Young buyers don't trust the F&I process at dealerships, but there are some things savvy dealers and lenders can do to get their business.
"If something is going to appeal to Gen Y, it's got to be trustworthy, nonintrusive with no hidden agenda and no pressure -- and it's got to be available at 2 a.m.," says George Halloran, auto finance program director for the Americas at BenchMark Consulting International in Jacksonville, Fla.
Young buyers, seeking an alternative to traditional financing, are adding to the upsurge in online applications for direct loans, lenders and auto finance experts say.
That's significant because when customers arrange their own financing, dealerships don't have the opportunity to profit by marking up the interest rate on the loan -- a practice called dealer reserve -- so they typically earn nothing or, in some cases, a flat fee that's usually smaller than the markup would be. Dealer markup can earn stores hundreds of dollars per car.
For indirect loans negotiated at the dealership in the more traditional way, younger buyers want the dealer markup to be more transparent. Greater transparency puts pressure on dealer margins in F&I. It also puts an additional burden on dealerships to show they're adding value to justify their cut of the profits on indirect loans.
BenchMark's Halloran moderated a presentation on Gen Y preferences at the American Financial Services Association Auto Finance Conference early this year.
The event was held just prior to the National Automobile Dealers Association convention in Las Vegas.