fico 2019 global consumer survey of vehicle finance ... · understand key consumer perceptions...

2019

USA Edition

2019 Global Consumer Survey of Vehicle Finance Perceptions

2 | © 2019 Fair Isaac Corporation. All rights reserved.

Contents

Introduction ..............................................................................................3

Current & Future Usage of Financing Channels ...............................4

The Start: Beginning the Financing Journey ......................................8

The Middle: Navigating the Deal ........................................................ 13

The End: Reflecting on the Financing Experience .......................... 18

The Future of Vehicle Finance ........................................................... 22

About FICO ............................................................................................. 24



IntroductionIn late 2018, FICO commissioned a global independent research study with 2,000 consumers across nine countries to better understand key consumer perceptions within the vehicle financing experience.

Given new and disruptive innovations such as driverless cars managed by artificial intelligence, a shift to digital experiences, and collaborative economy models with companies like Uber and Lyft entering the mainstream, new subscription ownership models, and it is clear that the vehicle industry is experiencing a tremendous shift.

In light of these changes, the goal of this research was exploratory in nature and intended to look for regional and other differences in how consumers view the financing portion of the experience, as well as identify gaps in how the ecosystem of providers (banks, captive finance companies, credit unions, dealerships and start-ups) are currently meeting customer expectations.

Survey CriteriaAll respondents to the survey were adults 18–64 who acquired a loan or lease on a new/used vehicle within the last three years.

Countries Covered Global Results Total - 2000

A loan for a new vehicle 61%

A lease for a new vehicle 14%

A loan for a used vehicle 24%

A lease for a used vehicle 2%

USA Australia Canada New Zealand UK

Chile Germany Mexico Spain



Current & Future Usage of Financing ChannelsThere are several ways to obtain a new loan — a customer can go to a dealership (also called indirect lending by industry experts), to their physical bank or credit union directly, or online to complete the experience digitally. To better understand the future channel usage versus current usage, three questions were asked.



What type of lenders did you consider before going with your final loan selection?Q1

Discussion Globally, consumers showed a strong preference for dealership and bank financing when considering financing, with dealership financing the clear leader for loan selection.

Lender Types Global Results

Dealership financing

21%

41%38%

Not Considered Considered Selected

Bank/lending institution

Credit union Independent auto finance company

Other

29%

47%

24%

66%

27%

6%

65%

29%

6%

73%

17%

9%



Country Results Total USA Australia Canada Chile Germany Mexico N. Zealand Spain UK

I applied online (on my laptop, tablet, etc.). 16% 13% 20% 9% 24% 19% 15% 17% 13% 21%

I visited a bank or lending institution to apply for a loan. 21% 18% 18% 15% 39% 15% 39% 15% 28% 14%

I applied for the loan at the dealership when I bought the vehicle.

56% 63% 50% 66% 39% 60% 49% 52% 51% 55%

I used a pre-approved offer to buy my vehicle. 14% 14% 10% 13% 24% 13% 16% 15% 16% 12%

I took advantage of loan incentives and/or special financing.

15% 21% 18% 18% 11% 7% 10% 16% 8% 21%

Other 1% 0% 4% 1% 0% 1% 1% 3% 0% 2%

How did you acquire your most recent automotive loan or lease?Q2

Global Results (YoY)

I applied online (on my laptop, tablet, etc.).

20182017 6%10% 16%

I visited a bank or lending institution to apply for a loan.

20182017 -3%

24% 21%

I applied for the loan at the dealership when I bought the vehicle.

20182017 1%

55% 56%

I used a pre-approved offer to buy my vehicle.

20182017 5%9%

14%



Online Dealership Bank/Lending Institution

Convenience 60% One-stop shopping (I don’t have to visit bank & dealership) 46% I trust and like my bank 43%

Allows me to comparison shop across lenders 47% I believe there would be

promotions and discounts 42% I believe I get the best rate at the bank 39%

Speed 41% I feel I might get a better deal at a dealership 34% I feel like my personal information is

safer at the bank 32%


I would apply online (on my laptop, tablet, etc.). 27% 28% 35% 17% 31% 26% 23% 44% 16% 37%

I would visit a bank or lending institution to prearrange financing.

28% 32% 31% 25% 34% 23% 31% 26% 30% 14%

I would inquire at a dealership when buying the vehicle. 45% 40% 35% 58% 35% 51% 45% 30% 54% 50%

For a future automotive loan, how would you prefer to get your next loan?Q3

I would inquire at a dealership when buying the vehicle.

33.1%+12%20182017

45%

Discussion There is a substantial disconnect between the current channel mix and consumer preference — with the largest gap centered on digital (nearly a 15-point difference). With the accelerating adoption of digital, this finding adds fuel to the fire that the global market may be reaching a tipping point where the shift to digital happens rapidly given consumer demand and availability of new technology. Until then, there is a strong preference for dealership financing.

