FICO Survey: Will Uptick In Preference For Dealer Car Financing Be Threatened By Hayne Report?

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Surveys & Market Data

SYDNEY — 30 May, 2019


  • In the second annual FICO survey on automotive financing, 35 percent of Australian consumers plan to find their next auto loan at a dealer, up by 14 percent year over year.
  • 35 percent plan to look online for their next car loan, down by 7 percent since 2017.
  • 67 percent of Australians spend 30+ minutes on loan financing process, up 10 percent  

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Silicon Valley analytic software firm FICO has announced the results of its second annual global survey on consumers’ automotive finance experience and found that 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.

Insurance add-ons?
The Hayne Royal Commission also revealed that some car dealers had been pushing add-on insurance products even though they weren’t in the consumers’ best interests, because of the significant margins on offer.

FICO’s survey last year revealed that 64 percent of car buyers said they were offered auto insurance as part of their financing experience. This year that fell by 26 points to just 38 percent.

Australians take the initiative
FICO’s survey found that 84 percent of Australians initiated their financing discussion, as opposed to responding to an offer. While a further 67 percent said they felt in control of the automotive financing process. Australians are split however, when it comes to shopping around for a car loan. Just over half (52 percent) considered one lender the last time they secured a loan, and a further 43 percent considered two or more lenders. Yet almost half of those who plan to go online for their next round of automotive financing said they want to comparison shop.

“Consumers are taking greater control of the auto financing process. So banks, dealerships and other lenders have an opportunity to leverage technology and data to recognise pre-purchase behaviour signals and identify Australians likely to be in the market for a vehicle and then initiate personalised offers,” said Swyny.   

Market ripe for change
“Car loans are still being underwritten using a very manual process”, said Swyny. “One way that the banks and dealerships can fight back against online competition is to automate the back-end systems to improve the customer experience.”

The survey showed that in Australia, 67 percent of consumers had to wait more than 30 minutes to complete their loan transactions. Globally, 30 percent of respondents felt they had to wait too long to complete the financing process. A similar number of Australians, 31 percent, said they would be open to instant, pre-qualified offers to improve expediency and avoid dealing with a bank or doing extra paperwork. Only 14 percent said they wouldn’t be open to an instant loan offer with a further 56 percent in the ‘Maybe’ category.

“In the future, offers and approvals will be increasingly automated, based on credit scores and fraud risk analysis,” said Swyny. “We expect more loan providers will employ technology solutions that will assist to rapidly generate optimised loan offers and automatically offer them to the consumer, offering choice and the ability to comparison shop.”

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.

About FICO
FICO (NYSE: FICO) powers decisions that help people and businesses around the world prosper. Founded in 1956 and based in Silicon Valley, the company is a pioneer in the use of predictive analytics and data science to improve operational decisions. FICO holds more than 190 US and foreign patents on technologies that increase profitability, customer satisfaction and growth for businesses in financial services, manufacturing, telecommunications, health care, retail and many other industries. Using FICO solutions, businesses in more than 100 countries do everything from protecting 2.6 billion payment cards from fraud, to helping people get credit, to ensuring that millions of airplanes and rental cars are in the right place at the right time.

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Richelle Gillett
Giant Squid Inc for FICO
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