Do you know anybody that would look back on their first car purchase and say “Ahh, I miss the good old days of buying and financing a car?” Pause… didn’t think so. Even Baby Boomers and Gen Xers recall their first car financing deal with groans more normally associated with root canals. Millennials in particular, with their 1 second click-to-load screen tolerance, have zero patience for that kind of old school process pain. Having already blown up the traditional car buying experience with their smartphone digital addiction, Millennials are now targeting their next extreme makeover squarely on the dealership F&I shop.
Let’s face it…automotive F&I has not exactly been considered a hot bed of innovation. For a lot of rooftops it’s still paper driven, painfully slow, and pretty much a black hole. F&I managers don’t always share the reasons why a customer was turned down or always dig deep to find a way to make it work for every situation. It was just a matter of time before streamlining automotive financing by digitizing the process became table stakes to capture Millennial mindshare.
Shaking up the F&I Status Quo
Millennial’s have been at the forefront of disruption in the automotive industry and are a big cause for the push towards an e-commerce model. They are used to ordering anything they want online from their smartphones and having it delivered almost immediately via Amazon Prime type services. In an era where their smartphones are not only their primary information and entertainment sources but also increasingly their digital wallets, they want their car financing/leasing options to be equally as online and effortless.
Enter JP Morgan Chase & Co. and their new Chase Auto Direct offer in partnership with TrueCar, an online car buying service. The service combines auto financing with digital car buying. Pre-approved borrowers that applied via the Chase app are referred to one of Chase’s 14,000+ affiliated dealerships that have the car of interest in stock and have their financing paperwork already waiting for them when they hit the lot. No hassle, no waiting, just visit the showroom, and then sign and drive. A Millennial’s financing dream as long as the app delivers on its promise of being digitally seamless and smooth. The service is available in 30 states currently and is expected to expand into all 50 states during 2017.
TrueCar demonstrates strong leadership in this area by continuing to forge ground breaking partnerships that improve the online car buyers’ total customer experience. In addition to their partnership with Chase Auto Direct, they also work closely with USAA letting its members not only choose to finance a vehicle but also offer the option to secure insurance for the car as part of the same, integrated online car buying journey.
Across the pond, BMW Group Financial Services U.K. is trying to jumpstart creative approaches to auto financing solutions with their Innovations Lab – a financial technology business incubator. They’ve invited five FIN TECH start-ups to help them digitize the car F&I process and deepen their customers’ relationships with the automotive manufacturer, dealerships, and financing providers.
The Innovation Lab runs for 10 weeks starting in early October and ending with solution demonstrations in early December. In a recent AutoFinance News article, Jonny Combe, general manager of product and channel development at the company, said “We know that if you take that brilliance, that expertise in the startup community, and match it with our global scale, reach, and our expertise too, we can create something really new and radical for the consumer. We don’t yet know what those solutions look like, but we know, having seen what’s out there in the startup community in the tech space, that there could be something that transforms or revolutionizes how our customers consume our goods and services.”
The FIN TECH start-ups selected to participate in the revolutionary lab are:
Divido: They offer a new approach to installment car financing via smartphones launched either from within a BMW Centre or at home.
Drover: An online automotive rental marketplace connecting owners and drivers of licensed cars for use on ride-sharing platforms.
UKVehicle.com: A big data play to connect buyers with every car available on the market that meets their requirements for hassle free, worry free car buying.
Warwick Analytics: Predictive analytics with the capability to make BMW Group Financial Services more efficient via automation of their data analytics.
Wrisk: A new take on insurance that focuses on people instead of their “things” to offer insurance that is both more flexible and smarter while simultaneously lowering costs and increasing ease of use.
All of the new automotive financial services enabled by the latest FIN TECH developments hope to capitalize on an increasing number of Millennial auto financing requests which currently accounts for about 34% of the US total requests from May 2015 through May 2016 total per a recent Lending Tree study. The same study found that Millennials favored new cars 53.6% to 46.4% over used cars. While the study did not delve into the reasons driving their preference for new cars, it’s interesting to speculate how much simplifying the Millennial used car financing experience via leading edge smartphone FIN TECH solutions might help narrow the gap.
What does it all mean?
Does all this FIN TECH automotive activity mean traditional dealership F&I shops are a thing of the past? In the short term, not likely. Even Chase’s Bruce Jackson, head of retail lending at Chase Auto Finance acknowledges that “Customer financing at their dealerships will continue to be popular, and that won’t change anytime soon. But we want to be ready for where customers might be down the road.”
What we will likely continue to see is faster adoption of FIN TECH automotive solutions and less “old-school” dealership F&I practices. Many dealerships are aware of the disruption going on and will refresh their business models, processes, and tools to make the needed adjustments to stay competitive. The segment which is at the most risk are the small, used car dealerships which run on very low margins and don’t have the resources to compete online with franchise car dealers (i.e. a Ford Dealership) and some of the new automotive e-commerce players and the scale of their FIN TECH partnerships.
The pace of change in the automotive space is accelerating with no signs of slowing down. With e-commerce players like Amazon entering into the automotive arena with their new Vehicles play and even recently partnering with Hyundai to offer 2017 Elantra test drives, born online companies are continuing to disrupt the automotive buying process status quo.  As General Motors CEO Mary Barra put it best, “I’m on record as saying I think there’s going to be more change in the next five to ten years than there’s been in the last 50 – and we’re going to talk a lot about what’s disrupting the industry, how we’re disrupting ourselves.” Buckle your F&I seatbelts and hang on as the rapid pace of automotive FIN TECH innovations continue to break speed barriers and force major overhauls to improve the car buying customer experience .
To learn more about millennial automotive buying trends check out The Automotive Professionals Guide to Millennials.