Top factors for choosing a given channel for next automotive loan


I would apply online (on my laptop, tablet, etc.).

I would visit a bank or lending institution to prearrange financing.

33.2%

-5%20182017

28%

33% 27%20182017 -6%


The Start: Beginning the Financing JourneyDuring the early stage of the customer journey, individuals begin to research their financing options and desired vehicle to solidify their goals for the experience based on what they learn along the way. This portion of the experience is generally when marketers seek to influence buying behavior and shape these consumer goals before they become hardened.





I initiated it 78% 78% 83% 73% 77% 71% 85% 74% 83% 80%

I responded to an offer 22% 22% 18% 27% 23% 29% 15% 26% 17% 21%

Did you initiate the financing discussion, or did a company reach out to you (via email, phone, mail, etc.) with an offer?Q4

I responded to an offer

25%

-3%20182017

22%


I initiated it

74%

4%20182017

78%

Discussion

Perhaps not surprisingly, consumers report that they initiate the financing discussion themselves. In the future, it may be more likely that financing sources (banks, dealerships, etc.) initiate a personalized discussion based on observed pre-purchase behavior signals and proven credit-worthiness such that only customers that are actively in the market for a vehicle receive engagement.




1 lender 49% 48% 52% 70% 20% 51% 34% 51% 46% 53%

2–3 lenders 45% 47% 43% 28% 69% 43% 58% 45% 48% 42%

4–5 lenders 5% 5% 5% 1% 9% 5% 7% 4% 4% 5%

6+ lenders 1% 1% 1% 1% 2% 2% 0% 0% 1% 2%

How many different lenders did you consider before going with your final loan selection?Q5

Discussion

Nearly 51% of consumers will consider more than one source of financing or purchase channel (dealership, bank, etc.) as they attempt to get the best terms and experience possible.

Some consumers of course have better access to additional financing sources, dependent on variables such as their credit profile and location, however, this may serve as an opportunity for financers to use “Alternative Deal Structure” capabilities, where lenders can instantly present multiple loan offers with differing terms (length in months, percentage rate, amount of money down, etc.) to optimize for the consumer’s preferred terms and avoid the customer leaving to shop elsewhere.


1 lender

44%

5%20182017

49%

2–3 lenders

46%

20182017

45%

-1%

4–5 lenders

8%

2018

5%

2017 -3%

20182017

2%1%

6+ lenders

-1%




Yes 42% 38% 31% 36% 66% 47% 59% 40% 39% 41%

No 11% 9% 14% 10% 5% 13% 7% 6% 14% 15%

Maybe — I would need to know more 48% 53% 56% 54% 29% 40% 34% 54% 47% 45%

Would you accept an instant loan offer for financing a vehicle if that meant you could avoid dealing with a bank or doing extra paperwork?Q6

Discussion

Consumers are very open to instant, pre-qualified offers to improve expediency. Only 11% of individuals would not accept such an offer and may prefer instead to work through a traditional, full loan application process and credit check or to pay in cash.


No

13%

20182017

11%

20182017

Yes

41% 42%

Maybe — I would need to know more

46%

2018

48%

2017

-2%

1%

2%




A great deal 37% 33% 29% 26% 68% 19% 70% 33% 43% 32%

Some 39% 38% 36% 43% 32% 43% 29% 39% 46% 45%

Very little 13% 15% 19% 14% 0% 22% 1% 11% 8% 13%

None 11% 14% 17% 16% 0% 15% 0% 16% 2% 11%

How much influence did the level of financing you qualified for have on your selection of a vehicle, make, model, or dealership?Q7

Discussion

37% of respondents globally replied that the level of financing they qualified for greatly influenced their selection of vehicle make, model or dealership. Latin American consumers were especially likely to report that financing level makes a large difference for them — this makes sense given relatively high vehicle prices relative to annual wages in the region.

Some

40%

-1%20182017

39%


A great deal

36%

1%20182017

37%

Very little

15%

2018

13%

2017

20182017

9% 11%

None

-2%

2%



The Middle: Navigating the DealAfter forming a solid set of goals about their vehicle shopping experience, consumers then begin to actively work through their financing experience by starting, and often completing, a loan application. It is during this phase in which frontline employees (a loan officer at a bank, a finance or insurance professional at a dealership, an underwriter at an indirect lender, or perhaps a contact center agent) have the greatest ability to impact the experience.




