The pandemic forever changed how consumers find, purchase and finance their vehicles. Movement toward online buying began before the pandemic, but it was COVID-19 shutdowns that pushed the transition into high gear.
Stay-at-home orders forced dealerships to shutter their showrooms and operate online. The shift drove them toward online sales models, home deliveries, and online financing options.
Cox Automotive has researched the consumer shopping journey for over a decade and understands the car-buying process has changed considerably over the last two years. But until now, its research never dug into the financing piece of the equation.
“We wanted to better understand the consumer aspect of financing and figure out their strategy as more of the process moves online,” says Angela Drake, senior research manager for Cox Automotive. “It is the first time for this study, but we hope to repeat it in the future to accumulate historic trends around financing.”
Cox Automotive based its Car Buyer Financing Journey Study on an online survey of 3,050 consumers who financed the purchase or lease of a new (2,116) or used (934) vehicle in the past 12 months. Respondents had to be at least 18 years old and had to use the Internet during their shopping process. Cox conducted the survey from Oct. 7 to Nov. 16, 2021.
The extensive study measured buyer satisfaction with vehicle financing steps, including the lender selection process and resources used to secure vehicle financing. The research also uncovered what financing steps consumers take online versus in person and their comfort level and concerns with financing online.
The inaugural study came away with five key takeaways:
- Car buyers spend considerable time on vehicle financing.
- Strong lender relationships matter.
- Vehicle affordability is paramount
- Digitization positively impacts time spent and satisfaction.
- Many buyers are open to buying a vehicle totally online.
Willingness to Finance Online
Financing is an integral part of the car buying process, with 85% of new vehicles and 39% of used vehicles financed in 2021, according to Experian data.
Cox Automotive’s new research shows 96% of all buyers now express they are willing to finance online. However, just 29% of respondents indicated they applied online for financing of their most recent vehicle purchase.
The discrepancy between the willingness to finance online and the actual action of financing online is a question dealers ask about, reports Drake. “Quite a few dealers have this capability in place and want to know why more buyers are not taking advantage of it, when there is an interest out there,” she says.
The logical assumption may be that consumers hesitate to share personal information online. However, Cox Automotive research finds consumers feel more concerned about how lenders may use their data.
“In the survey, we found their Top 2 concerns were: People do not want their data to be sold and they don’t want their data used to bombard them with phone calls from dealers or lenders,” she says. “Though they have some concerns with sharing data, they are not as much afraid of sharing their data, as they are afraid lenders or dealers will use their data in ways that makes them uncomfortable.”
Dealers can mitigate these concerns through better consumer education, finds Andy Mayers, lender solutions strategist at DealerTrack/ Cox Automotive. “It’s important to inform consumers about how they plan to use their data,” he says.
Dealers must share the benefits of doing financial transactions online. “You need to inform the customer of the convenience, the time savings, and why it’s a good idea to do these things upfront,” Mayers adds.
Consumers research vehicles for hours before ever contacting a dealership. In fact, buyers reported spending just under 12.5 hours researching and shopping for a vehicle in 2021, found the Cox Automotive Car Buyer Journey Study released in January.
The Car Buyer Financing Journey Study reveals consumers employ a similar strategy with vehicle financing. The survey found nearly all (87%) of car buyers explore their financing options before visiting a dealership. In fact, of the 12 hours and 19 minutes consumers spend car shopping, they spend 4 hours and 23 minutes researching financing options, securing financing and signing the contract.
The sources of research information include online sites; vehicle dealerships; and lenders, be it credit unions or banks.
“We found the average buyer uses multiple sources in their financing journey,” Drake says. “If they’re more of a digital buyer, they use more sources. They do a mix of things. No. 1, they go online. Once online, they visit a lender or dealer website, then they call or visit a dealership.”
Loyalty to Lenders
The Car Buyer Financing Journey Study also discovered 70% of car buyers consider two or more lenders before choosing one. And many buyers first consider lenders with whom they have established relationships.
