Canadian dealers favor lenders that can be partners, study finds

UPDATED: 5/31/17 3:04 pm ET - corrected

Editor's note: The rankings for independent lenders have been corrected in this version of the story. 

When finance providers act less like lenders and more like business partners, Canadian dealerships run more smoothly, the J.D. Power 2017 Canadian Dealer Financing Satisfaction Study found.

The 19th annual study, conducted in January and February, drew on more than 3,700 finance-provider evaluations by Canadian new-vehicle dealership staffers.

The study's conclusions likely will ring familiar to U.S. F&I practitioners. But the study also ranked 10 captive and nine noncaptive finance companies based on Canadian dealerships' satisfaction with them. BMW Financial Services Inc. led all captives, while Bank of Montreal scored highest among banks and other independent finance companies.

"A dealer has multiple options," said James Houston, senior director of automotive finance at J.D. Power. "If a lender can't meet needs, they're going to look elsewhere for someone that can deliver."

Primary buyer

Compared with previous years' studies, this year's found dealers were most satisfied when they had an assigned primary buyer or buying team to help manage consumer fulfillment, expedite sales and resolve issues. Dealers also want help from these partnerships in managing credit, financing and delivering cars, with the ultimate goal of getting customers in vehicles faster.

Rates, terms and credit quality -- i.e., what credit tiers the lender prefers -- are the main differentiators F&I managers look for when choosing a lender, the study said. Timeliness in processing applications and useful interaction with sales representatives also were key factors.

Across the four factors measured by the survey -- application and approval process, relationship, provider offerings, and lease return -- the dealer and lender relationship was the most heavily weighted this year at 55 percent. Noncaptives were not measured on lease return policies.

Rankings

In the rankings, BMW Financial Services led the captive segment, scoring 972 on a 1,000-point scale. Mercedes-Benz Financial Services was next, with a score of 930, followed by Ford Motor Credit Canada, at 899, and Honda Canada Finance Inc., at 877.

Among independent lenders, Bank of Montreal ranked first, scoring 897. Next, in order, were Scotia Dealer Advantage, at 896, TD Auto Finance, at 875, and Scotiabank, at 868.

The study included some nitty-gritty conclusions as well. For example, dealerships prefer to see their lenders -- whether captives, those that are wholly owned by an automaker, or independent bank or other lending company -- visit at the beginning or middle of the month, in the morning, and never on a Monday.

And those visits should last for less than 30 minutes, thus limiting interruption to daily operations. "If a lender can come in with an agenda, deliver it, communicate and transact the business" in that 30-minute window, Houston said, "that provides the dealer with more time to go about selling cars."

Canada's market

Light-vehicle sales in Canada declined 1.5 percent in April, according to the Automotive News Data Center, the first drop this year. In 2016, Canadian sales rose 2.8 percent to a record 1.95 million, marking the seventh straight year of gains.

Carlos Gomes, senior economist at Scotiabank, expects total Canadian auto sales to dip slightly in 2017 to around 1.94 million.

Gomes says Canada's record-breaking sales numbers in 2016 came even as prices rose 6 percent, roughly matching the increase in average Canadian disposable income. But that can't continue, he implied, in part because disposable income isn't increasing at the same rate.

"Those increases are hurting affordability," Gomes said. He added that deteriorating affordability needs to be offset by enhanced financing options. Good relationships

That's where good relationships with lenders pay off. An alliance between a buyer and a dealer can bolster the dealership's sales by addressing customer affordability. That alliance also can mean the difference between closing a deal and losing it to another dealership, one that may have secured the right loan at the appropriate price, the study's findings show.

Dedicated buyers, tasked with everything from making credit decisions to restructuring deals, are front-line players in shaping cohesive exchanges among dealers, lenders and customers, Houston said.

"The more adept these financial professionals are at helping dealers address specific challenges along the way," he said, "the more business they will ultimately do with that dealer."

You can reach Katie Buda at kbuda@crain.com

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