Heavy: I negotiated a whole lot. 13% 11% 17% 10% 24% 13% 19% 10% 10% 14%

Medium: I negotiated a moderate amount. 46% 48% 39% 44% 43% 40% 50% 38% 54% 50%

Low: I negotiated a little bit. 25% 23% 23% 27% 28% 26% 23% 23% 32% 21%

Zero: I didn’t negotiate at all. 12% 15% 14% 16% 1% 13% 7% 21% 4% 12%

Unaware: I didn’t know I could negotiate on my loan 4% 4% 8% 4% 4% 8% 1% 9% 0% 5%

How much did you negotiate for the best deal on your automotive loan or lease terms?Q8

Discussion

About 84% of respondents globally negotiated at least a little for the best deal, and only a very small percentage (4%) did not know they could negotiate on their auto loan terms. This result is in line with a later finding in this study that consumers generally feel in control of the process and report they understand the terms.

It is important to note that these findings are subjective; they they only represent how well customers report they “feel” they understand the process. Additional efforts to improve financial literacy and education should continue to further improve customers’ actual understanding and assist them in making good decisions.




Auto insurance

Offered 31% 21% 38% 25% 43% 37% 35% 38% 37% 28%

Accepted 26% 14% 24% 17% 46% 18% 61% 26% 36% 21%

An extended service contract

Offered 42% 43% 35% 46% 44% 39% 49% 42% 42% 40%

Accepted 23% 29% 20% 23% 17% 19% 24% 17% 19% 27%

Additional accessories for purchase

Offered 32% 31% 31% 35% 34% 28% 48% 26% 30% 26%

Accepted 16% 13% 24% 18% 20% 16% 19% 9% 14% 19%

A credit cardOffered 18% 12% 10% 16% 28% 23% 33% 10% 29% 10%

Accepted 10% 8% 8% 8% 25% 10% 15% 5% 11% 10%

As part of your financing experience, were you offered any of the following? Q9

Discussion

In addition to increasing the total financing value, dealerships often make additional margin when they sell ancillary products and services. With only 12% of consumers in the US experiencing an offer for a credit card, other regions internationally look to be further ahead with cross-selling. Global YoY cross-selling declined substantially for auto insurance (24%) and extended service contracts (14%).


Auto insurance

55%

-24%20182017

31%

An extended service contract

56%

20182017

42%

-14%

Additional accessories for purchase

25%

2018

32%

2017 7%

20182017

15% 18%

A credit card

3%



How important were these factors when shopping for automotive financing?Q10

Discussion

When considering competing loan options, consumers care most about their monthly payment, interest rate, and length of loan term. This implies that financing proposals that are optimized to maximize for these aspects (at the expense of money down and the ability to compare multiple offers) will be most impactful with consumers.


Amount of money paid upfront (money down)

83%

20182017

80%

-3%


Amount of money paid upfront (money down) 80% 85% 75% 79% 89% 64% 90% 75% 74% 84%

Length of loan term (number of months) 88% 90% 86% 87% 97% 82% 93% 81% 87% 88%

Interest rate (APR - Annualized Percentage Rate) 88% 87% 83% 90% 94% 82% 96% 84% 86% 89%

Monthly payment amount 92% 92% 90% 93% 99% 87% 96% 87% 91% 93%

Ability to instantly compare multiple offers 60% 62% 61% 55% 73% 56% 72% 48% 58% 55%

Length of loan term (number of months)

90%

20182017

88%

-2%Interest rate (APR - Annualized

Percentage Rate)

91%

20182017

88%

-3%Monthly payment amount

92%

20182017

92%

0%Ability to instantly compare

multiple offers

68%

20182017

60%

-8%



How much time did you spend on the transaction—from filling out the application, receiving a loan offer (or offers), and finalizing your loan financing?

Q11Global Results (YoY)


<30 minutes 43% 42% 33% 52% 35% 55% 26% 44% 41% 55%

>30 minutes 57% 58% 67% 48% 65% 45% 74% 56% 59% 46%

No more than 5 minutes

4%

20182017

3%

-1%5-14 minutes

14%

20182017

13%

-1%15-30 minutes

29%

20182017

28%

-1%31 minutes -1 hour

31%

20182017

33%

2%A few hours

14%

20182017

15%

1%Overnight or longer

10%

20182017

10%

0%

Discussion

Given that 57% of consumers must wait more than 30 minutes to complete their transaction, this implies that there is still a significant amount of manual work that takes place to complete a loan and that back-end systems in automotive finance still have some ways to go in terms of the speed and efficiency.

In the future, approvals will be increasingly automated based not only on credit worthiness and risk of fraud, but also with artificial intelligence that assists in optimizing offers for the consumer, guided by the business’s portfolio objectives and ensuring adherence to regulatory requirements.

While wait time by channel (online, bank, dealership, etc.) was not shown, it is worth noting that no major differences between channels were observed in the data. This may suggest that the same (manual and often subjective) back-end process is used across channels.

