Loan application blasts could be a blow to dealers
Not matching the customer with right lender risks relationships, experts warn
|Dealerships are spreading business among more lenders, data from Dealertrack show.|
|AVG. NUMBER OF LENDER-DEALERSHIP RELATIONSHIPS|
|Note: Dealertrack Technologies' credit application network had 1,443 lenders and 20,719 dealerships, including used-only stores, in Q1 2014.|
Today's technology makes it easy for finance and insurance managers to blast credit applications haphazardly across a wide spectrum of lenders rather than make the effort to match the right consumer with the right lender.
But some dealership groups and auto finance experts say the tactic, called shotgunning, is inefficient and can harm a dealership's relationships with customers and lenders alike.
Auto finance industry insiders say it's unclear how common shotgunning is or who does it. But at least one expert thinks youth and inexperience are factors.
"The new generation is just sending it out to, say, seven or more lenders -- 'Let's see, one captive, four banks, two independents and three different credit unions' -- instead of looking at the rate sheet and picking the three best," says Lou Loquasto, auto finance vertical leader for Equifax Inc.
"Why? They want to do it fast, and more and more lenders are doing automated approvals. The new generation of F&I mangers don't want to rehash deals; they don't want to negotiate an approval."
But whether F&I novices or veterans are shotgunning, Loquasto and other experts worry that the technology makes it convenient to skimp on personal interaction between F&I managers and lenders and between F&I managers and customers.
"There's always got to be a human element," said Bob Grill, senior process improvement manager for vehicle history specialist Carfax and a former F&I manager, during a panel discussion at the Automotive Resource Network conference in New York in April.
"Technology can make you lazy for a while, but at the end of the day, the better F&I people still know it's the phone call, it's the personal touch, it's knowing what lenders are looking for, and sending them what they're looking for."
Shotgunning can cause problems for dealerships in a number of ways, experts say. For one thing, it can hurt customer satisfaction. For example, if a lender that specializes in prime-risk loans disapproves a subprime application it received through shotgunning, the dealership, as well as the lender, is required by law to send the customer an adverse action notice explaining in detail why his or her application was rejected.
When dealerships are put in the position of having to remind customers of their credit quality, Group 1 Automotive CEO Earl Hesterberg pointed out in 2012, it may be "good for the post office," but it's "bad for us from an expense and customer satisfaction perspective."
It's also inefficient for lenders to waste time on applications that are outside their preferred range of credit scores. Over time, it could hurt the dealer-lender relationship if a dealership keeps sending the wrong sort of applications.
"It's not fair to the banks to take the time and effort to process the deal and then not have a chance to book that deal," says Pete DeLongchamps, Group 1's vice president of manufacturer relations, public affairs and financial services. "You've got to have respect for the lenders."
Group 1, like many other large dealership groups, doesn't allow shotgunning. The company keeps a tight rein on the number of lenders its stores use and which ones, DeLongchamps says.
"We look at submissions versus approvals every month. That's part of managing the process. It's still the job of the F&I manager to get on the phone and rehash deals," he says.
"You'll have your list of lenders. You know Bank of America, for instance, is more apt to buy prime than, say, Westlake Financial, which is more apt to be subprime. If you've got somebody with a lower credit score, then when you need a lender, that's where you're going to send it. You're not going to send it to Bank of America."
He said Group 1 isn't just loyal to its short list of lenders. It also consistently provides lenders with complete and accurate credit applications that comply with all regulations. The reward for Group 1? "We win the ties" and are more likely to get an approval when an application could go either way, DeLongchamps says.
DCH Auto Group, which has 27 dealerships in New Jersey, New York and California, also discourages shotgunning.
"Our situation with our financial-partner relationships is exceptional," Kraig Quisenberry, DCH's eastern regional sales director, said at the Automotive Resource Network conference in April. "There are very few transactions we do -- and we have very varied operations -- that we can't place with those lenders. We do have other lenders of choice we use with certain situations."
He added: "We're very careful who the dealer partners with. We definitely don't leave it up to them. Our financial services people do that. We try to keep tight control."
Ken Garff Automotive Group, based in Salt Lake City, frowns on shotgunning because it keeps its nearly 50 dealerships from building close lender ties.
"Technology teaches us not to interface with people. But it still boils down to human interaction," Joe Benson, Garff Automotive's director of training, said at the April conference. "We limit the number of lenders we use in a store and try to know them deeply so we can arrive at a situation where we work closely in a relationship."
You can reach Jim Henry at email@example.com.