Dealer Insights - May June 2014 - Dealer Digest

April 18, 2014

Is the future of dealer reserve auto financing at risk?

One revenue source for many dealerships is the dealer reserve — the additional one or two percentage points you add to the finance rate offered by your lending partners. But an agreement by a major finance company to pay nearly $100 million in restitution and fines because of discriminatory lending claims could be the beginning of the end of this dealer option.

The Consumer Financial Protection Bureau (CFPB) argues that the dealer-reserve system raises the potential of disparate impact with regard to dealership-arranged financing. The CFPB believes the system enables dealerships to discriminate against minorities by charging them higher interest rates. It asserts that a major finance company failed to do enough to stop this from happening at some of its dealerships, resulting in nearly a quarter of a million minority borrowers paying higher auto loan rates.

The government hasn’t yet mandated a change in the dealer financing compensation system, such as switching to a flat-fee approach. But now that a major finance company has been hit with such a large payout, some in the industry believe it’s just a matter of time before this switch becomes a reality.

The real benefits of driverless cars

Judged by the buzz at recent auto shows, driverless cars appear to be the hot new automotive technology of the future. Small fleets of driverless cars have already been displayed by Audi, BMW and Mercedes, while Ford has introduced a self-driving prototype.

But some industry experts say that consumers shouldn’t start envisioning Jetsons-style automobile transportation anytime soon. The biggest benefit of this technology, they believe, is the safety aspect — not driverless driving.

Hands-free automobiles feature traffic-jam-assist, anticollision and lane-keeping systems that can help keep distracted and fatigued drivers from accidents. One auto industry executive said he views this technology like the autopilot on a commercial airliner, rather than as a driver replacement.

Buyer trends may change showroom and sales tactics

With more young buyers entering the automobile market, it might be time for dealerships to overhaul their showrooms — and the way they sell vehicles.

Gen Y buyers are the most sensitive to new-car technology and digital marketing, notes J.D. Power. They will account for 3.3 million new-vehicle sales this year, which is up from just 1.9 million in 2007.

This upswing necessitates a cultural overhaul in the way dealerships sell new cars to young buyers, some automakers say. For example, BMW North America is placing “Geniuses” — product specialists similar to those in Apple retail stores — in showrooms to help customers understand its automobiles’ high-tech features.

Dealer Insights - May/June 2014

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