S&P Global Mobility: Loyalty down at captive finance companies in 2022

Vehicle availability and reduced incentives made customers fickle during the COVID-19 pandemic, with more than half of consumers who returned to the market during that time financing with someone other than their previous vehicle lender, according to S&P Global Mobility.

"Nearly two-thirds of consumers have been switching banks," Thomas Libby, associate director of loyalty solutions and industry analysis for S&P Global Mobility, said in a statement. "There's a nomadic element to this with households moving from one bank to another. That's less loyalty than the banks would like."

When inventory declined during the pandemic, lenders no longer had to rely on discounts such as deals on leasing to move vehicles, according to S&P Global Mobility.

Nearly all of the 10 captive finance companies with the highest loyalty in 2022 saw that allegiance decline from 2019, prior to the COVID-19 pandemic, according to S&P Global Mobility and TransUnion data. Only Tesla Leasing and Lincoln Automotive Financial Services improved loyalty, and S&P Global Mobility pointed out the actual volume of customers making up those loyal Tesla consumers "vastly trailed that of more-established captives."

Mercedes-Benz Financial Services, the No. 2 captive in terms of loyalty in 2019 with 58 percent of prior customers returning, by 2022 had dropped out of the captive loyalty Top 10 with just a 39 percent retention rate.

"Leasing has decreased since the pandemic throughout the premium auto segment," an unidentified Mercedes spokesperson said, according to S&P Global Mobility. "Increases in lease customers' equity in their vehicles led to a large number of lease buyouts in 2022, and increased interest rates led to a high number of cash purchases. Both factors contributed to lower lease levels than in previous years. On the financing side, higher interest rates have also led to increased competition from traditional lenders, in particular credit unions and regional banks.

Nearly all of the Top 10 major non-captive lenders in terms of loyalty grew retention from 2019 to 2022, according to S&P Global Mobility and TransUnion data. Only Chase Auto saw a decline, from 38 percent to 26 percent loyalty.

The lack of leasing promotion among captive finance companies led to borrowers seeking loans at those captive lenders' competitors, according to Libby.

The leasing rate dropped from 30 percent to 18 percent from 2019 to 2022. Leasing loyalty fell from 57 percent to 53 percent, while loan loyalty declined from 23 percent to 22 percent.

"Only one out of every five customers who return with a loan will go back to the same financial institution," Libby said in a statement. "That points out how incredibly competitive the loan market is. The independent banks are doing whatever it takes to get the business."