USA Edition
Contents Introduction...3 Current & Future Usage of Financing Channels...4 The Start: Beginning the Financing Journey...7 The Middle: Navigating the Deal...13 The End: Reflecting On the Financing Experience...18 The Future of Automotive Finance...22 About FICO...24 2018 Fair Isaac Corporation. All rights reserved. 2
Introduction In late 2017, FICO commissioned a global independent research study with 2,200 consumers across nine countries to better understand key consumer perceptions within the automotive financing experience. Given new and disruptive innovations such as driverless cars managed by artificial intelligence, a shift to digital experiences, and collaborative economy models with start-ups like Uber and Lyft entering the mainstream, new subscription ownership models, and it is clear that the Automotive industry is experiencing a tremendous shift. In light of these changes, the goal of this research was exploratory in nature and intended to look for regional and other differences in how consumers view the financing portion of the experience, as well as identify gaps in how the ecosystem of providers (banks, captive finance companies, credit unions, dealerships and start-ups) are currently meeting customer expectations. Countries covered USA Australia Canada Chile Germany Mexico New Zealand Spain UK Survey Criteria All respondents to the survey were adults 18 64 who acquired a loan on a new/used vehicle within the last three years. 2018 Fair Isaac Corporation. All rights reserved. 3
Current & Future Usage of Financing Channels There are several ways to obtain a new loan a customer can go to a dealership (also called indirect lending by industry experts), to their physical bank or credit union directly, or online to complete the experience digitally. To better understand the future channel usage versus current usage, two questions were asked. 2018 Fair Isaac Corporation. All rights reserved. 4
QUESTION 1 How did you acquire your most recent automotive loan? Overall results I applied for the loan at the dealership when I bought my vehicle I applied for the loan online (on my laptop, tablet, etc.) 10.1% 55% Results by country How acquired last auto loan USA Australia Canada Chile Germany Mexico New Zealand Spain UK Dealership 73% 45% 70% 30% 44% 39% 62% 43% 63% Online 5% 15% 4% 13% 20% 4% 4% 13% 15% Pre-approved offer 5% 16% 9% 12% 2% 15% 9% 10% 7% Lending institution 15% 21% 15% 40% 33% 39% 22% 33% 13% I used a pre-approved offer to buy my vehicle 8.6% I visited a bank of lending institution to apply for the loan 23.9% There are many ways to start a financing journey, however, that experience is most often completed in the dealership, followed by a bank or credit union. Despite the global shift to digital experiences, digital financing is still very much in its infancy in terms of current market adoption. 2018 Fair Isaac Corporation. All rights reserved. 5
QUESTION 2 For a future automotive loan, how would you prefer to get your next loan? (Please rank your preferred method, from most preferred to least preferred.) Global results I would apply online (on my laptop, tablet, etc.) 33% I would inquire at a dealership 33.1% I would visit a bank or lending institution 33.2% Results by country USA Australia Canada Chile Germany Mexico New Zealand Spain UK I would apply online (on my laptop, tablet, etc.) 29% 42% 23% 36% 34% 29% 40% 29% 48% I would inquire at a dealership 38% 21% 44% 25% 35% 34% 33% 25% 32% I would visit a bank or lending institution 32% 37% 33% 39% 30% 37% 27% 46% 20% Top factors for choosing a given channel for next automotive loan Online Dealership Lending Institution Convenience 66.4% Allows me to comparison shop across lenders 52.3% Speed 47.2% One-stop shopping (don t have to visit bank & dealership) I feel I might get a better deal at a dealership That s how I did it the last time I purchased a vehicle 44.0% I trust/like my bank 53.1% 42.3% I feel like personal financial info is safer at the bank 38.8% 40.8% I believe I get the best rate at the bank 36.4% There is a substantial disconnect between the current channel mix and consumer preference with the largest gap centered on digital (nearly a 23-point difference). With the accelerating adoption of digital, this finding adds fuel to the fire that the global market may be reaching a tipping point where the shift to digital happens rapidly given consumer demand and availability of new technology. 2018 Fair Isaac Corporation. All rights reserved. 6
The Start: Beginning the Financial Journey During the early stage of the customer journey, individuals begin to research their financing options and desired vehicle to solidify their goals for the experience based on what they learn along the way. This portion of the experience is generally when marketers seek to influence buying behavior and shape these consumer goals before they become hardened. 2018 Fair Isaac Corporation. All rights reserved. 7
