Lenders at Top of Funnel

Chase Auto recently rolled out a digital platform for car shopping … and financing.  I like it.  The link is here.  It seems that everyone today has a vehicle search page.  The original cast, Autotrader and Cars.com, with about a dozen TPC competitors, are now joined by OEM sites, public dealer groups, and marketplaces from Roadster and Carvana.

“More vehicle shoppers than ever have started to look for vehicle financing before ever setting foot in a dealership.”

Competition hinges on which information the customer will seek first.  In an era of reduced purchasing power, many customers will want to “secure financing before going to the dealer.”  That’s the prompt on the Chase website.  There’s a prequal button right there between the Lariat and the XLT.

Don’t take my word for it, though.  This J.D. Power study found that nearly half of all customers shop for financing before visiting a dealer – 62% among Gen Z – and they start more than 30 days out.

This is probably a negative development for captives, and indirect finance in general.  Banks have a lower cost of capital and better rates.  Chase, as you know, is also popular as an indirect lender.  They say there’s no conflict with their dealer channel, but what if they had to choose?

The reach hierarchy, by customer base, is:

  • Banks – eight digits (ongoing)
  • Car Makers – millions of cars per year
  • Dealer Groups – hundreds of thousands

Banks have more customers, by an order of magnitude, than even the largest car makers.  Ten years’ worth of loyal Toyota drivers doesn’t approach Bank of America’s 66 million customers.  The same ranking goes for website reach, with the banks getting 120 to 190 million visits per month, while Carvana, Ford, and Autotrader each get twenty something.

Capital One, by the way, also has a shopping platform.  Ally has a dealer locator.  Bank of America has a redirect to Dealertrack.  Capital One is pretty shrewd about encouraging buyers to bring the app with them into the dealership, so they can update the deal as needed.  Mobile-first responsive is good, but an app is better.  Bank customers will carry their bank’s app.

Captives have the home field advantage once the customer is in the dealership and, likewise, their position online is downstream from the OEM brand.  Captives are advised to be front and center on their manufacturer’s website.

Dealer groups, like AutoNation, must rely on their own brand to draw customer attention.  In terms of unit sales, even the largest dealer groups fall below tenth-ranked Subaru.  Note that Lithia chose to develop a new brand, Driveway, for their online business.

Of course, none of these is a direct measure of financing intent.  Only a fraction of online banking traffic is looking for an auto loan.  The point is that they’re looking for the loan first, and then the car.

Automotive News Corrigendum

Regular readers know that, from FMCC to Spartefinanz Abteilung, I am a captive finance booster.  See here, for example.  So, I was disappointed to see this omission from the BMW Centenary coverage in Automotive News.

BMW Gap2

I was employee number six behind, if memory serves, Kevin Westfall, David Paul, Mark Mundahl, Bob Devine, and John Dick.  David is quoted in this ancient interview.  Take a bow, gentlemen.  Kudos also to the professional staff supplied by Bank One.

It’s worth noting the structure of this partnership.  BMW had hired PWC to administer an RFP.  Of many strong entries, Bank One was the only partner willing to use our computer systems.  They were aware of our intention ultimately to bring the enterprise in-house, and control of the systems was key.  This planned migration from a service provider to insourcing is the same structure Kevin employed for AutoNation Financial Services, and one I would still recommend today.