Perceptions, survey shows, differ from reality

Shoppers wary of dealer loans

Perceptions, survey shows, differ from reality

Financing elsewhere
Here are some of the reasons given in a survey of online shoppers for not financing a vehicle purchase with a dealership. Multiple responses were allowed.
  
Higher interest rates54%
Don’t trust the dealer will give me the best deal available based on my credit31%
Don’t want to spend extra time at the store getting financing18%
Don’t trust the store with my financial info11%
Source: Kelley Blue Book Consumer Sentiment Survey Q1 2014

Financing plans
Online shoppers' responses to a survey
  
Do you plan to finance the vehicle you are shopping for?
Through a private credit union or bank23%
Through a dealership or manufacturer program14%
I will not be financing the vehicle33%
I don’t know yet30%
Source: Kelley Blue Book Consumer Sentiment Survey Q1 2014
Related Topics

Although most car buyers finance their vehicles through dealerships, the vast majority don't plan to do so while in the online-research phase of shopping. The main reason: They think a dealer won't give them a competitive interest rate.

Those findings, from a survey of online shoppers by Kelley Blue Book, show a significant gap between perceptions and reality in auto financing. The survey findings have implications for dealership marketing, as well as the debate over dealer reserve, the interest rate tacked on by dealerships as payment for their role in financing a vehicle.

In contrast to the scant 14 percent who said they planned to finance the vehicle they were shopping for through a dealership or manufacturer program, typically about 80 percent of vehicle financing is arranged through a dealership's F&I office, according to the National Automobile Dealers Association.

"Inherently, car shoppers likely believe they can save money by financing their next vehicle outside a dealership" or automaker program, Dan Ingle, vice president of vehicle valuation and industry solutions at Kelley Blue Book, wrote in an e-mail.

But, he added, "it comes down to convenience. Once shoppers are on the dealership lot and have found the car or truck they love, they don't want to prolong the process by walking away to arrange financing elsewhere, especially when the potential savings will have a marginal effect on their overall monthly payment."

In an interview, Ingle added: "It's a lot like when somebody's going to dispose of their vehicle. Most consumers understand they'll get more selling it by themselves, but the vast majority disposes of it by trading it in."

It was the first time Kelley Blue Book had asked those questions in its quarterly survey, so historical comparisons were not available.

The survey, conducted Feb. 18-March 6, asked consumers whether they planned to finance the vehicle they were shopping for. Of the approximately 1,830 respondents to the survey, 33 percent said they wouldn't be financing the vehicle, and 30 percent said they didn't know yet whether they would.

Twenty-three percent said they planned to finance the car or truck through a credit union or bank. Only 14 percent said they planned to finance it through a dealership or an automaker program.

Those who planned to finance through a bank or credit union were asked: "Why not through a dealership?" The largest single group, 54 percent, cited "higher interest rates."

Thirty-one percent said they "don't trust the dealer will give me the best deal available based on my credit" score, while 18 percent said they "don't want to spend extra time at the dealer getting approved for financing." Eleven percent responded that they "don't trust the dealership with my financial info."

The survey covered shoppers looking at new, used and both new and used vehicles who were within two years of making a purchase.

KBB analysts gave two reasons for the low percentage of shoppers who said they planned to finance through a dealership or manufacturer program.

First, the survey includes shoppers who are still in the early stages of researching a vehicle, including some who don't plan to buy one for nearly two years. Those respondents probably haven't given a lot of thought to financing yet.

But that also implies that those online shoppers might be open to advertising about financing possibilities, the KBB researchers noted.

"Messaging to someone who's up to two years away from buying a car is still a smart thing to do," said John Alguard, a KBB survey research analyst.

Second, the survey included used-only shoppers. Only 9 percent of shoppers who were interested only in used cars said they planned to finance a vehicle through a dealership or manufacturer program. On the other hand, the portion planning to finance it through a dealership or automaker program jumped to 18 percent among those looking at both new and used vehicles and to 22 percent among those looking only at new vehicles.

The Consumer Financial Protection Bureau has argued against dealer reserve, saying it often leads to lending practices that are discriminatory, even if unintentionally so. NADA counters that the large percentage of vehicle financing that is handled through dealerships shows that rates obtained that way are generally better than what consumers could obtain on their own.

The Kelley Blue Book survey results indicate that consumers are not aware that they can obtain competitive interest rates by financing through a dealership. On the surface, that supports NADA's position: Once they compare their rates with what they can get through a dealership, consumers opt for the dealership financing because it offers competitive rates.

On the other hand, the relatively low level of what marketers call "unaided awareness" of how competitive rates obtained through a dealership are also implies that there isn't broad consumer -- or grassroots political -- support for NADA's position.

You can reach James B. Treece at jtreece@crain.com.

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