Much-needed change comes to auto buying & financing

Georg Bauer, president of Fair. Photo courtesy of company.
CARY, N.C. - 

If you’re in the auto industry, you may have already seen this Autotrader statistic cited in a Fair whitepaper. But it bears repeating, given how illuminating it is.

Seventeen of 4,002 consumers surveyed for Autotrader’s 2015 “Car Buyer of the Future” study would rather keep the auto sales process status quo.

“And as more smartphone-wielding consumers embrace today’s ‘click it and get it’ culture, this disconnect will undoubtedly begin to find its way from survey results to the bottom line,” the Fair whitepaper reads. “To their credit, dealers have worked hard to improve the dealership model in recent years. They’ve embraced apps that offer financing, websites that calculate pricing data, and digital storefronts that allow consumers to ‘kick the tires’ on virtually every car-for-sale in existence.

“But no matter these incremental service improvements, the vast majority of car buyers still eventually end up where no other industry would dare put them: in a back office, waiting on paperwork.”

So, perhaps this underscores the urgency to which some in the car business are seeking to change this process.

But it’s not just that businesses in the automotive space, be they upstarts or traditional players, are responding to paradigm shifts in consumer demands and behavior.

What’s interesting is how they’re doing it.

The ways in which they’re seeking to mend the auto purchasing and financing experience is as diverse as the companies themselves.  

Some are going for online financing, others are optimal for flexible ownership terms or online transactions. Or some combination of tactics designed to reduce the headache often associated with car-buying, particularly the financing leg of it.  

Through these methods, the industry is addressing what has long been missing: the best experience possible. 

“The auto industry, over the last decade, has focused on globalizing the business — enormous growth in global retail sales, helping to realize the dream of personal mobility for 1.3 billion human beings on this globe. And along with this came the notion of the cars’ are bigger, better, faster, safer, cooler design, more crossovers, more SUVs. And that’s not bad. It’s a major accomplishment,” said Fair president Georg Bauer in a phone interview last month. 

“But the focus has always been on the car itself. The car is the star. That’s the DNA of most of the companies that I have had the privilege of working for for over 30 years,” he said.  “And the customer and putting technology to work at the point of sale, at the dealership, for the benefit of the consumer, for a better experience has always come last.”

That is changing, however. 

Flexible leasing

Fair, for example, is tackling the issue through a mobile-based process that offers flexible used-car leasing to consumers through dealerships.  

So, rather than being in a long-term loan set up in an F&I office, the customer has a flexible used-car lease that is set up online.

Fair’s process, in short, begins with the consumer downloading the Fair app and browsing inventory. The vehicles they will see are from a pre-selected group of cars at the dealer partners of Fair.

Fair includes a completely digital checkout process and allows a consumer to keep the vehicle as long as he or she wants, then return the car after providing five days’ notice, the company explained.

Bauer — who co-founded Fair with Scott Painter — pointed out what he believes are some of the advantages to pay-as-you-go flexible ownership versus long-term ownership.

“Here as well, we are facing a complete paradigm shift, I believe. And Fair is sort of the pioneer. We are breaking this new ground. I think, doing away with forcing consumers into this long-term commitment,” he said. “And the fact of the matter is, the major financial instrument for used cars in the country is the 60- to 72-month loan. Let alone, there’s no used-car leasing, really. (It’s) not really available.”

Putting the customer into a long-term commitment like a 5- or 6-year loan can also be “negative for the dealer” in the sense that it is taking a customer out of the market for an extended period of time, which decreases sales velocity, Bauer said.

However, used-car leases alone doesn’t necessarily solve the paint point. It’s more about the lengthy loan terms, he said.

“Particularly the millennials. I mean, for them, a two-year contract for their smartphone is long,” Bauer said.

He points out that many providers have gotten rid of the 2-year contracts. Along those same lines, the business world is awash with industries whose scripts have been flipped by the digital revolution.

