A new J.D. Power survey of 10,462 people with recent auto loans or leases found that 45 percent of customers do some research online prior to buying a vehicle. Among Generation Z, defined as those born between 1995 and 2004, that proportion rises to 62 percent.

Dealerships might encounter fewer customers coming into the F&I office unaware of their financing options.

A new J.D. Power survey found 45 percent of customers with recent auto loans or leases researched financing online prior to closing on the vehicle. Among Generation Z, defined as those born between 1995 and 2004, that proportion rises to 62 percent.

"Nearly half ... of all customers now do research prior to financing a vehicle and their experiences with lenders can have a tremendous influence on that process," Patrick Roosenberg, director of automotive finance intelligence at J.D. Power, said in a statement Tuesday. "That really puts the onus on lenders to deliver a superior customer experience to existing customers and to position their websites and consumer marketing initiatives to maximize conversions."

Common research channels include dealership, automaker and lender websites, though not all customers visit all three of these categories, according to Roosenberg. He said customers could research financing on both an automaker's main website as well as its captive finance company's page.

"They're vulnerable to be conquested by other lenders," Roosenberg said of customers researching auto finance. It's important that one's website stay competitive, he said.

Doing their research

Sixty percent of consumers who shop online for auto finance apply for preapproval, according to the 2021 J.D. Power U.S. Consumer Financing Satisfaction Study.

"Effective use of both applied for and unsolicited preapprovals can lead to a greater customer recapture rate and conquest opportunities," J.D. Power wrote in a Tuesday news release announcing the results.

Both solicited and unsolicited preapprovals yield customer business, Roosenberg said. However, J.D. Power still found that customers could be persuaded to use a different financing package than the one for which they had been preapproved. Scrutiny of the dealer "flip rate" revealed that Generation Y (born between 1977 and 1994) and Generation Z are 37 percent more likely than "pre-boomers" (born before 1946) and boomers (1946 to 1964) to use something other than their preapproved financing.

"Intriguingly, the dealer conversion rate of solicited and unsolicited applications is similar, but the reasons for not using the preapproval varies by solicited and unsolicited," J.D. Power wrote in a separate discussion of the study results.

Incentives and Marketing

Many customers start to shop for financing online because of marketing or incentives from one of their lenders or an automaker, according to J.D. Power's research. The company also found most of the consumers who researched financing started the process more than 30 days before buying or leasing the vehicle.

"Auto financing customer behavior has fundamentally shifted from an exercise that largely took place in a dealership finance department," he said.

Roosenberg suggested that lenders could be tactical. For example, if a lender knew customers typically change vehicles a certain number of months into the loan, the lender could start sending preapproval offers a few months before to capture the loan for the next vehicle. An automaker captive finance company could similarly notify dealers that a contract is nearing its end, and " 'let's reach out,' " Roosenberg said.

Luxury vs. Mass Market

The study also examined customer satisfaction with lenders in the luxury and mass-market segments.
Luxury: BMW Financial Services placed first among luxury customers with 874 points on a 1,000-point scale, nearly 20 points ahead of the national luxury lender average of 858. Runners-up Chase Auto and Ally also beat the national average with 871 and 865 points, respectively, as did five other lenders.
Mass Market: Ford Credit ranked first among eligible mass-market lenders with 867 points, 22 points above the mass-market industry average of 845. Capital One Auto and Honda Financial Services followed with 863 and 860 points, respectively. Another seven lenders also exceeded the industry average.

Roosenberg said the lender scores give the most weight to customers' views on account management, followed by billing and payment. Customer service when the consumer had a problem was the third most important variable.

Customers who can easily pay bills and look up information about their accounts are going to be more satisfied, according to Roosenberg. He noted their benchmark for ease of use will likely be account and billing management apps and websites outside of the auto finance sector.

"They're not gonna compare Ford Motor Credit to [GM Financial], in most cases," Roosenberg said. They'll stack it up against companies such as Apple, Amazon and Starbucks, he said.

This year's rankings cannot be compared with last year's satisfaction scores, according to J.D. Power, because researchers redesigned the survey format for 2021.

The study ran between July and August 2021 and received responses from 10,462 customers who had received an auto loan or leased a vehicle in the past three years.