Another striking finding is that buyers who are mostly digital, meaning they completed over 51% of their car buying journey online, have stronger loyalty with their lenders. This results in more direct financing and higher loan satisfaction. “I trust this lender” was the top reason these buyers cited for selecting a lender.
Mayers notes there are two pieces to the lending loyalty puzzle. The first is the consumer banking relationship. The lenders proactively work to preserve that relationship, he says.
“But there is also a dealer side,” he says. “Lenders are taking pre-approvals or referrals back to dealerships to save time. The lenders give dealers a qualified customer or pre-approved customer. It benefits the consumer because they have their financing ahead of time. It benefits dealers because they still get compensated for originating the loan. It benefits lenders who preserve their customer relationships.”
According to the latest Cox Automotive/Moody’s Analytics Vehicle Affordability Index, the median weeks of income needed to purchase the average new vehicle in March was 42.9 weeks, and the estimated typical monthly payment increased to $691, a record high.
The study found consumers consider monthly payments and interest rates the most helpful information to share online. In fact, 86% of buyers estimated their monthly payments and 76% compared interest rates online in their car buying journey.
Cox Automotive offers a payment service that gets payments down to the precise penny. “Buyers go through a funnel when they first search for a car they may be interested in,” Mayers says. “They know approximately what their payment is, then they figure out the F&I products they want, taxes and fees, until they arrive at a precise payment amount.”
Digitization Drives Dealership Benefits
Mostly digital buyers spent more time researching and securing their loans online and less time at dealerships, the study discovered.
All in, buyers who applied for financing online saved 30 minutes at the dealership and those who signed paperwork online saved 38 minutes, Cox research found.
“Both groups shared they were more satisfied with the time they spent at the dealership,” Drake adds.
She notes consumers now spend less time at the dealership. “It’s at an all-time low,” she says. “In contrast, consumers have never been more satisfied with the dealership experience. The time savings they now see is a huge contributor to that. We saw satisfaction for that metric rise significantly during the pandemic.”
100% Online Purchases
The study found more consumers are open to buying a vehicle completely online. In fact, three quarters of respondents stated they were open to buying a vehicle completely online while 47% expressed they were willing to buy a car completely online with a lender.
“The 47% figure caught us by surprise,” Drake says. “When we put that question into the study, we didn't know what answer we'd get. But 47% is higher than we expected to see. It shows people are willing to do more online and the consumer-lender connection is growing stronger.”
This doesn’t mean lenders sell cars, however. It simply means consumers go through the lending space online to purchase a vehicle, similar to how Tesla and Carvana now sell cars.
“New form OEMs like Tesla and Rivian and new form retailers like Carvana are proving the direct-to-consumer model works for a growing segment of the car buying market,” Mayers says.
“Consumers are also accustomed to being online in the lending space and that means they are increasingly willing to go through the financing process and purchase a car online. These are distinct but equally important parts of the evolution of the auto retail transaction that must be accounted for with both technology and process innovation.”
Though different generations are equally willing to apply for financing online, there is a disparity in how much help they need to do it, the study finds.
Younger generations—Gen Z and Millennials—are the most likely to apply online. However, nearly half prefer assistance along the way. While they understand how digital lending works, younger buyers need a specialist to guide them and explain transaction stages. In contrast, just 38% of Baby Boomers state they prefer assistance.
“Our industry is well past wondering if consumers will ever buy a car online,” Mayers emphasizes. “The time has come, and the research shows a solid growth trajectory. The auto financing industry needs to be prepared by implementing digital strategies that increase operational efficiency and enable consumers to find, finance and finalize their next vehicle purchase when, where and however they prefer.”
Still, he says, dealers are all over the map with digital financing capabilities. “It’s a wide spectrum in terms of dealer sophistication,” he says. “We must ensure consumers never have to enter data more than once and all systems are integrated. We must make sure consumers have a frictionless process over the entire journey.”
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