender begins to dip, the expected increase in business drops dramatically. As soon as a lender’s satisfaction rating drops below 90% to 80%-89%, according to the study, the amount of dealers who indicate they’d send more business toward that lender plummets to 37%. That amount drops to 22% when satisfaction ratings drop to 70%-79%.

While the study found that speed was no longer the leading factor for dealers deciding on a lender partner, it still plays a significant role. Dealer satisfaction increases by as much as 6.4% when lenders fund error-free contracts the same day they are submitted, the study found. If lenders notify dealers of contract issues within four hours of submission, satisfaction increases by as much as 6%. Additionally, a well-managed exception process can increase overall satisfaction by up to 7.9%.

When it came to satisfaction ratings, Mercedes-Benz Financial Services and BMW Financial Services were the clear winners of the study. Mercedes-Benz Financial Services placed first across all three of the segments the study looked at: prime retail credit, retail leasing and floor planning. BMW Financial Services placed second across all segments.

The 2016 U.S. Dealer Financing Satisfaction Study captured more than 20,000 finance provider evaluations across four segments. The evaluations were provided by 3,100 new-vehicle dealerships in the United States.

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J.D. Power Appoints New Senior Director of Auto Finance


DETROIT — J.D. Power has appointed Jim Houston as senior director of its auto finance practice. In his new role, Houston will use his 30-year experience in auto finance to help guide the industry through a potentially volatile period of new-vehicle sales and declining used-car values, the company said.

“I’m very excited to be joining J.D. Power to lead the auto finance practice, especially at this critical time for the automotive market and lenders,” Houston said. “The combination of new-vehicle sales tapering off and the growing volume of off-lease vehicles driving down used-car values creates some potential business concerns for auto lenders. It’s not a doom-and-gloom scenario, but it does require banks and captive lenders to remain diligent in order to stay competitive.”

Houston most recently served as the head of major account strategy and business development at TD Auto Finance. He’s he’s also held leadership positions at both captive companies and banks.

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J.D. Power: Dealers Willing to Pay for Better Lender Services


WESTLAKE VILLAGE, Calif. — In the highly competitive auto lending environment, the level of service provided — including technology and a collaborative and consultative staff — is more important than price, according to the J.D. Power 2015 U.S. Dealer Financing Satisfaction Study, which found that dealers are willing to pay a premium for high-quality service.

The study measured dealer satisfaction with finance providers in four segments: prime retail credit; non-prime retail credit; retail leasing; and floor planning. Satisfaction was calculated on a 1,000-point scale. Dealer satisfaction in the prime retail credit segment is 868, and in the non-prime retail credit segment satisfaction is 828. Dealer satisfaction in the retail leasing segment is 894, while in the floor planning segment, satisfaction is 943.

While dealerships continue to seek ways to improve their margins, they also seek providers to speed customer throughput in the sale or lease of their vehicles, and in many instances are willing to pay a premium for a higher-quality financing experience. Sixty-three percent of dealers are willing to pay an additional 0.50-0.60 basis points on their loan terms (down 4 percentage points from 2014) to receive good service from their lenders in the prime retail credit segment.

The auto industry works hard to establish high-value, one-on-one relationships with their customers when it comes to the sales and service processes. The same principle applies to dealers when it comes to the relationship with their lenders in all consumer-facing products — prime retail credit, non-prime retail credit and retail leasing. Auto lending continues to be a relationship business. Findings of the study show that assigning/aligning dedicated underwriters positively impacts dealer satisfaction by providing higher levels of service and collaboration. And a majority of dealers (84%) indicated that their lenders provided a dedicated underwriter person and or team who contacted them frequently, providing valued-added communications. The study also found that dealerships retained 59% of their leasing customers through retention programs and consumer guidance provided by their lender.

A dealer-focused sales rep relationship has a positive effect on satisfaction and retail contract volume. When a high level of sales rep service is provided, satisfaction is substantially higher than when there is no focused support (935 vs. 754, respectively). Among dealers with a focused relationship in which all sales rep relationship key performance indicators (KPIs) are met, 68% say they “definitely will” increase the percentage of business they conduct with their provider. Overall satisfaction is highest when sales reps engage in discussions about customer retention (922), dealership performance consulting (916) and training and clarification of programs (916), compared with when they do not (831, 818 and 816, respectively).