QUESTION 3 For your most recent automotive loan, which of the following did you do? Overall results I shopped for a vehicle at the dealerhip or online first, then inquired about financing 67.8% I researched loan/financing options first, then went to a dealership or online to shop for my vehicle 28.8% Results by country I shopped for a vehicle at the dealership or online first, then inquired about financing I researched loan/financing options first, then went to a dealership or online to shop for my vehicle USA Australia Canada Chile Germany Mexico New Zealand Spain 74% 62% 78% 49% 65% 66% 60% 71% 65% 21% 36% 20% 47% 33% 32% 33% 27% 32% Only about 29% of consumers first learn what level of financing they qualify for before shopping for their vehicle. This may be an opportunity to better educate consumers on the buying experience, but also to provide risk-aware marketing such that prime and sub-prime customers both receive the best offers and options for their personal financial situation. This approach will require explainability and transparency such that each customer is able to clearly understand the options available to them. UK 2018 Fair Isaac Corporation. All rights reserved. 8
QUESTION 4 Did you initiate the financing discussion, or did a company reach out to you (via email, phone, mail, etc.) with an offer? Overall results Results by country I initiated it 74.5% USA Australia Canada Chile Germany Mexico New Zealand Spain UK I initiated it 77% 75% 68% 79% 70% 82% 73% 81% 67% I responded to an offer 23% 24% 32% 21% 30% 18% 27% 19% 33% I responded to an offer 25.1% Perhaps not surprisingly, consumers report that they initiate the financing discussion themselves. In the future, it may be more likely that financing sources (banks, dealerships, etc.) initiate a personalized discussion based on observed pre-purchase behavior signals and proven credit-worthiness such that only customers that are actively in the market for a vehicle receive engagement. 2018 Fair Isaac Corporation. All rights reserved. 9
QUESTION 5 How many different lenders did you consider before going with your final loan selection? Overall results 1 lender 2 3 lenders 4 5 lenders 6+ lenders 8.0% 1.6% 44.4% 45.6% Results by country # of offers USA Australia Canada Chile Germany Mexico New Zealand Spain UK 1 offer 52% 46% 60% 25% 46% 27% 46% 33% 50% 2 3 39% 44% 34% 64% 42% 66% 49% 60% 35% 4 5 8% 9% 5% 11% 9% 8% 6% 6% 12% 6 + 2% 1% 1% 1% 3% 0.4% 0% 1% 3% Nearly 56% of consumers will consider more than one source of financing or purchase channel (dealership, bank, etc.) as they attempt to get the best terms and experience possible. Some consumers of course have better access to additional financing sources, dependent on variables such as their credit profile and location, however, this may serve as an opportunity for financers to use Alternative Deal Structure capabilities, where lenders can instantly present multiple loan offers with differing terms (length in months, percentage rate, amount of money down, etc.) to optimize for the consumer s preferred terms and avoid the customer leaving to shop elsewhere. 2018 Fair Isaac Corporation. All rights reserved. 10
QUESTION 6 Would you accept an instant loan offer for financing a vehicle if that meant you could avoid dealing with a bank or doing extra paperwork? Global Results Results by Country Yes No 40.8% 12.8% Maybe I would need to know more 45.7% USA Australia Canada Chile Germany Mexico New Zealand Spain UK Yes 37% 42% 35% 46% 44% 53% 33% 39% 42% No 11% 17% 11% 8% 18% 8% 15% 16% 15% Maybe I would need to know more 52% 42% 54% 46% 39% 39% 53% 45% 44% Consumers are very open to instant, pre-qualified offers to improve expediency. Only 13% of individuals would not accept such an offer and may prefer instead to work through a traditional, full loan application process and credit check or to pay in cash. 2018 Fair Isaac Corporation. All rights reserved. 11
QUESTION 7 How much influence did the level of financing you qualified for have on your selection of a vehicle, make, model or dealership? Global Results Results by Country A great deal Some Very little None 35.7% 39.8% 14.6% 9.2% USA Australia Canada Chile Germany Mexico New Zealand Spain UK A great deal 29% 29% 31% 64% 31% 66% 27% 39% 23% Some 38% 42% 40% 28% 46% 30% 36% 46% 47% Very little 18% 19% 17% 6% 13% 4% 27% 9% 19% None 15% 10% 12% 2% 9% 0% 9% 6% 11% 36% of respondents globally replied that the level of financing they qualified for greatly influenced their selection of vehicle make, model or dealership. Latin American consumers were especially likely to report that financing level makes a large different for them this makes sense given relatively high vehicle prices relative to annual wages in the region. 2018 Fair Isaac Corporation. All rights reserved. 12
The Middle: Navigating the Deal After forming a solid set of goals about their vehicle shopping experience, consumers then begin to actively work through their financing experience by starting, and often completing, a loan application. It is during this phase in which frontline employees (a loan officer at a bank, a finance or insurance professional at a dealership, an underwriter at an indirect lender, or perhaps a contact center agent) have the greatest ability to impact the experience. 2018 Fair Isaac Corporation. All rights reserved. 13
