Auto finance (finally) shifts into the digital age
The traditional car-shopping experience — visiting showrooms, negotiating a price, and enduring long waits in a windowless office — is widely loathed. Yet it has largely endured, even at a time when consumers can buy nearly anything else online in minutes.
There are a number of reasons why auto buying remains locked in the past. A car is a big purchase. It typically involves multiple transactions, including a loan. An auto dealer, a lender, and the carmaker all have roles, adding layers of complexity.
But today, the retail auto industry, which has been held back by stubbornly old-school financing processes, is finally entering the e-commerce age.
The latest sign of progress came Monday when Ford Motor Credit announced that it is now enabling shoppers to buy vehicles and finance their purchases online.
The Dearborn, Mich., automaker’s financing arm is starting with a single Ford dealer in Ohio, but it plans to roll the program out to more locations over time. The basic idea is to offer U.S. car shoppers — who spend an average of 10 hours researching their purchases online, according to an Ernst & Young report from 2015 — the option of transacting from the comfort of their own homes.
Last fall, Mercedes-Benz’s financing arm also began allowing car buyers to arrange their financing through a mobile app.
Lee Jelenic, director of mobility at Ford Motor Credit, said that changing consumer expectations are forcing the auto industry to adapt. He cited research that found today’s car buyers make an average of 1.6 visits to the dealership, compared with five visits a decade ago.
“We’ve seen a huge shift in consumer behavior,” Jelenic said. “And we want to stay at the forefront of that.”
As part of that effort, Ford Motor Credit is partnering with a two-year-old startup called AutoFi, which has developed a platform for financing automobile purchases online. That platform will be integrated into Ford dealers’ websites. Ford Motor Credit also made an undisclosed financial investment in San Francisco-based AutoFi.
Under the partnership, consumers who want to shop online will have the option of customizing their own loan terms. For example, if customers want to make bigger down payments, in order to reduce the amount they owe each month, they will have that choice.
“We put the consumer in charge of constructing their own deal, versus having the dealer do that for them,” said AutoFi CEO Kevin Singerman.
Initially, consumers will only see financing offers from Ford Motor Credit. But over time, AutoFi’s goal is to present up to three offers from various lenders that the dealer has chosen to put on the network, Singerman said.
The option to transact remotely gives consumers more control than they have had until now. Traditionally, when a car buyer arranges financing, auto dealers shop among a variety of lenders, but they do not show the consumer what’s behind the curtain. For traditional lenders, this new reality may present an opportunity or a competitive threat, depending on how quickly they can adapt to the market changes.
“What consumers are increasingly looking for is to be the ones that are in command of the transaction," said Roberto Hernandez, a partner in the consumer finance practice at PwC.
In recent years, some companies, including the electric car maker Tesla, have sought to eliminate middlemen from in the car-buying process.
By contrast, Ford Motor Credit and AutoFi are keeping U.S. auto dealers at the center of their business plans. Over time, the industry’s shift toward e-commerce could yield substantial benefits for auto dealers, as they may be able to operate with fewer employees.
Hernandez envisions a future in which many consumers opt to arrange financing online before they ever step foot in the dealership, reversing the traditional car-buying process.