The findings of FICO's second annual global survey on consumers’ automotive finance experience revealed two very different consumer markets in Australia and New Zealand.
The antipodes diverged this year as Australian consumers warmed to taking out more loans in the dealer channel, while New Zealanders showed a strong preference for online lending.
(FICO’s independent research surveyed 2,000 adult consumers across nine countries including the US, Canada, Mexico, Chile, Australia, New Zealand, Germany, Spain, and the UK. Respondents were between the ages of 18-64 who acquired a loan on a new or used vehicle within the last 3 years.)
Car Finance Research - Australian findings:
35 percent of Australian consumers plan to find their next auto loan at a dealer, up by 14 percent year over year.
This preference demonstrated the largest and only gain over last year’s survey, with the online channel showing a 7 percent decline and visiting a bank/lender showing a 6 percent decline.
“This trend looks like good news for dealerships and puts Australian consumers more in line with North America and parts of Europe where the preference for the dealer channel is strong,” said Paul Swyny, FICO Australia client partner. “However, the research, which was conducted partway through the Australian Banking Royal Commission may not be reflective of current sentiment. The banks were already taking a reputational hit in the media, but the commission was only critical of dealer lending later in the piece.”
The Hayne Royal Commission denounced the use of flex commissions. This was a practice where dealers offered loans at a higher interest rate to consumers than that offered to the dealership by the bank or lender and were incentivized to do so by generous commissions.
“This practice has since been banned, but thanks to this and other findings of the Hayne report, dealerships likely have some work to do to maintain the ground they’d gained since last year’s automotive financing study,” said Swyny.
Interestingly, the survey revealed many Australians were clearly unaware they might be able to get a better deal. When asked about how good a deal they felt they received on their most recent car loan, 31 percent said they got an excellent deal and 59 percent said they got a good deal. Only 8 percent said they got a poor deal and just 2 percent felt they had been swindled.
Car Finance Research - New Zealand findings:
New Zealanders are least likely to feel they got a fair deal on their car loan and are the most likely to look online for their next loan.
Citing convenience, comparison shopping across lenders and speed as their top three reasons, an impressive 44 percent of New Zealand consumers ranked online financing as their first choice for their next loan. This was up by 4 percent compared to last year’s survey and put New Zealanders in the lead globally, as the average among the other nine countries was only 27 percent.
Dealerships and banks set to feel the backlash
More than half (52%) of New Zealanders applied for their last loan at car dealerships (vs 62% last year), but only 30 percent say they see themselves doing that for their next loan. Similarly, only 26 percent plan to physically visit a bank or other lending institution next time around.
Vaile Mexted, country manager for New Zealand at FICO said, “Consumers are actively shopping around for a better deal online and realize they don’t have to be limited to the offers shown to them in traditional channels such as their bank or the dealership. Increased competition is creating a significant shift in New Zealand’s channel preference for automotive loans. The New Zealand survey shows that 17 percent of respondents applied for their most recent loan or lease online, which is up 13 percent on last year. The number visiting a bank also dropped seven percent this year.”
Where’s the best deal?
Looking at the main reasons cited by New Zealanders to explain where they would go for their next loan, 47 percent said they’re going online so they can comparison shop. Those who prefer dealerships gave “I feel I might get a better deal” as one of their top three reasons. Those who plan to go with a bank or lending institution said, “I believe I get the best rate at the bank.”
Everyone wants a better deal, but it’s a particular concern of New Zealanders, since 11 percent felt they received a poor deal on their last car loan - the highest amongst surveyed countries and up by 7 percent. While globally 93 percent of consumers felt they got a good or excellent deal, that number fell to 86 percent in New Zealand, the lowest of all countries surveyed.