The speed of financing decisions has far-reaching impacts on dealerships, including future sales opportunities, inventory acquisition, and customer referrals, according to respondents in an independent dealer financing study commissioned by fintech company Agora Data.
Driving the news: A reported 114 dealers took part in the study, with approximately two-thirds selling more than 25 cars per month and operating in the subprime space.
Agora Data Executive Vice President and Head of Sales, Jeremy Beck, said the survey was commissioned to figure out what dealers want and need in their lending relationships.
“Let’s figure out where their pain points lie and then go back strategically look at how we operate within those confines,” Beck said.
Zooming in: Among the top pain points was slow approval and funding rates.
Nearly a quarter stated “fast funding” was critical to their operations.
And that funding impacted inventory acquisition, operating capital, and daily operations.
Beck, a former dealership general manager and leader of dealer development training, explained that lenders often overlook the related effects of funding delays.
“When you hold up funding even by one or two days, there are a couple of downstream impacts that probably most don’t consider,” Beck said. “It’s an additional interest that the dealer has to pay on their floor plan. Now you’re eating into their cash flow and profitability, where they can’t go purchase another piece of inventory to replace the vehicle they sold. It’s also another day of the consumer calling and saying ‘Hey, do you have my tags yet?’ And another day of the consumer picking up the phone and saying I never heard from my lender.”
Need for consistency: Along with speedy approvals, dealers expressed the need for consistency with required documentation.
Beck pointed out that proof of residency is a common hangup in the subprime space, which he explained Agora tackled by partnering with Passtime to place GPS devices on collateral.
And the other stip that usually can delay approval is the proof of income, which he added they have developed a proprietary AI and worked with third parties to help verify income.
Third parties look into payment histories for cell phones and utilities to help with approvals as much as FICO scores.
“In our analytics, we’ve seen a significant drop in the amount of deals that are being held up for funding because of proof of residence or income, because we’re listening to dealers,” Beck said.
Working on alignment: Another focus based on the data from the survey, Beck pointed out, is the need to work with dealers to make sure that submitted and approved deals fit the consumer.
The human experience still matters when a consumer may qualify for a larger payment, but to stay within their means, needs the lower cost vehicle.
Decisions at the dealership on reconditioning can impact the deal’s success later on.
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Bottom line: The dealer-lender relationship remains critical, especially in the subprime space. The survey shows the burden lenders bear in making sure they are working with dealers to alleviate bottlenecks that have far-reaching impacts on dealerships, including their reputation with customers.
“Learning from what dealers are telling us is critical,” Beck said. “We have to deliver long-term value to dealers.
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