Honda Finance's next big job: Take dealers digital

Consistency has helped American Honda Finance Corp. become a powerhouse in leasing. The captive finance company for Honda and Acura dealers stayed with leasing when competitors pulled back or stopped during the recession.

American Honda Finance was the biggest lease provider in the United States and the No. 3 captive in total market share through the first quarter of 2012, according to Experian Automotive.

David Paul, vice president, American Honda Finance, has spent 27 years at the company. He took the helm July 1.

Paul says a major initiative now is bringing in new technology and digital tools to improve and streamline the loan origination process at dealerships, make it easier for dealers to sell insurance and maintenance products, and improve lead management.

Paul spoke with Staff Reporter Ryan Beene.

Q: What's your assessment of the current automotive finance market, and where does American Honda Finance fit in?

A: We've been through a tremendously challenging period, but as we see the resurgence in Honda and Acura sales, and in the industry at large, American Honda Finance is in a position now of having a real growth opportunity to do even more for our dealers. We can also build on our legacy of the past, which is really the sacred relationship we have with our dealers in terms of listening to them and adapting to their needs. Their success is really our focus, so now we have a chance to really move forward and offer a broader, full-service spectrum of support, and continue to help drive their success as sales continue to grow and move forward.

What kind of opportunities are you looking at in terms of broadening those offerings for dealers?

There is a core foundation of what we do that is going to remain the same. There's going to be constancy in our regional structure. We always want to maintain that because, truly, we are laser-focused on that sacred relationship with our dealers.

Built on that, we are looking to further enhance what I like to call a 20th to 21st century move: analog to digital. We have delivered good solutions in the past based on our dealer relationships and closeness to them. But going forward, we need to enhance that with more digital solutions in three key areas.

First is in our customer lead management. As we work closely with our dealers in off-lease vehicles and those customers we are currently servicing in retail that may be in equity, how can we best work with dealers and deliver those leads back to them for the next cycle of sales? To do that in a more simple and streamlined digital format than we've done in the past will be a key emphasis.

The second area is actually on the front end. The car buyer of today comes loaded with information and knowledge and ready to make that purchase decision. We support it in financing, but we need to find more in the origination area, when the car sale is taking place and the loan is being put in place. We are looking to take that origination process forward and make it a more streamlined and simple process. A lot of people have maybe referred to this as e-contracting, and that's maybe the end goal.

The third area is with the customers themselves. As we move forward, there's obviously a generational change that's starting to happen. At the same time, we have to be careful to take care of the broad generations of customers we support. We want to deliver to our customers a multichannel option of connectivity.

When might dealers see some of these digital solutions deployed, and what will they be?

After years of talking and exploring, this summer we've kicked off work on these projects. There's a couple of years left of horizon before delivery.

The good news and the message is that we've begun work after talking about it for a number of years. We hope that over the next couple of years you'll start to see these things rolling out.

Do you plan to expand leasing?

Leasing will continue to be a focal point for us mainly as it facilitates the sales cycle and getting customers back into new vehicles. We are continuing to look at ways to improve the product, particularly the end-of-term process.

In order to do that, we've had to continue to focus on more individual data rather than more broad market data. That will improve our leasing process further.

Would you consider adding shorter-term leases -- say, 24 months?

With leasing, the key emphasis is matching the customer's buying cycle and to improve the sales purchase cycle and experience. I don't put that into a specific number of months. The goal, and the emphasis, of leasing is getting the customer back at the right time when the right product offering is available for them.

What's the current split between leasing and retail financing on both the Honda and Acura sides?

On the Honda side, about a third of the business that we finance is leasing, and Acura runs a little bit higher than that. But different parts of the country will have different experiences than that, higher or lower, but generally speaking, it's around that range.

American Honda Finance's market share in used-car loans is a fraction of its new-car loan share. Do you see an opportunity for growth in used loans?

One of the key messages from our dealers for the last couple of years -- and very loud and clear -- is their desire to continue to partner with us closely and improve our support of the certified pre-owned and used market. Both certified and used vehicles, because of the recession and inventory challenges, have risen in their importance to our dealers. But also as we've been a strong lease player, managing the certified and used vehicles on the back end of the lease process has become even more important for us, too.

Fortunately, we're blessed with a franchise that has not gone into the fleet business. That really helps protect our residual values. A key piece of that is having a strong program to support certified and used.

We have been looking very closely at ways to step up our support, working closely with our dealers and American Honda Motor, in terms of how we can best come up with better solutions to support that.

To support our certified used business and our new car business, we're actually looking to expand some of our service contract offerings. We've made some great strides over the last couple of years with some new offering there.

We're really pleased that we're coming out this fall with a new maintenance product for new cars, something our dealers have been asking of us for quite a while. I can't share specifics today, but it's going to be coming up in the next couple of months.

Do you plan to add more branded insurance products?

We're very proud of our Honda Care and Acura Care products. I think the thing that makes them stand out the most is the tremendous lift those products give to service retention. Well over 90 percent of the customers that use the Honda and Acura Care products bring their business back into the dealership to have service performed, and that kind of loyalty lift and service business is so important for dealership profitability and customer satisfaction. Those two products remain the staples of what we offer.

Adding the new maintenance product is critical to round out our offerings. This new service product is one of the key capstones we're bringing to have a full product lineup with Honda Care and Acura Care.

Customer data, relationship management and marketing using DMS data are huge issues for dealers. How much of a goal is achieving consistency in how Honda and Acura dealers approach these issues?

One of the things I respect most about the franchised dealer model is that there is the ability for our Acura and Honda dealers to choose how they want to compete and choose their own best practices.

What we try to bring to the table to support them, especially in terms of customer lead management, is at the front-end process. The information the customer has now when they enter the store is much different than it's been in the past. As the dealer is facing this much more informed customer, we are trying to match that with the information we bring to them in the origination process, which we're calling e-originations. It's part of that move from analog to digital.

As we design, develop and improve our origination, credit approval and funding process, we're looking at building a process that, over the next couple of years, will be proprietary to the Honda and Acura dealer.

This shift from analog to digital is beginning to take place.

Will this involve changes to existing dealer IT or dealer management systems?

We're not focusing on changing or making dealers choose different things to support their dealership. We're developing a new e-origination front-end system for Honda and Acura Financial Services to be the universal recipient for dealers or tie into whatever platforms dealers are using already.

Again, it's more about managing the flow of information between the Honda and Acura IN system and our own decision-making systems. Right now the process is not simple or streamlined enough.