The Road Ahead for Auto Finance CX

Buying a vehicle is arguably the second most important and largest purchase an individual can make, after buying a home. And, like purchasing a home, purchasing a vehicle will likely entail financing.

Consider the following:

• According to the National Automobile Dealers Association (NADA) more than 80% of new vehicle purchases in the U.S. are financed, either through loans or leasing programs.
• Financing for used cars is less common but is still substantial. Mercer Capital estimates that it is used for approximately 37% of these purchases.

Vehicle payments are substantial, and they take up a sizable and critical (without vehicles, most people cannot reach their workplaces) share of household expenses.

The average monthly payment was $735 for new and $523 for used vehicles in the U.S. in 1Q 2024, according to LendingTree, based on Experian data and cited in a Yahoo! Finance article.

“If you ever purchased a new car you probably needed a loan,” wrote Vance Cariaga. “Financing is less prevalent for used cars, but it still applies to more than one-third (38%) of used-car purchases...For most Americans, the monthly car payment is a major budget item.”

Financing also contributes to the total cost of vehicle ownership, which, Newsweek reported, citing MarketWatch data, accounts for an average 20% of personal incomes.

“Two in five drivers, according to the MarketWatch survey, feel their car expenses have affected their ability to afford other essentials, while over one in eight said they found themselves living paycheck to paycheck because of their car costs,” wrote Giulia Carbonaro. “One in two feel they aren’t able to put away savings or invest because of how much they spend on their vehicles.”

“The contact center is an integral part of automotive lending in both of these areas, from the beginning of the sales process on through the lives of the loans.” —Tod Chisholm

The Finance Environment: and Business

When you combine these factors, you have an often-challenging contact center customer experience (CX) environment that requires attention to detail, empathy, and “flex-to-firm” (some exceptional circumstances leeway) on billing and policies.

Contact center agents must listen and comprehend well, be highly knowledgeable, supportive but not a pushover, and be able to take the stress and pressure.

The automotive financing market, not surprisingly, is big business, representing close to $150 billion across the U.S. and Canada, estimates Tod Chisholm, president, Integrated Financial Technologies (IFT). That includes business from credit unions, captive e.g., dealership lending companies, private financing companies, and traditional banks.

Tod’s company, which is owned by The Travelers Group, provides outsourced services to these lenders, including teams of skilled agents that take on tasks like contact center, credit, collections, customer service, sales, and other duties. These agents leverage a state-of-the-art technology platform to create efficiencies AKA “smartsourcing”, which it positions as next-gen outsourcing.

We had a virtual conversation with Tod to learn more about automotive financing/lending and to find out what lies on the road ahead in its CX.

Q. Briefly outline how consumer auto finance/lending works, including where/what stage is the contact center brought in, at each stage of the lending cycle.

Auto lending is divided into two channels: direct and indirect lending.

• Direct lending is when the consumer secures financing directly through a lender without the involvement of the dealership.
• With indirect lending, a buyer goes through a dealership that arranges financing through its own captive offering or with a third-party lender, like a bank or credit union.

Indirect lending is the larger segment at the moment, but direct lending is growing, especially due to the expanding popularity of online financing options.

The contact center is an integral part of automotive lending in both of these areas, from the beginning of the sales process on through the lives of the loans. It is embedded in the front-end sales process, along with loan management and collections. All of these require contact center functions to manage customer engagement.

Loan management often involves long-term account administration, where officers reach out to borrowers in the case of changes in that customer’s financial status. Such a scenario might include adjusting the borrower’s payment schedule to avoid default. All of this relies upon customer outreach to ensure positive outcomes for the borrower and the lender.

Q. What are the components of the CX in the industry, and could you weigh them in importance? For the customers in making their decisions and in their loyalty?

The components of CX can include:

Access to lenders. You need to be where the customers are to succeed. That means covering both in-person loan applications at the dealership and online platforms. Lenders should be able to manage both direct and indirect loans.

Ideally, technology portals should be able to accept applications online and revisit those saved applications whenever the customers choose to. This provides consistent and seamless service for the customer: and maintains the sale for the lender regardless of where the customer applies.

Terms are one of the most important—and most competitive—aspects of lending. Companies won’t attract activity without favorable terms. Flexibility of terms has bearing not only on whether the customer is able to purchase the car they want, it also impacts the level of risk the lender takes on for that customer.

Customer engagement is probably the most prominent area. A superior experience drives loyalty and satisfaction that extends directly to the brand. Even if the lender has little impact on the sales experience, a borrower will still blame the dealership—and the vehicle maker—if there are problems or unresolved questions in securing the loan.

