If auto loan refinancing isn't on your dealership's radar, it may be time to put it there.
The gathering elements of historically low interest rates, auto owners searching out lower monthly payments and lenders scrambling for business could converge to bury unprepared dealerships under a pile of reserve chargebacks.
Although dealerships aren't seeing a lot of vehicle refinancing yet, a number are standing guard. They're also taking more measures to make sure they retain these customers, including partnering with an auto refinancing company.
There are no readily available industry data that track refinancing volume. Nevertheless, "you know it happens and you know it's out there," says Melinda Zabritski, director of Automotive Credit for Experian Automotive. "There are big pockets of customers who can move down to lower rates," she says, referring to near-prime customers who could only get subprime financing in 2009-10.
Online lender OpenRoad Lending, which gets roughly half its business from auto loan refinancing, has seen about a 15 percent rise in refinancing applications and overall loan volume this year, says CEO Chris Goodman.
Although credit is improving, he says, people "don't want to buy new vehicles and gobble up more" money. The average model year his company is funding is 2009, he says.
Since customers rarely give warning that they're refinancing, dealers tend to learn about it through finance reserve chargebacks. Ouch.
Dealerships trying to save these customer relationships seem to be divided into two camps: beat 'em or join 'em. Either they're making customers attractive offers they won't want to give up or they're getting in on the refinancing action.