The second annual FICO survey on automotive financing has revealed that 35 percent of Australian consumers plan to find their next auto loan at a dealer, up by 14 percent from last year.
Another 35 percent plan to look online for their next car loan, which is down by 7 percent since 2017.
Silicon Valley analytic software firm FICO’s second annual global survey on consumers’ automotive finance experience also revealed a 6 percent decline in visiting a bank/lender.
The survey was conducted before the Hayne Royal Commission into Banking was completed.
“This trend looks like good news for dealerships and puts Australian consumers more in line with North America and parts of Europe, where the preference for the Dealer channel is strong,” said Paul Swyny, FICO Australia client partner.
“However, the research, which was conducted part way through the Australian Banking Royal Commission, may not be reflective of current sentiment. The banks were already taking a reputational hit in the media, but the commission was only critical of Dealer lending later in the piece.”
The Hayne Royal Commission denounced the use of flex commissions, which have since been banned.
“But thanks to this and other findings of the Hayne report, dealerships likely have some work to do to maintain the ground they’d gained since last year’s automotive financing study,” Mr Swyny said.
When asked about how good a deal they felt they received on their most recent car loan, 31 percent of respondents said they got an excellent deal and 59 percent said they got a good deal. Only 8 percent said they got a poor deal and just 2 percent felt they had been swindled.
The survey revealed selling of add-on insurance was way down. Last year 64 percent of car buyers said they were offered auto insurance as part of their financing experience, but that fell to 38 percent this year.
FICO’s survey found that 84 percent of Australians initiated their financing discussion, as opposed to responding to an offer. In addition, 67 percent said they felt in control of the automotive financing process. Just over half (52 percent) considered one lender the last time they secured a loan, while 43 percent considered two or more lenders, yet almost half of those who plan to go online for their next round of automotive financing said they want to comparison shop.
“Consumers are taking greater control of the auto financing process, so banks, dealerships and other lenders have an opportunity to leverage technology and data to recognise pre-purchase behaviour signals and identify Australians likely to be in the market for a vehicle, and then initiate personalised offers,” Mr Swyny said.
Mr Swyny said the market is ripe for change, with competition in the finance space growing thanks to the rise of online competitors. We’re seeing this shift across the Tasman, with 44 percent of New Zealand consumers ranking online financing as their first choice for their next loan, up 4 percent on last year. New Zealanders surveyed cited convenience, comparison shopping across lenders and speed as their main reasons for shopping for finance online.
“Car loans are still being underwritten using a very manual process”, Mr Swyny said.
“One way the banks and dealerships can fight back against online competition is to automate the back end systems to improve the customer experience.”
The survey showed that, in Australia, 67 percent of consumers had to wait more than 30 minutes to complete their loan transactions. Globally, 30 percent of respondents felt they had to wait too long to complete the financing process. A similar number of Australians, 31 percent, said they would be open to instant, pre-qualified offers to improve expediency and avoid dealing with a bank or doing extra paperwork. Only 14 percent said they wouldn’t be open to an instant loan offer, with a further 56 percent in the ‘Maybe’ category.
“In the future, offers and approvals will be increasingly automated, based on credit scores and fraud risk analysis,” Mr Swyny said.
“We expect more loan providers will employ technology solutions that will assist to rapidly generate optimised loan offers and automatically offer them to the consumer, offering choice and the ability to comparison shop.”
FICO’s independent research surveyed 2,000 adult consumers across nine countries including the US, Canada, Mexico, Chile, Australia, New Zealand, Germany, Spain and the UK. Respondents were those between the ages of 18-64 who acquired a loan on a new or used vehicle within the last three years.