J.D. Power and Associates Reports: Providing a Highly Satisfying Experience for Automotive Dealers Can Lead to Increased Profitability for Lenders

WESTLAKE VILLAGE, Calif., July 29 /PRNewswire/ -- Lenders who are successful in satisfying automotive dealers by meeting key performance expectations are more likely to capture a greater share of preferred loan applications from their dealer network, which can drive higher levels of revenue and profitability, according to the J.D. Power and Associates 2010 U.S. Dealer Financing Satisfaction Study(SM) released today.

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The study finds that within the prime retail credit segment, lenders with a highly satisfied dealer network (scores of 901 or higher on a 1,000-point scale) successfully book a higher portion of applications they review—55 percent, compared with 25 percent among dealers with low satisfaction (scores of 700 or lower). Similarly, lenders with highly satisfied dealers also close a greater percentage of the loans they approve (77% vs. 46% among low-satisfaction dealers). As a result, lenders delivering higher satisfaction are spending less on processing new loans and also enjoying higher risk-adjusted returns.

In addition, highly satisfied dealers send more of their current business (40 percent) to lenders that deliver a satisfying experience. In comparison, dealers with low levels of satisfaction send just 20 percent of business to their lenders. Highly satisfied dealers are also more likely to send a greater proportion of business to their lender in the future. Sixty percent of highly satisfied dealers say they "definitely will" increase the percentage of business sent to the lender, while just 12 percent of dealers with low satisfaction say the same.

The study finds that overall satisfaction and ultimately, business results are driven by lenders meeting a set of key performance indicators with three common themes: establishing proactive and ongoing lines of communication; improving speed and flexibility of approval and funding process; and providing satisfying interactions with dealers.

"As the market shows signs of recovery, those lenders that have continued to focus on communication—specifically about process changes that have been implemented as a result of recent economic challenges—and building strong relationships with their dealer network have more effectively managed dealer expectations," said Paul A. Cuevas, director of automotive finance at J.D. Power and Associates. "In doing so, these lenders have positioned themselves to be the lender of choice and capture more business."

While dealers have traditionally had strong ties with their captive finance lenders, the 2010 study reflected a deepening of relationships between banks and dealers, largely as a result of economic challenges facing captives and the willingness of banks to meet critical dealer financing needs.

"Banks have helped to fill the void in the retail and floor plan markets created by the captive lending uncertainty and turmoil in the securitization market," said Cuevas. "Even in the highly commoditized prime retail credit space, banks that provide a more highly satisfying experience benefit from dealers sending more business their way, which increases profitability. For example, deals booked with Huntington National Bank in 2009 with similar credit scores, loan percent to collateral value, term and down payments have buy rates that are 20 to 50 basis points higher compared with other banks competing in the prime space. This is a clear example of the considerable impact improving dealer satisfaction can have, regardless of provider segment or consumer credit."

The study also finds that in all four segments examined, overall dealer satisfaction with lenders has increased considerably from the low levels observed in 2009.

The study examines dealer satisfaction with finance lenders in four segments: prime retail credit; subprime retail credit(1); retail leasing; and floor planning. It examines three key factors that contribute to satisfaction within the prime retail credit and subprime retail credit segments: provider offering; application/approval process; and sales representative relationship. Four factors are measured in the retail leasing segment: provider offering; application/approval process; sales representative relationship; and vehicle return process. Three factors are measured in the floor planning segment: finance provider credit line; floor plan support; and floor plan portfolio management.

Rankings by segment are as follows:

Prime Retail Credit

Alphera Financial Services ranks highest in the prime retail credit segment with an index score of 956 and performs particularly well in the sales representative relationship. BMW Financial Services (947) and Mercedes-Benz Financial (937) follow in the rankings.

Retail Leasing

For a seventh consecutive year, BMW Financial Services ranks highest in the retail leasing segment with a score of 944 and performs particularly well in the application/approval process. Mercedes-Benz Financial follows closely with a score of 942. Audi Financial Services ranks third with 900.

Floor Planning

BMW Financial Services ranks highest in the floor planning segment with a score of 962, followed by Mercedes-Benz Financial (952) and Toyota Financial Services (919).

The 2010 U.S. Dealer Financing Satisfaction Study is based on responses from 2,557 dealer principals who were surveyed between March and April 2010.

Included in the study but not ranked due to small sample size are: AmeriCredit; Bank of the West; Kia Motors Finance; Lexus Financial Services; M&T Bank; PNC Bank; Security Service Federal Credit Union; Subaru Motors Finance; and TD Banknorth.

Included in the study but not ranked due to small sample size are: Bank of America; Lexus Financial Services; Subaru Motors Finance; and Wachovia Dealer Services.

Included in the study but not ranked due to small sample size are Audi Financial Services and Hyundai Motor Finance.

About J.D. Power and Associates

Headquartered in Westlake Village, Calif., J.D. Power and Associates is a global marketing information services company operating in key business sectors including market research, forecasting, performance improvement, Web intelligence and customer satisfaction.  The company's quality and satisfaction measurements are based on responses from millions of consumers annually.  For more information on car reviews and ratings, car insurance, health insurance, cell phone ratings, and more, please visit JDPower.com. J.D. Power and Associates is a business unit of The McGraw-Hill Companies.

About The McGraw-Hill Companies

Founded in 1888, The McGraw-Hill Companies (NYSE: MHP) is a global information and education company providing knowledge, insights and analysis in the financial, education and business information sectors through leading brands including Standard & Poor's, McGraw-Hill Education, Platts, and J.D. Power and Associates. The Corporation has more than 280 offices in 40 countries. Sales in 2009 were $5.95 billion. Additional information is available at http://www.mcgraw-hill.com/.  

J.D. Power and Associates Media Relations Contacts:

John Tews; Troy, Mich.; (248) 312-4119; [email protected]

Syvetril Perryman; Westlake Village, Calif.; (805) 418-8103; [email protected]

No advertising or other promotional use can be made of the information in this release without the express prior written consent of J.D. Power and Associates. www.jdpower.com/corporate

(1) No awards were presented in the subprime retail credit segment due to insufficient market representation.

SOURCE J.D. Power and Associates