In the indirect lending space for vehicles, building good dealer relationships can be the difference between receiving a steady flow of quality loan applications or getting the scraps. This often involves dropping by once in a while with donuts and maintaining a strong on-going dialogue on how to better work together.
However, lenders can also use analytics to gather more insight about their dealers. This insight can help them build better relationships with those dealers that are most beneficial to work with – as well as better manage those that are under-performing. Here are three key areas where analytics can prove to be very beneficial for your dealer management services:
- Dealer Volumes: With multiple dealers to choose from and limited time to spend on dealer relationships, it is beneficial to spend time with dealers that contribute the most towards application volumes. Keeping these high-volume dealers happy by ensuring that approval policies and interest rates are in line with their expectations will optimize a lender’s application numbers. Additionally, tracking dealer volumes over time will alert the lender to a decrease in traffic from a specific dealer. This allows the business to respond quickly to a change in environment and maintain its competitive edge in the marketplace.
- Dealer Application Quality (and Other Loan Characteristics): Using analytics, lenders can identify dealers that are sending applications that are outside of their underwriting guidelines. Is a dealer sending their lower-quality applications to you, but sending their higher quality applications elsewhere? Perhaps where they know that they can receive a better rate? Identifying your perceived weaknesses with dealers can help you increase your application volumes. How about other loan characteristics like loan-to-value (LTV) ratios? Is a dealer sending loans with LTVs outside your credit policy, leading to a high reject rate on their applications? Letting them know why the applications are being rejected may help them increase their approvals from you.
- Dealer Capture (Funding) Rate: Once applications are approved, how many approvals proceed to book? Low capture rates indicate a problem area that needs to be addressed. For one example, the dealer could be opting to give the loan to a different lender (possibly one with a lower rate or higher mark-up). Second, the workflow at the dealer is inefficient and consumers are not interested in pursuing the deal with them. Third, the lender’s rates are not competitive, and the deal is declined by the consumer. Finally, the dealer mark-up is too high, resulting in a high number of unbooked loans. Working with a dealer to understand why deals are not being booked can significantly increase your bottom line.
For example, custom scorecards are sometimes an under-utilized tool for increasing auto decisioning and maximizing profitability. To learn more about the benefits of custom scorecards and how easily your financial institution can leverage them for greater success, please click the button below to download our complimentary eBook.
Photo Credit: Ivan T
