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Auto Loan Origination – Is the Dealer Still King?


January 1, 2023 | Jonathan Pryer

The Model T, introduced in 1908, came with a price tag of $850! A bargain, well not exactly, that would ring out at somewhere around the $20,000 mark today.

With this new product came the need for financing, as not many customers had a spare $850 ($20k) sat under their bed for a rainy day, or shiny new automobile. So, along came GM, then Ford with financing divisions that could both drive sales and provide an additional source of income. Genius!

Fast forward 100 years and with the only real competition for auto loans coming from other car dealerships the dealers still held the auto lending throne.

With incentives to lure buyers onto their lots where they drank stale coffee, mulled over sticker price, and left the dealership in a brand-new car, praising that new car smell, they’d drive the buyer’s journey from start to end. Trade-ins and financing happened without hesitation, a mere formality within the car buying experience.

The wheel turned, and we turned with it. But things have changed…

A Position of Power in Auto Financing

Consumers now have access to more information than ever before, and information, as it does, shed light on a process that heavily favored the dealer. So, as automotive buyers themselves became more informed, the status quo came into question and along with it a change in the power dynamic.

There’s a scene in Game of Thrones’ Season 2—I know, it’s hard to remember that far back—where Lord Petyr “Littlefinger” Baelish (Master of Coin) and Cersei Lannister (Queen-regent) hold a conversation through the echoing halls of Kings Landing. The tension weighs heavy as personal shots are dealt, but ultimately peaks when Baelish reveals his knowledge of Cersei Lannister’s most shameful secret… (no spoilers) He asserts his blow with the cliché, “Knowledge is power.” Cersei counters with a display of force, commanding her bodyguard to seize Baelish and execute him, before ultimately calling them off. “Power is power,” she ends.

This dance mimics the current melodrama of the auto lending scene, the tug-of-war between buyer and seller to hold the upper hand in the notoriously gut-wrenching experience that is car buying. Consumers are fueled by access to information and are poking at power. And, if Game of Thrones has taught us anything it’s that opportunity awakens when the proverbial wheel starts to falter.

Disrupting the Status Quo

A survey from reveals that people would rather do taxes or sit in an airplane’s middle seat than subject themselves to the automobile purchasing process.

And, when consumers are unhappy with the products or services available in an industry, it leaves the doors wide open for innovative businesses to come in and disrupt the status quo. Which means, that it isn’t a surprise that competition in the auto financing industry is growing and dealers are having to work much harder to make the financing and car sale double play.


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The Future of Auto Finance

A look into the future of the auto financing industry shows a curious place where financing can be secured through the click of a button and a new car is delivered to the customer’s doorstep within hours, and a customer never has to step foot into a dealership if they don’t want to.

Threats to the dealership finance and sales process are growing:

  • Direct lending has come so far that it is commonplace and competitive.
  • Aggregators are playing both sides of the coin, leaning on a price for the benefit of the
    buyer while facilitating the cumbersome legwork on behalf of the dealer.
  • Online upstarts are popping up on every digital corner, serving customers who prefer to
    avoid the in-dealership experience.
  • Brands are inching their way into the game to test the direct to consumer waters.

But, one thing remains constant; each of these channels is (or should be) brandishing technology for the mutual benefit of the business and the customer. Listed alongside the fully online buying experience, futurists and trend spotters are calling out the importance of relationships in the longevity of the lending business.

Relationships that are unbalanced rarely last

So, if relationships are the key to longevity in lending, what needs to happen for the dealer to stay King of auto loan origination without losing customers to competitors?

They need to treat their customers like they’re Kings too.

The hard sell, slow application processes, and even longer approval times won’t cut it in a world where consumers can get finance at the click of a button. Making customers wait for hours or even days for finance approval? They’ve already left the lot and are talking to another dealer.

If dealers want to reign the auto sales kingdom now, they have to give customers the experience that they expect. If they want to reign for more than a few years, they have to provide a service that makes customers an equal in the process.

But, what does that experience look like? In today’s digital first, information forward world it means that the experience has to be both seamless and competitive, so your customer feels valued and understood:

Seamless – the finance process needs to be quick and easy. No more long forms, no waiting for a human to go over the paperwork, no waits for decisions. When the customer is King they don’t need endless paperwork to support the application, and they don’t do the legwork, you do. Actually, technology does, but I’ll get to that in a second. Your customer experience needs to show that you value their time and are going above and beyond to make the process easy.

With the loan decisioning technology that is available now, companies are providing decisions on loans applications that only request one or two pieces of information, but how? They’re using technology that pulls in the rest of the data needed to make an approval. Which means, that you’re not doing the legwork, and even more importantly, neither is the customer. These digital applications can be processed and decisioned in milliseconds so that you can complete a sale in less time than it takes to fill up the tank for your new customer.

Competitive – industry disruptors have not just nailed the consumer experience; they’re also using advanced risk models to provide personalized pricing for customers. The alternatives are no longer expensive, they’re now often cheaper. To compete, you need technology that powers not just quick decisioning, but accurate risk-based pricing that’s based on a true understanding of the client. Pricing that wins new business.

The future of the auto loan origination thrown

As for the throne? The story isn’t over yet. It’ll all come down to who provides the better experience, dealers or disruptors. We’re likely to see the auto financing melee continue for a good, long while. And, with all of this fuss to win the buyers’ attention, it’s likely that it will be the buyer who decides who they share their thrown with in the future.

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