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The Future Of Auto Loans

Digital technologies have changed the auto-buying process, but superior customer service is never out of style.

When it comes to the purchase of a vehicle, digital technologies have changed everything. We’re now in what could be called the second phase of the Internet sales era, and proactive credit unions are demonstrating that the way to remain competitive is by elevating the buying experience beyond members’ rising expectations.

The traditional way of buying a car usually consisted of watching television commercials, reading a magazine article or two, and talking with friends and relatives. Eventually the time would come to visit a local dealership for the opportunity to kick the tires, take a test drive, and talk with a salesperson. In the end, you would negotiate the deal yourself, hoping to get a fair price and, perhaps, a decent amount on a trade-in. Financing was, and still is, almost an afterthought because it was usually arranged through the dealership at whatever terms the manufacturer offered.

Climb Into The Driver’s Seat

The evolution of the Internet fundamentally changed the nature of a vehicle purchase. A computer with an Internet connection has armed buyers with valuable research tools and knowledge, including:

  • Greater access to information: Prospective buyers have the ability to fully research all makes and models at the click of a mouse, from the comfort of their home. They also have greater access to information from dealerships outside their local area
  • Greater transparency in pricing: Buyers have information about rebates, incentives, promotional events, and special offers in the area.
  • Greater transparency in financing: Buyers have choices in lending that they never had before.
  • Greater two-way communication with dealerships and lending organizations: Dealers and lenders are reaching out over the Internet to market their products.

These changes have resulted in a profound shift in the buying process, with many consumers feeling as though they are, for the first time, truly in the driver’s seat. Buyers are empowered because their access to greater information provides new clout in negotiating. Car shoppers oftentimes have more information about features, options, and rebates than the salesperson on the lot. Meanwhile, competitive dealerships have embraced the change and built stronger relationships with their customers.

Now that the new technologies and methods are firmly embedded into the transaction process, it’s time to re-assess and re-evaluate the overall purchase process and consumer experience to stay relevant in an increasingly competitive market.

How Do We Get There From Here?

For the auto industry, the purchase process has shifted radically. Most shoppers now take several months to go from deciding it’s time to buy a car to actually doing so, and they take full advantage of research tools and other resources along the way. Because of this new empowerment, today’s shoppers have higher expectations in terms of response times, communication methods, and service levels, especially the younger generation. Although its buying behavior is still evolving, Generation Y already represents more than 25% of all retail sales and is predicted to represent more than 40% of all vehicle purchases by 2020. The ability to be always connected and always consuming information presents implications for marketers and lenders alike.

A number of studies have looked at the changing nature of the transaction, and, by far, the biggest influence on the final purchase remains the in-person experiences of

  • Visiting a dealership to see the vehicles.
  • Interacting with salespeople.
  • Taking a test drive.

According to McKinsey Company (McKinsey Quarterly, The Consumer Decision Journey), 76% of buyers report that their direct interaction with a dealership was very influential in the final purchase decision. And, though buyers now spend a greater amount of time and effort in online research, according to Google Insights’ recent Constant Consideration Research Study, the two highest scoring activities that contribute to the purchase decision are visits to dealerships (76%) and test drives (79%).

The access to and volume of online data, however, has pushed many consumers to the point of information overload. The dizzying amount of information, compounded by the number of new choices, is leaving many buyers feeling like they can’t sort through all the information effectively. In addition, many traditional third-party websites are moving to a lead generation model, potentially introducing competitive risks to the credit unions’ lending efforts. Although having these resources available via laptop, tablet, and smartphone has provided a streamlined shopping experience for many, a growing number of buyers want a simpler approach. They want someone they can trust to help them through the vehicle buying process. This need is driving the next phase of the auto buying experience the fast-rising concierge-style buying services.

Buying services have been around for some time, generally in the form of an auto broker who negotiates a price on the consumer’s behalf, in exchange for a broker fee either built into the purchase price of the vehicle or charged separately for the service. The traditional broker model still exists, but the effects of the Great Recession linger, and shoppers are less willing to pay an added premium for vehicles. Today’s informed consumer is looking to make smart financial decisions and increasingly demanding a high quality service experience with transparent pricing at no additional markup.

Concierge services are often able to provide that one-on-one personal advisor who can guide the buyer through the entire auto buying experience, from helping evaluate makes and models to connecting with a local no-haggle, no-hassle dealer, from arranging a convenient test drive to explaining the finer points of financing. The goal is to eliminate the traditional anxiety or discomfort involved with buying a new vehicle and to leave the consumer feeling as good about their experience as they do about the vehicle.

What This Means For Credit Unions

The ideal credit union strategy for this second phase of the Internet sales era is to marry the excitement of the car buying experience with the loyalty of the credit union relationship by offering a two-pronged approach for automotive purchases.

First, leverage auto shoppers’ trust in third-party websites by providing the latest technology solutions for researching, selecting, and financing a vehicle across multiple devices. Make your auto site a key component of your web and marketing strategy, leading with the car. Rates are important, but shoppers focus more on researching a vehicle. Members often consider purchasing and financing one experience, so this will help position the credit union as the first point of contact while promoting your lending products.

Second, integrate a knowledgeable concierge service that provides a personal guide, at no cost to the member, to help facilitate and enhance the buying experience. This will help meet today’s service expectations, leverage the concierge’s ability to impact the purchase, and enhance credit unions’ ability to capture more member loans. Here’s how your new approach should look:

  • The potential buyer conducts the initial research phase online, using the credit union’s website as a way to research makes and models, local dealerships, pricing, rebates, reviews, lending, and availability.
  • When it is time to visit a dealership, the credit union’s concierge service takes over. The concierge engages the member and answers any remaining questions, focuses on key choices, introduces the buyer to the right dealership, pre-negotiates pricing to pass along savings, and eases anxiety or concerns.

As a result of incorporating a more comprehensive strategy to assist members with their auto buying needs, credit unions will have an ideal opportunity to advance member relations, reduce competition, retain more member loans, and grow lending opportunities. In addition, each sale has the potential to boost local word-of-mouth about the credit union as buyers share their positive experience with friends and relatives.

Portions of this article appeared in the Fall/Winter ’13 issue of CU Direct’s Credit Union Lending magazine.

This article originally ran on CreditUnions.com on January 6, 2014.


This article is sponsored by a recognized solutions provider in the credit union industry. Callahan & Associates does not endorse vendors or the solutions they offer, and the views and opinions offered here might not reflect those of Callahan. If you are interested in contributing an article on CreditUnions.com, please contact the Callahan team at ads@creditunions.com or 1-800-446-7453.
November 14, 2014

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