“Speed of funding has become a critical differentiator in the eyes of the dealer as efficient cash flow is demanded by dealer management, not absolute finance and insurance income,” said Michael Buckingham, senior director of the auto finance practice at J.D. Power. “Fast application processing allowing dealers to speed the customer delivery process is also critical. Auto dealers are willing to pay a price premium for these services.”

Dealers don’t want loan processors; they want collaborative consultants who can support them every step of the way. High-performing lenders provide a range of services that resonates with dealers, which include helping them understand the variety of lending options available and how they can maximize profits, reduce expenses and retain customers.

In the floor planning segment, J.D. Power found that 85% of dealers are assigned a primary support representative or team who can quickly respond to their needs and questions. Additionally, 75% of dealers indicate being able to immediately reach their support staff. When this occurs, satisfaction is 975. When dealers have to wait one hour to reach their support staff, satisfaction declines significantly to 938. Plus, three-fourths (75%) of dealers indicated increasing retail business with their provider because of their floor planning relationship.

The study also touched on eContracting. When dealers use eContracting or a proprietary technology provided by their lender, overall satisfaction averages 913, compared with 856 when lenders do not use this service. Additionally, 56% of dealers indicate that faster funding time is the main reason to use eContracting. On average, there is a 39% increase in dealers’ business with their finance provider due to eContracting.

J.D. Power also ranked lenders and found that Mercedes-Benz Financial Services ranks highest among lenders in the prime retail credit segment, with a score of 971. Following in the rankings are MINI Financial Services (962) and Alphera Financial Services (961).

Mercedes-Benz Financial Services also topped the list in the retail leasing segment, with a score of 978. Following in the rankings are BMW Financial Services (961) and Lincoln Automotive Financial Services (956). The same went for floor planning lenders. Mercedes-Benz Financial Services ranked highest for a fifth consecutive year, with a score of 986, followed by are BMW Financial Services (974) and Ford Credit (961).

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New Study Outlines Keys to Improving Dealership Performance in the Digital Age


NEW YORK — Dealer profitability, on average, could reach levels of today’s top quartile performing dealers if both carmakers and dealers make the necessary investments to achieve operation excellence and streamline marketing expenses, according to a new study released this week at the 2015 National Automobile Dealers Association/J.D. Power Automotive Forum

Conducted by McKinsey & Co. in cooperation with the NADA, the study, “Fast Forward: How U.S. Auto Dealers Can Drive Sustainable Economic Performance in the Digital Age,” found that U.S. new-car dealers have tremendous opportunities to expand their businesses and improve profitability despite challenges to current retailing models.

“A top industry priority should involve encouraging and creating high-performing auto dealerships,” said Stefan Knupfer, a senior partner with the firm’s Automotive & Assembly Practice. “Our research busts the myth that most of the factors that effectively drive dealer success, such as sufficient scale and brand strength, remain beyond the industry’s control. Instead, we discovered that internal operating practices differentiate highly-profitable retailers from their peers today even more than in 2006 when NADA and McKinsey conducted a similar analysis.”

The research shows that while dealerships are still the preferred place for making the final buying decision, today’s car shoppers are spending more time online on dealer and third-party websites to kick the digital tires of cars and light trucks. Simultaneously, new players with other business models are entering the retail automotive space with an eye toward profiting from sales and service revenue.

“More than 16.4 million new cars and light trucks were sold last year, but this recovery in sales has not translated to consistently increasing profits,” said Robert Mathis, a partner within the firm’s Automotive & Assembly Practice. “While profits have risen from post-recession lows, they have plateaued over the last two years and have failed to keep pace with growing volumes.”

The study included surveys of more than 750 new-car dealers, analysis of more than 2,000 dealer financial metrics, as well as consumer research conducted by McKinsey & Company last year. The main conclusion was that in order for dealers to attract digital car buyers, they need to collaborate with automakers more to achieve better returns on their marketing dollars and improve customer satisfaction.

