Online intros could draw Gen Y to F&I products

Millennials are more cost-conscious than Gen Xers or baby boomers, but transparency and online F&I product introductions could sway them to open their wallets for add-ons, a new study finds.

In 2016, millennials accounted for 29 percent of new-vehicle sales. In the next three years, according to Deloitte, that share will rise to 40 percent, Cox Automotive says in the study, "Improving the Car Buying Experience for Millennials … and Everyone Else."

On the financing side, millennials made up 36 percent of the lending market in 2016, up from 25 percent in 2011, according to Cox. Generation X accounted for 41 percent, compared with baby boomers' 14 percent and the silent generation's 9 percent.

The credit mix of millennials has been fairly consistent since 2014. Through January this year, 39 percent of millennials who submitted credit applications through Dealertrack's network were subprime, 18 percent were near prime, 22 percent were prime and 21 percent were superprime.

The mix has been consistent after millennials' financial position improved in 2014, said Isabelle Helms, vice president of research and market intelligence at Cox Automotive.

"As they continue to age and land more stable jobs and grow their careers, we can actually see the composition probably improve in terms of prime and subprime for them … with the caveat that the economy doesn't go tanking," she said.

Still, millennials are more likely than other generations to set a budget before looking at vehicles. Nearly 60 percent of millennials said they do so, compared with 46 percent of Gen Xers and 40 percent of baby boomers, according to the study.

Affordability ranks high for millennials, which is why loan terms have extended to 69 months, Helms said.

"This is a generation that grew up watching their parents go through hard times or actually going through hard times themselves, so they are far more money-conscious. They are far more practical in their decisions that they make, particularly when it comes from specific purchases," Helms said. "Gen X was in a more favorable position back when they were their age."

More than 83 percent of millennials said an affordable monthly payment is very important when selecting a lender, compared with 76 percent of Gen Xers and 71 percent of baby boomers.

"For this generation who is plagued with a lot of loans, in particular college loans, their discretionary income is definitely very, very, very tight," Helms said. "It's a function of the mindset they have about money, but it's also a function of how much money they have in their wallets."

The cost of a car constitutes a larger percentage of millennials' budgets than older generations', she said.

Most of millennials' pain points while car buying happen during the negotiation and F&I process, securing a loan and going through F&I products.

Half of consumers in Cox's survey pointed to F&I and negotiation as pain points. But millennials are speaking on other generations' behalf, Helms said. "They have highs, and they have lows, but because they're so big in size, we're paying attention to them, and we are responding as an industry," she said. "They are doing everyone a favor."

Improved transparency online would boost customer satisfaction, especially in the F&I office, Helms said.

On average, millennials spend 17.5 hours shopping for a vehicle, and they spend two-thirds of that time online. If they learn about the products and process before going to the dealership, they are more likely to buy a product when they get there, Helms said.

"We see dealers pushing back on [introducing products online], but today, when you think about the other shopping decisions [consumers] have to make outside of cars, information is available to them at a fingertip. Our recommendation is open the door, create transparency, put it online," Helms said.

Millennials are far more likely to be drawn to these products when they can learn about them in advance, she said.