QUESTION 8 How likely are you to negotiate for the best deal on automotive loan terms? Global Results Very likely Somewhat likely Somewhat not likely Not at all likely 2.5% 38.7% 11.1% 43.7% I didn t know that I could negotiate my loan 3.5% Results by Country Extras offered USA Australia Canada Chile Germany Mexico New Zealand Very likely 42% 37% 35% 46% 32% 55% 38% 35% 31% Somewhat likely 42% 42% 49% 43% 43% 35% 44% 53% 47% Somewhat not likely 10% 15% 9% 6% 20% 6% 15% 9% 13% Not at all likely 3% 3% 3% 4% 2% 2% 4% 2% 3% I didn't know I could negotiate on my loan Spain 3% 4% 4% 1% 4% 2% 0% 2% 7% About 82% of respondents globally are likely or very likely to negotiate for the best deal, and only a very small percentage (3.5%) did not know they could negotiate on their auto loan terms. This result is in line with a later finding in this study that consumers generally feel in control of the process and report they understand the terms. It is important to note that these findings are subjective; they they only represent how well customers report they feel they understand the process. Additional efforts to improve financial literacy and education should continue to further improve customers actual understanding and assist them in making good decisions. UK 2018 Fair Isaac Corporation. All rights reserved. 14
QUESTION 9 As part of your financing experience, were you offered any of the following? (Check all that apply) Global Results An extended warranty or service contract 55.5% Results by Country Extras offered An extended warranty or service contract USA Australia Canada Chile Germany Mexico New Zealand Spain 72% 55% 74% 28% 36% 45% 49% 52% 55% UK Insurance 55.4% Add-ons (floor mats, roof rack, etc.) A credit card 25.2% 15.2% Insurance 31% 64% 55% 80% 56% 85% 69% 66% 46% Add-ons (floor mats, roof rack, etc.) 23% 36% 38% 19% 18% 20% 15% 24% 26% A credit card 6% 12% 18% 31% 20% 25% 6% 19% 11% In addition to increasing the total financing value, dealerships often make additional margin when they sell ancillary products and services. With only 6% of consumers in the US experiencing an offer for a credit card, other regions internationally look to be further ahead with cross-selling. 2018 Fair Isaac Corporation. All rights reserved. 15
QUESTION 10 Which of the following factors were important to you when shopping for automotive financing? Overall Results Monthly payment amount Interest rate (APR) 92.4% 91.0% Length of loan term (number of months) Money down 90.2% 82.7% Ability to instantly compare multiple offers 68.2% Results by Country Extras offered Monthly payment amount USA Australia Canada Chile Germany Mexico New Zealand Spain 92% 90% 94% 92% 91% 98% 89% 94% 91% Interest rate (APR) 94% 87% 94% 90% 85% 95% 89% 95% 89% Length of loan term (number of months) 88% 88% 94% 93% 85% 98% 86% 94% 90% Money down 82% 79% 82% 85% 75% 93% 86% 85% 86% Ability to instantly compare multiple offers 62% 68% 66% 80% 65% 85% 62% 74% 63% When considering competing loan options, consumers care most about their monthly payment and interest rate. This implies that financing proposals that are optimized to maximize for these aspects (at the expense of money down and length of loan) will be most impactful with consumers. UK 2018 Fair Isaac Corporation. All rights reserved. 16
QUESTION 11 How much time did you spend on the transaction filling out the application, receiving a loan offer or offers, and finalizing your loan? Overall Results No more than 5 minutes 3.5% 5 15 minutes 13.9% 15 30 minutes 30 minutes 1 hour A few hours 13.6% Overnight or longer 9.6% 28.7% 30.7% Results by Country Loan application wait time USA Australia Canada Chile Germany Mexico New Zealand Spain UK < 30 minutes 38% 43% 43% 40% 54% 35% 56% 55% 63% > 30 minutes 62% 57% 57% 60% 46% 65% 44% 46% 37% Given that 54% of consumers must wait more than 30 minutes to complete their transaction, this implies that there is still a significant amount of manual work that takes place to complete a loan and that back-end systems in automotive finance still have some ways to go in terms of the speed and efficiency. In the future, approvals will be increasingly automated based not only on credit worthiness and risk of fraud, but also with artificial intelligence that assists in optimizing offers for the consumer, guided by the business s portfolio objectives and ensuring adherence to regulatory requirements. While wait time by channel (online, bank, dealership, etc.) was not shown, it is worth noting that no major differences between channels were observed in the data. This may suggest that the same (manual and often subjective) back-end process is used across channels. 2018 Fair Isaac Corporation. All rights reserved. 17
2018 Consumer Survey of Automotive Finance Perceptions The End: Reflecting On the Financing Experience After completing a loan and getting to drive home in their new vehicle, the consumer has hopefully been able to satisfy their goals for the experience. Once all is said and done, the responses below show how consumers feel about the entire process. 2018 Fair Isaac Corporation. All rights reserved. 18