“While dealership profits are under attack from multiple fronts, such as Internet-based third parties and the hyper-competitive nature of auto retailing,” noted Steven Szakaly, NADA chief economist, “this study provides a guide for how dealers and car manufacturers can work together to improve business performance and increase customer satisfaction.”

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DealerRater, J.D. Power Examine Service’s Connection to Sales


WESTLAKE VILLAGE, Calif. — Dealers wanting to boost vehicles sales should focus on the experience their service department delivers to customers, concluded a joint analysis conducted by J.D. Power and DealerRater.

The two firms used the release of their new finding to announce an alliance that will bring together J.D. Power’s customer satisfaction research and DealerRater’s consumer ratings and reviews to deliver a monthly analysis called PowerRater Consumer Pulse.

For March, the two firms examined the connection between vehicle sales and the service experience. And according to data collected by DealerRater, 40% of car buyers indicated that the service department’s reputation was significantly important in choosing the dealer from which to buy, making service reviews critically important to the sales efforts of the dealership.

“Clearly, there is a strong incentive for dealers to maximize customer satisfaction as it leads to a greater likelihood that customers will post a positive review, helping to support the reputation of the dealer’s service department,” said Chris Sutton, vice president, U.S. automotive retail practice at J.D. Power.

According to J.D. Power, highly satisfied customers (overall satisfaction scores between 901-1,000 on a 1,000-point scale) are more likely to write a review about their experience, compared with those who are merely satisfied or indifferent (scores of 750-900). Among the 37 percent of highly satisfied customers, 4.3 percent indicate that they posted an online review of their experience. In contrast, less than 3 percent of service customers who are either merely satisfied or indifferent posted an online review.

And among highly satisfied customers who posted an online review of their last service experience, 91 percent of the reviews were positive. Among customers who were merely satisfied or were indifferent about their service experience and posted a review, only 71 percent of the comments were positive.

“Considering how competitive the market is, and the tight profit margins that dealers are fighting, strengthening online reputation to maximize sales opportunities is becoming a critical business objective for new-vehicle dealers,” said Gary Tucker, chief executive officer of DealerRater.

J.D. Power also identified five processes with the highest potential impact on customer satisfaction with dealer service. They include:

  1. Service advisor who focuses on customer’s needs (+73 points)
  2. Providing the customer with helpful advice (+55 points)
  3. Getting the vehicle fixed right the first time (+53 points)
  4. Access to the service advisor within two minutes of arrival (+45 points)
  5. Ensuring the vehicle is ready when originally promised (+41 points)

On average, dealers fix vehicles right the first time 93% of the time, and service advisors focus on customers’ needs 92% of the time. Where dealers need to focus, however, is in improving timely access to advisors and setting realistic expectations for when vehicles will be ready, which are met only 73 percent and 77 percent of the time, respectively.

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J.D. Power Projects Best January Sales in 10 Years


WESTLAKE VILLAGE, Calif. — January new-vehicle sales are expected to reach levels not seen since 2004, according to a sales forecast from J.D. Power and LMC Automotive. The two firms expect sales for the month to reach 932,000 units, an 8.5% increase over January 2014.

The total retail SAAR in January is expected to reach 16.4 million units, an increase of 1.2 million vehicles over last year. J.D. Power is also holding to its prediction of 17 million new-vehicle sales for all of 2015.

“The year is off to a great start with exceptional growth in retail sales,” said John Humphrey, senior vice president of global automotive practice at J.D. Power. “The sales momentum seen throughout 2014 is continuing into 2015.”

Continuing a trend from 2014, low gas prices are causing consumers to buy more trucks, with truck, van and SUV sales accounting for 55.4% of sales so far in January.

Vehicle production is expected to increase in 2015 but at a slower rate than last year’s 5% increase. LMC Automotive expects North American production to hit 17.4 million vehicles in 2015, a 3% increase vs. 2014.

“The auto industry is starting 2015 on auto pilot,” said Jeff Schuster, senior vice president of forecasting at LMC Automotive. “Growth of 3% should be easy to achieve as the risk could be centered more with automakers and suppliers not being able to keep up with demand if growth were to be stronger than we project. “

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