The auto industry’s financing spigot is steadily reopening after being choked off when the recession hit more than three years ago.

As proof of strengthening funding support, CNW Research indicated that back in September there was a 13.7-percent increase year-over-year in the number of buyers who received a pre-approved loan before purchasing a used vehicle.

With the capital markets becoming more interested in auto-backed lending products — the fuel lenders need to make deals — companies are working feverishly to bring dealers more options to leverage the pent-up demand demonstrated by buyers.

Two examples are the balloon-modeled products rolled out earlier this year by Ally Financial, as well as the tool CarMark Auto Finance intends to deploy fully as 2013 begins.

CarMark Auto Finance’s Residual-Based Plan

CarMark Auto Finance is the result of CarMark Certified joining forces with Auto Financial Group and participating lenders to bring dealers access to a residual-based financing product designed to lower monthly payments and increase customer loyalty to both the dealer and the lender.

David Ruggles, manager of CarMark Auto Finance and vice president of indirect lending initiatives at AFG, described it as “a true walk-away balloon program.”

Ruggles continued with, “Anyone who has been in the CPO business understands that it’s sometimes difficult to keep distance between the monthly payment on late-model pre-owned vehicles so you can effectively compete with the subvented payments that are offered on the new-car side.

“The goal here is to sell that used vehicle and maintain adequate gross profit,” he added.

CarMark Auto Finance uses residual projections from ALG to provide the foundation for a consumer contract that can last as long as 60 months with mileage allowances at 12,000; 15,000; or 18,000 miles per year.

“We use ALG residuals but instead of using percentage residuals — which are common in leasing — we use a dollar value,” Ruggles explained. “The residuals are realistic while being highly competitive.

“At the end of the term, the customer holds all of the options,” he continued. “They can win, but they can’t lose. They can trade the vehicle in or t. they can walk away from it. They can refinance it. They can pay cash and buy it out.”

Ruggles said CarMark Auto Finance answers the “pain point” expressed by most consumers: the monthly payment. Consumers could enter into a residual-based financing contract and sometimes have a monthly payment that might be at least $100 less than conventional loans that might have to be stretched to as long as 72 months to achieve that low payment level.

“Nine times out of 10, if the consumer has a choice between a lower interest rate or a lower monthly payment, they’ll go with the lower monthly payment,” Ruggles projected.

“And many people are driven by the opportunity to get more car for the same monthly payment. We believe that CarMark Auto Finance provides that opportunity,” he went on to say.

For dealers, Ruggles highlighted how CarMark Auto Finance can be a tool not only to satisfy customers, but also another solution to manage inventory that can turn faster and for better gross profit figures.

Ruggles described an alert participating dealers can receive every 60 days. Charts contain information such as the average mileage on used models that have passed through the lanes in previous periods and the comparison between monthly payments for CarMark Auto Finance deals and conventional loan contracts.

“AFG regularly assist dealers in conjunction with Manheim Market Report information to identify pre-owned opportunities before the dealer acquires inventory at the beginning of each 60-day ALG book period,” Ruggles stated.

“The vehicles make this list for a variety of reasons,” he continued. “Not only do they have a compelling payment compared to what else might be available, but they’re available in some type of quantity. Often it’s indicative of maybe a supply of vehicles that are coming back from a previous lease program. Oftentimes, they are vehicles being cycled through as rental vehicles.”

Along with this inventory strategy, Ruggles pointed out the other dealer headaches CarMark Auto Finance is designed to reduce.

“Dealers are always interested in doing business with the customers more often by shortening term and increasing consumer loyalty,” Ruggles explained.

“Using the CarMark Auto Finance program to shorten terms, dealers can organically ‘grow’ their own ‘pedigreed’ pre-owned inventory while doing business with their buyers more often,” he added.

Interested dealers can contact Ruggles to obtain more information or to join the program that will ramp up fully early next year. AFG will match dealers with participating lenders where possible,  or guide dealers through the process of bringing their favorite lender into the CarMark Auto Finance program.

“We’ve been through the wars. We’ve been through the ups and downs, and we’re still here,” Ruggles said about AFG, which was established in 1999.

“All balloons are not created equal,” Ruggles emphasized. “CarMark Auto Finance balloon program is a true low payment walk-away product with options.”

Ruggles can be reached at (312) 925-1863 or druggles@autofinancialgroup.com.

Ally Financial Introduces Ally Balloon Advantage

This fall, Ally Financial first launched Ally Balloon Advantage in New York and California as part of its broad set of financing options for dealers to turn both new and used models.

Management explained Ally Balloon Advantage is a retail installment sale contract with reduced regular payments in exchange for one larger balloon payment due at the end of the financing term. Consumers selecting Ally Balloon Advantage can choose from financing terms of 48 or 60 months.

Ally Balloon Advantage is available through General Motors, Chrysler, Mitsubishi and Suzuki dealers for the purchase of new vehicles and through all dealers that finance used vehicles with Ally.

Most used vehicles less than four model-years old are eligible for Ally Balloon Advantage. Similar to traditional retail financing, officials highlighted eligible aftermarket products, such as a vehicle service contract, may be financed with an Ally Balloon Advantage contract.

After being first utilized in New York and California soon after Labor Day, Ally made it available Illinois and Florida. Before October wrapped up, the company expanded the product availability into 19 more states, including Massachusetts, Connecticut, Georgia, Tennessee, Minnesota, Missouri, Arizona, Oregon, New Mexico, Vermont, Rhode Island, Delaware, Mississippi, Arkansas, Louisiana, Nebraska, South Dakota, Montana and Alaska.

“The rollout of Ally Balloon Advantage is going well, and we expect for the product to be available in most states by the end of the year,” Ally spokesperson Sue Mallino told Auto Remarketing.

This new product joins Ally’s array of vehicle financing and leasing options available to consumers.

Earlier this year, Ally completed a nationwide rollout of its innovative Ally Buyer’s Choice product, which allows consumers to sell their vehicle to Ally on a pre-determined date during their financing term, at a pre-determined price.

“Ally Balloon Advantage is ideal for consumers who prefer to own their vehicle and have reduced regular payments with a larger payment at the end of the term,” said Tim Russi, executive vice president, North American Operations for Ally Financial.

“Although the end-of-term value of the vehicle can vary based on market factors, our goal with Ally Balloon Advantage is for the scheduled balloon payment to approximate the expected value of the vehicle at that time,” Russi continued.

Russi went on to mention the expected end-of-term vehicle value assumes that the customer makes all payments when due, services the vehicle as prescribed by the manufacturer and maintains reasonable wear and mileage.

“We recognize the variety of needs for consumers when it comes to purchasing or leasing a vehicle,” he added.
“Ally wants to deliver a full complement of choices to help dealers meet the needs of a wide range of customer lifestyles and budgets,” Russi said. “Dealers may choose to offer a limited trade-in guarantee with Ally Balloon Advantage contracts to build customer loyalty, and manufacturers may consider incentives for both new and certified pre-owned vehicles with this product.”
 

Editor's Note: This article is part of our special section covering fleet, leasing and retal trends in the Nov. 1–14 print edition of Auto Remarketing. More coverage on those sectors of the auto market can be found in that issue.