CHARLESTON, S.C. -- One-third of millennials surveyed “had no idea what the rate was on their auto loan.” They had shopped the payment.
That was one of the insights offered by Andrea Riley, chief marketing officer at Ally Financial, in a speech at the annual Association of Consumer Vehicle Lessors conference here this month.
Before being named to her current post in 2015, Riley was chief marketing officer for Ally’s auto finance and insurance businesses.
Riley cited a study that found that when millennials approach the vehicle financing process online, their attitude is: “First I trust the Internet, then I trust family,” mainly parents.
Online vehicle sales remain a small part of the market, she said. “Our data shows that direct sales are still less than a billion dollars annually. We’re originating $42 billion a year in automotive loans, so a billion is a rounding error.”
But a number of online startups and major auto retailers, including AutoNation Inc., Penske Automotive Group Inc. and Group 1 Automotive Inc., are taking steps toward online sales.
Riley spoke about online sales and financing with News Editor James B. Treece after her speech.
Q. As we move more toward online sales, does that open the door to more direct lending?
A. What we’re hearing consumers say is that they have an appetite for direct lending. But in reality, will it happen or not?
Today, the dealer still controls 85 percent of all the deals that come through the door, right? But we’re seeing through our own research that people are saying, particularly that millennial customer, that they intend to directly finance. But the dealer has such a powerful part of the process that it’s going to be interesting to see if it happens in reality.
They control it in part because, to borrow someone else’s tag line, when banks compete, you win. They check rates with so many more lenders than the consumer can.
Exactly. They have mass. And they perform a valuable service. That’s something we’ve always believed. There is a service the dealer provides for you. They’re shopping the best rate for you. They’re delivering the vehicle. You know, there’s a lot of controversy over markup on dealer rates, but …
It’s a fee for services performed.
But as we go to online sales, and there’s a lot of evidence that we’re close to it now, how does that direct or indirect lending operate?
Interestingly, I think there are a lot of dealers that in some respects would be happy to be out of the financing part of it.
Really? That’s where they make a lot of money.
Not so much there as the aftermarket side of it. So yeah, the F&I products side of it.
But with all that’s happening with the CFPB [Consumer Financial Protection Bureau] and regulations and compliance, if they could just let someone else do that. You come in with the money and then I’ll sell you all the aftermarket stuff and the service, because that’s where they make all the money.
But on the front-end side of it? Is it going to be worth the hassle for them?
And just think about the infrastructure they’ve had to put into their dealerships in terms of compliance and regulatory, just to make sure that they aren’t doing anything wrong.
So it’s going to be really interesting to see what happens in the next 10 years.