The indirect financing model is "quickly fading away," with the COVID-19 pandemic hastening its demise, said Jim Houston, J.D. Power's global lending managing director.
"The dealer will no longer have the opportunity to place that customer like he or she did before," Houston said.
J.D. Power's 2020 U.S. Consumer Financing Satisfaction Study found more customers applying for credit digitally and reporting higher satisfaction than consumers who did so in a dealership. Fifteen percent of borrowers went outside the dealership for a loan, up 3 percentage points, and more than a quarter of luxury buyers used such direct financing. Forty percent of motorists surveyed for the study said they wanted at least part of the financing process to be digital in the future.
The latest version of the study is due out in November. Houston said that so far this year, J.D. Power has observed the same consumer behavioral trend it saw prior to the pandemic, but "just faster."
At some point in the future, customers won't be arranging deals in a dealership F&I office, according to Houston.
The winners in the industry will be those who've adapted to customers' digital financing preference, Houston said. He cited Bank of America as an example. The company found strong auto financing profits because it had an online option for customers, he said.
"Everyone's rushing to that place," Houston said.
Instant approval will be common, according to Houston. Buyers with poorer credit would be more likely for traditional human F&I intervention to negotiate approval and structure terms the consumer could afford, he said.
However, this too would be "resolved in due order" through technology to yield instant decisions for those borrowers as well, Houston said.
Dealership F&I personnel still would have a role in a future of what Jennifer Reid, Market Scan strategic partnerships vice president, called "modern retailing."
Reid advocated against withholding relevant pricing information, such as taxes, from the quote presented to an online buyer. "Just quote it up front" rather than surprise the customer with changes at the dealership, she said.
Many F&I personnel are "almost afraid to do that," she said, but the dealership will close more sales and pull in more revenue when customers manage the process themselves.
Like it or not, the space is changing, Reid said. This isn't necessarily a problem for the F&I department.
Reid gave the example of a customer who learns that an indirect financing option will cost $134 less monthly than a captive option.
"Don't look at it like it's gonna cost you money," she said.
Instead, look at it as having saved the customer $134, she said — which frees up money for them to buy more of the dealership's product.
"It's trendy to say F&I's gonna disappear," Reid said.
But the job would simply change, she said. Customers would still need a human F&I staffer on hand to answer questions, and the dealer needs the employee to protect against fraud and keep the retailer in compliance.