Canadians still largely prefer to conduct the finance-and-insurance process in-store as opposed to online, a new study found, posing challenges for online financing startups and providing opportunities for dealers to hang on to that crucial revenue.
The study, released in March by the California data analytics company FICO, found that 66 per cent of respondents who purchased a new or used vehicle over the past three years said they applied for financing at the dealership. In addition, 58 per cent said they would do the same when they buy their next one.
Just nine per cent of Canadians said they applied for financing online, while 17 per cent said they would consider doing so in the future.
Steve Chipman, CEO of Birchwood Automotive Group in Winnipeg, said that while his group has invested resources into building up online financing tools, consumers at his stores rarely use them.
“It’s going to come, but there’s still not a lot of adopters. We have the capacity. We’ve had the capacity for at least over a year now, especially when it comes to used cars.”
‘THEY ENJOY NEGOTIATING’
One reason could be that car buyers want to haggle on financing terms face to face. The FICO study found that 81 per cent of Canadians negotiated “at least a little bit on the terms of their lease or loan,” while 48 per cent said the financing process took more than 30 minutes, implying more time for haggling or manual processes.
“Lots of people still want to negotiate,” Chipman said. “They enjoy negotiating and want to negotiate. I don’t know what the percentage is, but for those type of people, that type of tool just doesn’t work.”
Susan Gubasta, who recently left her post as president of the Trillium Automobile Dealers Association (TADA) in Ontario, said dealers must remain vigilant of high-tech disrupters. A dealership’s website, Gubasta said, should offer consumers a seamless experience and clearly tell them everything they need to know about its products or else risk losing them permanently.
“I always say, ‘When I’m looking for something online, I want to continuously move forward with that transaction,’ ” Gubasta said. “I want to make sure that I go to the website, I get the information that I need and that I move forward to that end of transaction.”
ONLINE PROVIDERS PERSIST
But, Canadians’ preference for an in-store F&I process is not stopping new digital players from entering the space.
Obvi Inc., an online service-contract provider, began operating in Alberta, British Columbia, Manitoba and Saskatchewan a year ago and plans to expand eastward in Canada.
CEO Joe McBurney said the company sells service contracts at a discount compared with those offered at a dealership. For example, Obvi’s average customer saves $2,475 on a seven-year warranty, McBurney said.
But trying to convince consumers to consider shopping online for service contracts was a tough sell.
“When we initially launched over a year ago, it was, ‘Is this too good to be true?’ [And] rightfully so,” McBurney said. “All of a sudden, dealers push a $4,000 policy, and you can buy it online in 30 seconds for a fraction of the cost. It took some time to build a trusted brand.”
Obvi is using social-media posts and blogs to change what McBurney called “misconceptions” about online service-contract shopping.
“One of the biggest myths out there is that if I buy an independent warranty, I can’t go back to the dealership,” he said. “There’s a lot of misconceptions out there that if you don’t buy the Ford warranty, then you can’t go to the Ford repair centre.
“Well, once you get it to the repair centre, they don’t care where the warranty is.”
Birchwood’s Chipman said many consumers are more comfortable buying products in-store because they are repeat customers who have developed trust with a dealership.
“It’s still a personal thing. People buy from people, and they want to talk to someone,” he said. “I get it that some people like the convenience of it, but there’s a balance. And the convenience doesn’t outweigh the feeling of confidence.”