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Opinion

As auto lending moves from on the lot to online, CUs must follow suit

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Within the automotive industry, digital retailing is capturing everyone’s attention — and catching on.

With Amazon being a market leader and model for nearly every aspect of consumer purchasing, the “Amazonification” of the consumer buying experience is increasingly leading dealers to add digital retailing tools to their websites.

Lenders who look at digital retailing as solely a dealer play will miss out on a significant opportunity to drive their loan business, as there is an equally powerful lender play in this space.

In the fourth quarter of 2019, the amount owed by consumers for motor vehicle loans was $1.2 trillion, according to the Federal Reserve. As lenders strive to increase their share of the market, the most common approaches include offering competitive rates and dealer programs, sending relationship teams out for in-store visits with their dealerships and using technology to provide faster funding. All great initiatives, no doubt. But are there others? The short answer is yes.

Digital retailing gives lenders the opportunity to stand out and plant a new flag in the auto retailing world by offering a form of service that gives them an early-adopter advantage. And it uncovers expanded revenue streams, just by leveraging and boosting lenders’ existing strengths.
Before we dive into what digital retailing for lenders is, let’s be clear on what it’s not (or shouldn’t be). Digital retailing is not a single, one-size-fits-all solution for lenders to pick off a shelf and implement — because every lender and their business strategies are unique. For lenders to successfully integrate a digital retailing experience on their site, the solution should offer the tools that meet their business strategy today and be able to grow and evolve as their business grows and their strategies evolve.

The commonality among all these tools is that they drive lenders’ objectives that feed their business strategy: maintaining and growing customer loyalty, solidifying dealer relationships, and creating new revenue opportunities.

Building customer loyalty

Digital retailing gives a lender the opportunity to offer a more convenient car buying and financing experience to their existing customers who are nearing their final loan payment — or have a vehicle that is in the prime age range to trade in. Rather than waiting for a savvy dealership to invite these customers to consider a new car purchase, the lender can use their existing marketing channels to engage customers in exploring vehicle and financing options on their own website.

In essence, the lender is establishing their organization as a one-stop resource for customers to find their desired new car and secure financing for it before ever stepping into the dealership. For the lender, it means actively servicing their customers (and potentially gaining new ones) in a way they may not have considered before — complementing their other, more traditional financial services such as savings and checking accounts and credit cards.

Improving partnerships with dealers

Digital retailing enables lenders to deliver solid customer leads to dealer partners. The most robust suite of tools allows customers to search and browse through dealer partners’ inventory, select a vehicle of interest and secure financing for it.

All that’s left for the customer to do is head to the dealership to sign the contract and drive off in their new car. With dealerships squeezed by competition and margin pressure, they welcome every lead; and every prequalified, contract-ready buyer is welcomed even more. Dealers live by each sale, so lenders who can deliver in this manner boost their service value and strengthen their dealer partnerships.

Adding new revenue streams

When lenders can proactively lead their customers down their next car buying journey, they are providing next-level customer service and convenience. Those doing so now are setting themselves apart from their peers and creating competitive advantage. In turn, sending contract-ready customers to their dealer partners comes with the potential of spurring loan growth as well as adding a new revenue stream.

The new era of indirect lending is here – and it’s called digital retailing. By integrating a direct approach with the established indirect lending model, lenders create a win for consumers, dealerships and themselves.

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