Franchise dealerships are not telling buyers about automakers’ special financing programs that restrict retailers from adding margins, according to industry payment calculator and analytics provider Market Scan.
Market Scan President Rusty West told Automotive News his company noticed the issue while working for a Japanese automaker whose incentive program lacked usage. Its adoption rate was less than 20 percent, West said — far below what he called the normal industry penetration of 90 percent.
Market Scan realized while the program was aggressive in giving customers a deal, “the rates can’t be marked up,” West said. “So they’re never even being presented to the consumer.”
For example, a customer who would qualify for promotional 0.9 percent financing might instead be given an 8.9 percent loan at the dealership, with 3 points of the interest rate encompassing dealership reserve, West said. Market Scan’s technology calculates roughly 250 million payments a day for industry software, and the company can tell whether dealerships are looking up incentive offers for consumers, he said.
Failure to present such offers “creates another big friction point” when the customer visits the automaker’s website and sees the 0.9 percent offer, West said.
“The consumer’s trust is lost,” he said.
West said the issue is larger than a single manufacturer. He said a few automakers are piloting Market Scan’s new automaker-facing analytics tool and “all of them have the same pain point,” he said. Their incentive “take rates” are far below the norm.
Another automaker this year offered 0 percent 72-month financing on a truck — but the promotion “didn’t move the needle at all” despite the manufacturer hyping it with national advertising, West said.
“No one took advantage of it because the dealers weren’t providing it,” he said.
Dealerships still are likely to present cash-back offers, a form of automaker incentive that can be applied to financing allowing interest rate reserve, West said. But special programs forbidding dealerships from adding margin are “for the most part not being presented to consumers,” West said.
Some of these no-margin programs might still pay a dealership a flat amount of a few hundred dollars per deal, West said. But a dealership selling a hypothetical $50,000 vehicle would make more by sending the deal to a lender who will allow the retailer to add 3 points of reserve to the interest rate, he noted.
West said a captive finance company really has two customers: the consumer and the dealership. If automakers wish the market to use their programs, “they need to meet the needs of both the dealer and the consumer,” he said.
A captive might not like how dealerships are doing business, but “you don’t really have a way of controlling it,” he said.
West said Market Scan noticed dealerships ceased to present incentives when inventory dropped to the point that “very high profits” existed on every vehicle.
“Then the dynamic was, ‘Let’s make the most we can on every transaction,’ ” he said.