>30 minutes

54%

20182017

57%

3%<30 minutes

46%

20182017

43%

-3%



The End: Reflecting on the Financing ExperienceAfter completing a loan and getting to drive home in their new vehicle, the consumer has hopefully been able to satisfy their goals for the experience. Once all is said and done, the responses below show how consumers feel about the entire process.



Referring to your most recent automotive financing, please rate the following attributes:Q12

Global Results 2017 2018 YoY

I felt in control of the process. 64% 67% 3%

I fully understood the terms of the financing. 76% 80% 4%

I enjoyed the experience. 56% 50% -6%

I was concerned that there might be “hidden” items in the contract. 55% 54% -1%

I would like to have evaluated alternative deals to make a better choice. 49% 45% -4%

I was most interested in acquiring the vehicle—the contract terms were of secondary interest. 51% 50% -1%

I had to wait too long to complete the financing process. 30% 30% 0%

I had to provide too many documents to close the deal. 43% 34% -9%

Discussion Consumers have an overall positive experience in many regards, reporting they felt in control of the process, understood the terms, and over half even enjoyed the experience. This may be a bit unexpected to some given the high-pressure sales experience many folks experience; however, the ease of financing, high-value promotions, and successful negotiations help customers drive away with new (or new used) vehicles, making the energy and effort worth the reward.



How would you rate the ease/difficulty of financing your vehicle, with 1=Big Hassle and 10=Very Easy?Q13


Rating 7-10 (Easy) 74% 68% 74% 75% 68% 81% 80% 66% 75% 82%

Rating 4-6 22% 26% 23% 19% 27% 15% 16% 29% 25% 17%

Rating 1-3 (Difficult) 4% 6% 4% 6% 6% 4% 3% 6% 0% 1%

Discussion Most consumers report that the financing experience was easy and low-effort for them. In fact, global findings showed an impressive 10% increase for the Easy rating. This is consistent with the earlier finding that customers feel in control of the process, they understand the terms, and they feel they got a good deal.


Rating 7-10 (Easy)

64%

20182017

74%

10%

Rating 4-6

28%

20182017

22%

-6%

Rating 1-3 (Difficult)

7%

20182017

4%

-3%



How good of a deal do you feel you received on your most recent automotive loan or lease?Q14


I got an excellent deal. 34% 36% 31% 30% 35% 38% 36% 31% 24% 38%

I got a good deal. 59% 53% 59% 62% 61% 59% 59% 55% 73% 59%

I got a poor deal. 6% 8% 8% 6% 5% 2% 5% 11% 2% 4%

I feel like I got swindled and cheated. 1% 2% 2% 2% 0% 1% 0% 2% 0% 1%

Discussion 93% of respondents felt they got a good or excellent deal. Around the world, consumers feel they are receiving a fair deal in their financing experience. Successful negotiation, discounts, attractive APRs, and manufacturer and dealer incentives may be driving this significant global lift in consumer satisfaction.


I got an excellent deal.

26%

9%20182017

34%

I got a good deal.

61%

20182017

59%

-2%

I got a poor deal.

9%

2018

6%

2017 -3%

I feel like I got swindled and cheated.

20182017

3%

1%-2%



Wave your magic wand: We would like to hear your ideal automotive buying or financing experience. Please describe:Q15

The Future of Vehicle Finance

To close our consumer survey, we asked respondents what their ideal buying experience would look like if they could “wave their magic wand” and have the financing process work best for their unique needs.

A word cloud is presented on the next page with frequently recurring words mentioned in these responses — the full dataset of 2000 responses from this survey project, including the global open-ended verbatim, are available through a consulting engagement with the FICO Fair Isaac® Advisors team. Please contact FICO for more information.



Word Cloud


FICO and Fair Isaac are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. © 2019 Fair Isaac Corporation. All rights reserved. 4677BK_EN 2/19 PDF

NORTH AMERICA +1 888 342 6336 [email protected]

FOR MORE INFORMATION www.fico.com www.fico.com/en/blogs

LATIN AMERICA & CARIBBEAN +55 11 5189 8267 [email protected]

EUROPE, MIDDLE EAST & AFRICA +44 (0) 207 940 8718 [email protected]

ASIA PACIFIC +65 6422 7700 [email protected]

About FICOFICO (NYSE: FICO) has long been known for its ubiquitous credit score, which plays a critical role in the credit decision process for financing an auto. Less well known is the fact that FICO provides an analytically driven platform that enables automotive finance companies to be successful across five key stages of the customer lifecycle.

Founded in 1956, FICO introduced analytic solutions such as credit scoring that have made credit more widely available, not just in the United States but around the world. We have pioneered the development and application of critical technologies behind decision management. These include predictive analytics, business rules management and optimization. We use these technologies to help businesses improve the precision, consistency and agility of their complex, high-volume decisions.

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