Captive lenders foster dealer, brand loyalty

AUSTIN, Texas. -- Customers who get financing from a captive finance company are more likely to be loyal to a brand and to a particular dealer, Experian Automotive says.

"One of the most profitable things you can do is to get people to come back and buy another [car], instead of spending the dollars to attract somebody new," said Scott Waldron, president of Experian Automotive, during a presentation last week at the Consumer Bankers Association convention here.

For example, he said, customers who financed with BMW Financial Services and with Mercedes-Benz Financial Services were over 60 percent more loyal to the same dealer than were BMW and Mercedes-Benz customers who used noncaptive financing. That figure's based on customers who bought or leased a vehicle from 2005 to 2010, then bought or leased another one in 2011.

For those high-end brands, it's an added factor that they are heavily leased. Captive finance companies dominate leasing. And leasing contributes to loyalty, since customers have to bring the car back to the dealership at lease end. That gives the dealer an opportunity to sell the customer another car. A lease contract also makes it easy for the dealership to predict when a customer will be in the market, so the store can time its pitch exactly right.

For the industry as a whole -- captives, banks, credit unions and independent finance companies -- brand loyalty for lease customers in the group described above was 48 percent vs. 42 percent for loans, Waldron said.

For captive finance companies, he said, brand loyalty was 53 percent for lease customers and 48 percent for loan customers.

In a phone interview this week, Melinda Zabritski, Experian's director of automotive credit, noted that the captive finance companies have the benefit of factory subvention.

She said it's also evident that if the customer was once sold on the captive, that captive has the inside track for the next purchase as long as the captive provides an acceptable customer experience.

"Unless the customer comes in with a direct loan like from a credit union, the role of the dealer and the relationship between the dealer and the captive becomes the most important thing," she said. "After that, it's all about the customer experience."