Direct lending has gained popularity particularly among luxury new vehicle buyers where more than one in five secure financing without assistance from the dealer, according to the JD Power and Associates 2005 consumer financing satisfaction study.
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The study found that 22% of luxury new-vehicle buyers secured a loan without the assistance of the dealer-an increase of 8% from 2004. Banks are pursuing vehicle shoppers with aggressive marketing campaigns including direct mail pieces, rebates and other incentives in an effort to encourage consumers to finalise their loan prior to visiting the dealership. As a result, captive finance providers are simultaneously pursuing banking charters that enable them to offer a full spectrum of banking products.
“The vehicle loan financing market is becoming even more crowded, and as banks, credit unions and independents become more aggressive with their direct-lending programs, captive providers will be challenged more than ever to defend their turf and retain their customer base,” said JDP spokesman David Lo. “With nearly one-half of direct-lending customers and one-third of indirect customers researching their financing options online, the internet has become an effective tool to attract and convert shoppers into buyers.”
Ford Credit ranked highest in non-luxury lease and luxury lease satisfaction. The 2005 study was the fourth consecutive year Ford Credit ranked highest in non-luxury lease satisfaction. In non-luxury leasing, Ford Credit performed well above the industry average in three of the four factors examined within the study, including provider offering, application/approval process, and payment/billing. In luxury leasing, Ford Credit received exceptional ratings from consumers in provider offering and payment/billing, which are both considered key factors in achieving overall satisfaction.
With an increase of 23 index points over 2004, GMAC ranked highest in luxury loan satisfaction. GMAC performed particularly well among luxury loan customers in all key areas of satisfaction, including variety of payment options, reasonableness of financial terms, timeliness of the first statement and clarity of billing statements.
Honda Financial Services ranked highest in the non-luxury loan segment, performing well in payment/billing, provider offering and application/approval process. HFS was one of the only captive finance providers to improve in the non-luxury loan segment compared to 2004. HFS set the benchmark in satisfaction with the competitiveness of non-luxury loan interest rates.
The study also found that the proportion of leases to loans had increased for the first time in five years. The proportion of luxury buyers who leased their vehicles with the assistance of the dealer increased 9% from 2004 to 64%. Among non-luxury buyers, 22% leased their vehicles – up from 18% in 2004.
Leasing is becoming more popular in part due to rising interest rates. The average interest rate paid on loans among non-luxury vehicle buyers has increased from 4.2% in 2004 to 5% in 2005. Among luxury buyers, the average interest rate paid increased from 3.9% in 2004 to 4.5% in 2005.
“While we find that finance providers are re-focusing on the leasing market, the increase in the proportion of leases is slight compared to 2004, suggesting that although market conditions point toward leasing as a viable and potentially profitable venture, many finance providers are still cautious and mindful of the difficulties in projecting residual values,” said Lo.