Not that Bauer blames auto dealers for the sometimes cumbersome process that still exists: “Why should dealers stand alone, invest in digital technology, millions and millions (of dollars)? It’s everybody.”

Rather, he said, the car industry needs to come together amid the digital age coming to the forefront.

“It has revolutionized so many other industries. We have seen, from the Netflix, the Spotifys, the Amazons of the world,” Bauer said.  “They have made the consumer’s life easier. But the auto-buying process has barely, or not really, changed in past decades.”

And that includes the finance piece. Leasing, whose infancy was decades ago, was “the last innovation in auto finance,” he said.

There’s been some improvements, some digitalization here and there, Bauer said. For instance, longer loan terms, which have become more popular in recent years and help with affordability.  

But nothing that has entirely reversed the negative feelings consumers often have about the process, he said.

Reducing sale time

Others are tackling the issue through making it possible for less time in the dealership. One example is AutoFi, which is now partnering with Chase.

AutoFi is a financial technology company that helps customers select and finance vehicles through their dealers’ website and reduce the time it takes to complete the sale, and Chase is the first national bank on the AutoFi platform.

“AutoFi helps dealers provide a fast and easy digital car-buying experience that consumers want,” said Mark O’Donovan, chief executive officer of Chase Auto Finance, in a news release. “Our customers are our top priority — both dealers and car buyers. We want to provide them with the best financial experience whether they are in a dealership or online.”

Nearly half of consumers want to purchase and finance vehicles online, according to Chase’s research. The AutoFi digital retailing platform can connect dealers with buyers and finance companies. Chase pledged to deliver financing terms online through the AutoFi platform, often within seconds.

Software advances

Another company aiming to tackle both the finance and buying experience pieces of the puzzle is Shift, a peer-to-peer online marketplace for car-buying and car-selling.

In a phone interview, founder and chief executive officer George Arison said that Shift — which landed a $38 million round of Series C funding led by BMW iVentures this summer — has a business “very (much) built around software.”

And that software allows consumers to apply for and transact on a loan online.

Shift’s technology lets consumers get loaned approved in a matter minutes, then “executed on through integrations with banks,” Arison said.  

The company is working with RouteOne and large banks like Capital One, Santander, Westlake and Ally.

As part of the car-buying process on the Shift platform, once financing is approved, the consumer still has to sign the documents, so Shift enables electronic contracting and transactions on the loan in the field during test drive.

So, the consumer can close transaction on an iPad at delivery in his or her driveway. The entire process, Arison said, takes less than 30 min

“Everyone knows that at a dealership, the lending process and the checkout process takes roughly four hours,” he said. “And a lot of that is because there’s an incredible lack of software to enable a faster way of doing this.”

But as more companies jump into this space of digital retailing — again both industry mainstays and newcomers — that could change.

And dealers, it appears, are willing to listen.

‘We have to change’

Over at Fair, Bauer said he has had several discussions with dealers about changing the purchase experience, “and I’m pleased to say that a majority, maybe not a vast majority, but a good, solid majority of the dealers are saying, ‘yes … Georg, you are right. We have to change.’”

He said the response to Fair’s initial launch in September is “proving the point” that it’s not just consumers who enthusiastic about the Fair’s process.

Dealers are discovering that the company’s approach is not pro-consumer and anti-dealer, but rather leaning on technology that benefits both.

“Digital technology in the auto retail process is, must be, should be and will be, when you look a Fair, a win-win for both consumers and dealers,” Bauer said.

He emphasized the model is not against dealers; the goal is for it to be useful for them, too.

In general, Bauer recommends dealers not look at the digitalization of the car-buying process as a negative.

“Don’t look at the digital technology for your dealership as a threat. Look at it as an opportunity. If a dealer tries to hang on to the process that we have seen literally unchanged for decades now, I think there’s the risk he might be left behind,” Bauer said.

“The consumers are making those clear statements (of) ‘I’m done … I want a different process.’”


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