QUESTION 12 How good of a deal do you feel you received with your most recent automotive loan? Global Results Results by Country I got an excellent deal I got a good deal I got a poor deal 8.9% 25.5% I feel like I got swindled 3.0% 61.1% Extras offered USA Australia Canada Chile Germany Mexico New Zealand I got an excellent deal 31% 17% 27% 22% 32% 24% 20% 16% 28% I got a good deal 56% 65% 62% 54% 60% 64% 71% 66% 63% I got a poor deal 10% 11% 7% 15% 6% 9% 4% 13% 6% I feel like I got swindled 3% 6% 4% 7% 2% 2% 4% 2% 2% 86% of respondents felt they got a good or excellent deal and the clear majority of consumers around the world feel that they are receiving at least a fair deal during their financing experience. This may not be surprising given aggressive discount offers such as 0% APR that exist in many regions as well as manufacturer or dealership incentives. Spain UK 2018 Fair Isaac Corporation. All rights reserved. 19
QUESTION 13 Referring to your most recent automotive financing, please rate the following attributes: Global Results Fully understood the terms of the financing 75.7% Felt in control of the process 64.4% I enjoyed the experience 56.2% Concerned might be hidden items in the contract 3.0% 55.2% Most interested in acquiring the vehicle; contract terms of secondary interest Would have liked to evaluate alternative deals to make better choice 49.2% Had to provide many documents to close the deal 42.8% Waited too long for the process completion 30.0% 51.4% Consumers have an overall positive experience in many regards, reporting they felt in control of the process, understood the terms, and over half even enjoyed the experience. This may be a bit unexpected to some given the high-pressure sales experience many folks experience, however, going back to the high-value promotions in use today (0% APR, etc.) and the fact that the consumer gets to drive home with a new (or new used) vehicle, it does seem logical. 2018 Fair Isaac Corporation. All rights reserved. 20
QUESTION 14 How would you rate the ease/difficulty of financing your vehicle, with 1=Big hassle and 10=Very easy? Global Results Results by Country Rating 7 10 (Easy) Rating 4 6 Rating 1 3 (Difficult) 7.1% 64.5% 27.9% Extras offered USA Australia Canada Chile Germany Mexico New Zealand Rating 7-10 (Easy) 62% 62% 72% 50% 63% 80% 66% 55% 69% Rating 4-6 30% 30% 21% 38% 30% 13% 29% 39% 28% Rating 1-3 (Difficult) 8% 8% 7% 13% 7% 8% 6% 6% 3% Most consumers report that the financing experience was easy and low-effort for them. This is consistent with the earlier finding that customers feel in control of the process, they understand the terms and they feel they got a good deal. Spain UK 2018 Fair Isaac Corporation. All rights reserved. 21
The Future of Automotive Finance QUESTION 15 Wave your magic wand: We would like to hear your ideal automotive buying or financing experience. Please describe: To close our consumer survey, we asked respondents what their ideal buying experience would look like if they could wave their magic wand and have the financing process work best for their unique needs. A word cloud is presented on the next page with frequently recurring words mentioned in these responses the full dataset of 2200 responses from this survey project, including the global open-ended verbatim, are available through a consulting engagement with the FICO Fair Isaac Advisors team. Please contact FICO for more information. 2018 Fair Isaac Corporation. All rights reserved. 22
Word cloud for consumers in the USA: 2018 Fair Isaac Corporation. All rights reserved. 23
About FICO FICO (NYSE: FICO) has long been known for its ubiquitous credit score, which plays a critical role in the credit decision process for financing an auto. Less well known is the fact that FICO provides an analytically driven platform that enables automotive finance companies to be successful across five key stages of the customer lifecycle. Founded in 1956, FICO introduced analytic solutions such as credit scoring that have made credit more widely available, not just in the United States but around the world. We have pioneered the development and application of critical technologies behind decision management. These include predictive analytics, business rules management and optimization. We use these technologies to help businesses improve the precision, consistency and agility of their complex, high-volume decisions. FOR MORE INFORMATION www.fico.com www.fico.com/en/blogs NORTH AMERICA +1 888 342 6336 info@fico.com LATIN AMERICA & CARIBBEAN +55 11 5189 8267 LAC_info@fico.com EUROPE, MIDDLE EAST & AFRICA +44 (0) 207 940 8718 emeainfo@fico.com ASIA PACIFIC +65 6422 7700 infoasia@fico.com FICO and Fair Isaac are trademarks or registered trademarks of Fair Isaac Corporation in the United States and in other countries. Other product and company names herein may be trademarks of their respective owners. 2018 Fair Isaac Corporation. All rights reserved. 4510BK_EN 3/18 PDF