Global Trends in Auto Finance: Car Loans Go Digital

By D. A. Rupprecht

Everything’s going digital these days, including auto finance. While a lot of this recent talk about digital transformation has been due to talk of social distancing and the coronavirus pandemic, none of this really matters. Auto dealerships should have been going digital years ago.

Let’s explore why…

Crunching the Numbers

Throughout 2019, a total of 77 million automobiles and light trucks were sold worldwide. Of these, 17 million were in the United States, along with 15 million in the European Union and associated European Free Trade Association (EFTA) countries. Many of these buyers utilised financing.

As an example, 85% of new car buyers in the US and 91% in the UK use vehicle loans when they purchase vehicles. This means tens of millions of contracts yearly from just these two countries. Think too about the hundreds of millions of work hours this involves.

Manually processing all this paperwork takes time, which for dealerships also means money. Instead of concentrating on the nuts and bolts of financing a vehicle, their salespeople would improve people’s perceptions by concentrating on customer service. Not to mention the fact that new car dealerships have a bit of an image problem, according to buyers, something we’ll address in just a moment.

Here are some calculations on how much time that’s devoted to the manual signing and financing process:

• Printing copies – 10 minutes

• Signing consent forms – 10 minutes

• Filing and administration – 15 minutes

• Verifying identity manually (including driver’s license) – 20 minutes

• Collecting and verifying other basic information – 20 minutes

• Explaining key terms of the agreement – 20 minutes

• Manually entering data – 30 minutes

The total here is 125 minutes, just over two hours, which is about the average time it takes to complete the auto financing process manually. That said, besides the fact, manual processing takes longer, it also has fewer safeguards against fraud or even commonly made mistakes.

These days, digital platforms allow dealers to provide auto finance in a way that saves time and cuts costs, not to mention significantly improving the customer experience, which is one of the primary things a dealer should be doing.

Often, car buyers can learn whether they qualify on the same day, which will improve cash flows. Lenders are increasingly advocating the use of e-contracting as well, which further improves the security of the sales process. The portals through which these e-contracts are sent also help drive business, as the process makes it easier for dealerships to connect borrowers with loan originators.

Going Digital: How People Research & Buy Vehicles

People aren’t going to dealers these days to be sold a vehicle. By the time they get to a dealer, they have their minds mostly made up. In fact, a study by Google revealed 95% of new vehicle buyers will look online for information, with double the amount of people doing online research first, rather than check out a vehicle at a dealer.

Consumers also tend to visit sites where they can compare prices and evaluate user reviews, all well before they even step foot into a dealership. In fact, 56% of new buyers go first to a third-party website before they even peruse a dealer’s site. Data also supports this transition, as yearly traffic to these “neutral” automobile information sites increased by 12%, according to an Adobe Digital Insights report, while dealerships have seen a 2% decline in website visits.

Mobile devices are also becoming increasingly important, a trend that’s following other online purchases. According to a J.D. Power study in 2016, over half of car buyers shop for information via a mobile device. It’s likely that, like other products, smartphones will become the primary place on which buyers research vehicles.

Branded Dealerships

The truth is, most people hate buying cars from dealers, particularly those in younger generations. The Beepi Consumer Automotive Index found over half of automotive buyers feel uncomfortable or anxious at dealerships. In fact, 56% of Millennials would rather clean their house and 24% would rather get a root canal than negotiate with a new car salesperson.

That’s why it’s so important for dealerships to brand themselves differently than their competitors. It’s not about car brands – like Ford, BMW, Nissan, or Toyota – but about the actual care the dealership provides. That customer service is what helps build brands. By the time a buyer has stepped onto a dealer’s premises, they already have a very good idea as to what vehicle they want to purchase.

One very positive aspect for automobile dealerships about moving towards digital involves the cost of advertising and marketing. While the cost to sell a single car is almost $1600 through traditional media like television, radio, or newspaper advertising, it only costs about $150 using digital marketing. While the use of websites by consumers might be waning, it’s important to maintain online visibility, while also utilising e-mail marketing, social media, and even direct mobile strategies.

Cloud Adoption & New Markets

Meanwhile, there’s the cloud. Most of the digitisation of the vehicle financing process depends on cloud computing, so going digital inevitably means a move towards cloud usage. According to Adroit Market Research, this market will reach $9.62 billion (USD) by 2025. Just like with other industries, cloud computing services have shown cost savings over-investment in infrastructure.

That said, cloud migration by vehicle dealerships has already happened throughout most of Europe and North America, whose markets adopted the cloud early on. Cloud providers looking to expand their revenue streams likely will focus on markets in Asia, Africa, and South America in the coming years, and car dealerships in these regions should look into cloud adoption.

For those dealers who haven’t yet hopped on the digital bandwagon, the writing’s been on the wall for years. Going digital is the way forward for car dealerships and most businesses in general.

Author’s Bio: D. A. Rupprecht an internationally-based freelance writer who writes about technology, digital marketing, and cloud computing. He also writes books.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes