Car dealers are growing fast as a trusted source of finance for Australian car buyers, as many customers continue to avoid shopping around for a better deal on a loan, a survey by Australian research powerhouse ACA Research reveals.
This is a highly lucrative market, and manufacturers have clearly taken notice. Over the past three years, they have increasingly emphasised finance in their marketing offers, with almost half (47%) of all finance deals now originating at the dealership compared to just 34% in 2016. While the Big Four banks supply finance for 36% of all car buyers, they only finance 23% of loans taken through dealers, leaving the lion’s share of the car dealer arranged finance market to captive finance providers, second tier banks and other non-bank lenders.
Surprisingly, two thirds (61%) of the 1,140 car buyers who sourced finance, surveyed during October 2021, did not shop for competitive quotes. Further, around 40% only began their hunt for finance in the week prior to purchase, with the average online research lasting three hours.
“Most consumers only get one quote, although younger buyers do tend to shop around. As buyers age, they tend not to check the market, relying either on the experience they had with their lender previously or greater levels of financial confidence or financial literacy,” says Ben Selwyn, ACA Research Director responsible for the automotive market.
“Strong relationships are critical,” Ben says. “If the financier is easy to deal with, has fast approval processes and is a trusted brand then many consumers will be loyal to their lenders when purchasing vehicles. Accordingly, lifetime value can be significant if a lender can acquire customers at an early age and retain them by providing a great customer experience.”
More than half of consumers chose their lender prior to visiting a dealership, with many of those who were undecided (42%) purchasing their finance at the dealership as the most convenient option.
CBA (13%), ANZ (10%), St George (9%), Toyota Financial Services (9%) and Macquarie bank (7%) are the leading providers of automotive finance in a very fragmented market. Overall, the Big 4 Banks have 36% market share, while captive financiers including Toyota Financial Services, Nissan Finance and Volkswagen Finance enjoy 20% of the market.
In many cases, customers of major banks are however looking elsewhere when seeking finance for new and used vehicles, citing perceptions that bank costs (interest rates and fees) were higher, and appreciating the greater convenience of the one-stop dealership concept.
The average consumer starts shortlisting vehicle brands and models around six weeks before purchase, with the finance journey starting about two weeks into the search as the shortlist is culled.
‘It is therefore critically important for lenders to have a strong online presence and SEO strategy to ensure they intercept market entrants at the earliest stage of the customer journey,” Ben says.
“Well trained dealer staff and fine-print transparency also showed up as critical elements for car dealers to secure the financing of a new vehicle purchase. As much as interest rates and loan durations matter, trust is very important in sealing the finance deal,” he says.
- Almost half (47%) of all finance is arranged through the dealership (vs. 34% in 2016)
- Big Four banks hold 23% of finance arranged through dealerships (vs. 36% of overall car financing market)
- Two thirds (69%) sourcing finance via dealerships obtained only one quote
- 40% of consumers don’t consider finance until the week before vehicle purchase
- Consumers invest an average of just 3 hours researching finance online
- Car maker and car dealer websites are the most often cited sources for information for shoppers. Finance websites are consulted by only one tenth of the number of people looking at car maker websites, and fewer women than men look at them
- Gen Y (25-39 years) shoppers are twice as likely to research financial service providers online, compared with the overall market, providing financiers with a good opportunity to capture shoppers early
Further highlights uncovered by the survey include:
- 17 million vehicles (of all ages) are parked at 9 million households across Australia
- 2 million vehicles at households across Australia were purchased using finance
- 7 million financed vehicles in 2.4 million households (27%) across Australia are still being paid off
- Average price of financed vehicles is $39,900, with average monthly payments for vehicle(s) per household is $711.
- Annual repayments total $20.4 billion
- Finance uptake increases in line with vehicle prices: 65% of vehicles above $50,000 are financed
The 2022 Automotive Finance Insights Australia survey considers the customer journey, finance lenders, finance product, channels used to arrange finance, finance experience at the dealership, finance experience with brokers, and lender satisfaction and advocacy.
The AFI survey is required reading for all parties involved in financing, marketing and retailing new cars in Australia.