The ability to solve complex issues for customers can have a considerable impact on engagement experiences.

For example, borrowers who relocate between countries, states, or provinces may require assistance far beyond what an AI chatbot can provide. There are a slew of regulations involved in exporting a financed vehicle from the U.S. to Canada.

If agents aren’t familiar with this process—including filing an Electronic Export Information (EEI) declaration with the U.S. Customs and Border Protection (CBP) in advance—borrowers may not be able to transfer their vehicle to the new country. In this case, a patient and knowledgeable agent can make the difference between a smooth transition and a nightmare.

Q. What challenges are you seeing auto lenders face, especially in this changing uncertain economy, in delivering excellent CX through their contact centers?

Operational efficiency is key, especially today since automotive lending is competitive. Companies need to be as cost-effective as possible. The use of technology to drive internal efficiency lowers operational costs.

Automation and use of AI-powered tools help streamline workflows and speed approvals. AI-powered reporting can evaluate the performance of agents to identify those that need additional support. It also can be used to measure quality assurance (QA), to help ensure that customer service remains high.

Automated scheduling tools, integrated messaging, and collaborative platforms are essential to enhance customer care. This ability to cost-effectively automate basic inquiries allows lenders to steer their resources more toward expert agents and supervisors, dedicating those personnel to expediently address more complex issues.

But one major challenge to utilizing these solutions is the use of older technology stacks. Too many lending companies or dealerships still employ outdated, pre-COVID-19 pandemic-era systems with an abundance of manual input requirements for everything from loan origination to document storage. This can lead to patched legacy environments with software conflicts and hindered system performance.

Conflicts with legacy equipment is a problem across the board with IT, referred to as technical debt, which is getting more complex due to AI integration. And that includes in the automotive field.

From product experience engineering solutions provider Ciklum, written by Enver Cetin:

“As AI systems get more and more complex, integrating with legacy systems and ensuring everything runs properly can become extremely difficult and expensive - not only initially, but also in ongoing maintenance and continuous improvement terms.”

Also, from Barrie Charapp Beaty, of Mahdavi Bacon Halfhill & Young, PLLC on the Virginia Automobile Dealers Association site:

“5. Integration with Existing Processes: Car dealerships often have established processes and legacy systems that have been refined over the years. Integrating AI into these existing workflows without disrupting operations requires careful planning and customization. Failing to seamlessly integrate AI with existing processes can lead to inefficiencies and frustration.”

Yet wholesale modernization of technology systems is a daunting project, full of disruption and costs. Part of the appeal of smartsourcing is that, rather than investing large sums of money in technology that can quickly become outdated, lenders can work with outside providers whose best-of-breed technology can be deployed at a moment’s notice.

“AI-powered reporting can evaluate the performance of agents to identify those that need additional support. It can also be used to measure quality assurance (QA)...”

Another critical challenge is that too many contact centers rely on overburdened and inexperienced agents, who are expensive and prone to errors, often making a truly superior CX unachievable.

Untrained agents can also lead to inconsistencies in responses to customers, lack of empathy, noncompliance with critical regulations, and poor escalation of issues to a more competent supervisor. In other words, unacceptable customer engagement, or even compliance violations.

These are areas where a skilled outsourced team can seamlessly assimilate into a legacy environment and support the customer care efforts of lenders. This allows them to augment their services or reallocate their resources so they can innovate lending products and grow their organizations without having to add headcount.

Q. What lies ahead for auto lending, and for its customer service/CX? And what are your recommendations for this industry to help them move smoothly down that road?

Our recommendations are to seek out more creative and cost-effective ways to ensure superior service, while allowing your organization to grow and innovate. Strategic use of outsourced call center personnel [can help], as long as agents are well-trained and can therefore elevate service levels.

“We don’t know what new adventures are in front of us, but we do know that making customers feel valued and informed is paramount.”

Also, don’t be intimidated by AI. Instead allow it to be used judiciously to improve service through efforts like AI-based reporting and metrics, which can help supervisors evaluate performance, recognize trends, and identify agents that require support.

As for the changing economy, it’s widely known that anything that increases costs or influences consumer cash flow will have bearing on purchasing patterns and financing performance.

Lenders can alleviate some of this impact through strategies like longer terms or leasing options. But in times of uncertainty, superior, responsive customer engagement becomes more important than ever.

We don’t know what new adventures are in front of us, but we do know that making customers feel valued and informed is paramount. Addressing customer needs is always crucial. In ambiguous business environments, it is even more important that agents control the engagement experience, and reinforce the service ideology of the vehicle brand, the dealership, and the lender.