Despite a lot of hype, lenders are still waiting for the Internet to revolutionize their business.
While the volume of online auto loan applications is rising, it is disappointingly slow relative to the rate of online sales, said Chris Denove, a partner at J.D. Power and Associates, a consulting firm in Agoura Hills, Calif.
Only about 2 percent of all new-vehicle buyers submit an online finance application, and 0.8 percent get loans from an online source, he said.
In contrast, 4.7 percent of all new vehicles were sold through an online buying service in the first quarter of this year - up from 2.7 percent a year ago, according to J.D. Power.
NOT YET COMFY
A fundamental problem is that consumers need to become more comfortable with online financial transactions.
Maryann Keller, president of auto services for Priceline.com of Norwalk, Conn., said, 'Financing is a complicated business transaction. It has lots of moving pieces, including the customer's credit profile, the incentives that the auto company has in the market at that particular moment on that particular product, and alternative financing that the dealer might present.
'Add to that the customer's reticence about parting with personal information over the Internet, and you discover that to present finance as a `yes or no' decision underestimates the complexity,' she said.
Priceline asks customers to 'name their price' for a variety of goods and services, including autos, but it does not offer its own online financing. (See story, Page 44.)
INTEREST IS GROWING
The online share may be small, but there is increasing interest, said Joe Kennedy, president of E-LOAN, a publicly traded online lender in Dublin, Calif. E-LOAN is in partnerships with several automotive Web sites, including Kelley Blue Book, Car and Driver Online, eBay Motors and Greenlight.com.
As customers see the value in online financing, the number of customers using online financing options will increase, said Kennedy. He is the former vice president of sales, service and marketing for Saturn Corp.
'Even though the absolute percent of share is low, the hyper growth we are seeing leads us to believe people will begin to notice this option and it will become a greater percentage of the business,' he said.
E-LOAN offers financial services from many lenders, including mortgages, home equity loans, credit cards and auto loans, and it uses loan consultants to process and underwrite loan applications. Of E-LOAN's total revenue, about $3 million, or 35 percent, is from auto-related loans. That compares to mortgage-related revenues of $5.3 million, or about 63 percent.
Subprime finance company AmeriCredit Corp. of Fort Worth, Texas, believes this segment is rising, and the company is making preparations for more Web-based options for consumers and corporate customers. The company, which managed a $6.6 billion auto loan portfolio as of June 30, is piloting MyAccountNow, an automated self-service system for clients. It also is pursuing alliances with Internet-based lenders, auto dealers and brokers, including E-LOAN and Greenlight.com.
'The research we've looked at indicates the consumer wants to conduct business over the Internet,' said Kim Pulliam, senior vice president of public relations for AmeriCredit. 'Starting from a base of zero, even if it becomes 5 percent of car purchases, that's a lot of car purchases. No one has a crystal ball, but we think it will continue to grow, and we want to be a part of that.'