We’ve talked about the challenges in this economy in past updates. Seems like we have a genuine ‘trifecta’ of challenges that will impact auto lending.
1.) Rising Interest Rates – The Fed just bumped the rates up another .25% last week. That makes it harder for you to plan interest rate promotions and margin returns, in addition to raising the consumer’s rate.
2.) The Consumer Fear Factor – The talk of recession gets louder. It almost doesn’t matter if there is one or not, but rather what people think. According to Bankrate.com, a full 69% of consumers feel a recession will hit before the end of 2023.
3.) New Car Supply Chain Improvement – With supply increasing, prices of new cars are stabilizing and that is pushing down the value of used cars. While this makes used cars more accessible, the rising rates add another level of difficulty to making the regular payments.
One thing is for certain, selling auto loans will be different in 2023 than 2022. There will still be many cars financed and you can still secure your fair share.
Let’s look at each of these scenarios above and identify approaches your company can use to market effectively in light of these conditions.
Selling Auto Loans in a Rising Interest Rate Environment
We know that most consumers are looking at the monthly payment when they go to buy a car. The question becomes, “How much car can I afford to buy to get the payment I need? When we think of this from the consumer’s point of view, we can offer solutions, instead of just a rate. Your campaigns can focus on “getting someone into the car of their dreams” and helping them “with the most competitive loan terms possible”.
Acting as their consultant you can help them get to the best rate they can within their current circumstances. You also have the unique opportunity to help those credit challenged with a credit building program that might start out at a higher rate (because of risk) but can be refinanced in year two or three based on payment behavior, etc. Longer terms can help offset a higher rate.
Advertising and marketing messaging can promise a free assessment and the best rate possible for their current circumstances. Terms like “See us first; See us before you shop; and Complementary Prequalification” help to set the tone.
Decreasing Consumer Fears in Borrowing
Often consumers will wait on an opportunity because of their fear of what might happen. Of course there is no way to eliminate risk (or a recession), but lending insurance products have been created to reduce the risk. For instance, in the event of a job loss debt protection insurance can delay payments for 6 months. Gap insurance can also help to alleviate any fears that might come from the rapid changes in car values that are predicted.
Marketing Against the New Car Dealership Low Rates
We haven’t seen these yet, but the “zero” interest rates will likely appear if the economy cools. Just as the manufacturers have improved supply, demand may drop which means price decreases and dealmaking will start.
The best defense to this is a good offense. Promote yourself as the place to come for auto loans. Create auto buying seminars for the consumer to learn how to secure the best loan, how to shop for the best car, and how to make a smart decision in this new market reality. Reengage your local dealerships and leverage your indirect lending relationships.
There won’t be any much low-hanging fruit to pick from in these next few years. You’ll need to use all your tools to stay in front of the consumer and build your institution as the place to come for all things auto.
Thanks for joining me today!