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Dealer Insights - May-June 2015 - Dealer Digest

May 12, 2015

Longer-lasting cars lead to longer loan terms

Not so long ago, 60 months was about the longest that most dealerships and finance companies were willing to finance a vehicle. This reflected the old auto finance industry adage: When the car dies, the loan payments tend to stop.

But new cars today are built to last much longer than those built in the past — even the fairly recent past. One result is a gradual lengthening of vehicle loan terms.

Six out of every 10 vehicles financed today are financed for longer than 60 months, with 72 months having become the new standard vehicle financing term, according to the president of a major vehicle financing company. Vehicle loan terms up to 84 and even 96 months (or eight years!) aren't uncommon.

You may dislike longer loan terms because you fear they'll keep customers from buying vehicles as often. But some lenders say this isn't necessarily the case. In the same way that very few homeowners stay in a home for 30 years, a seven- or even eight-year vehicle loan doesn't necessarily preclude customers from buying a new vehicle before the term is up.

High MPG still draws buyers

The plummeting price of gasoline has been one of the top stories of the past year. So it's somewhat surprising that, for the fourth year in a row, fuel economy remains the most influential factor among new-vehicle buyers, according to the 12th annual Avoider Study conducted by J.D. Power and Associates.

The study's research director says this is because most people realize that gasoline prices are extremely volatile and could rise again as quickly as they've fallen. Buyers will own these vehicles for many years, he noted, and they want their fuel costs to remain low over the long term.

Fuel economy also was the second-most influential reason why new-vehicle owners rejected certain car models.

Millennial hiring is rising

About one out of every four dealership employees is now a millennial, according to the most recent Dealership Workforce Study conducted by the National Auto Dealers Association. This is good news because millennials — those born in the '80s or '90s — are expected to make up 40% of all new-car buyers by 2020, and millennial customers are likely to relate better to millennial salespeople.

However, turnover among these employees is 55%. Experts attribute this largely to the fact that many prioritize work-life balance, but many dealerships continue to demand long work hours — especially for sales staff. Consider adopting shorter workweeks and revising compensation plans to attract and retain more millennial employees.

Dealer Insights - May/June 2015

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