Despite Millennial’s reported sentiment against owning vehicles, the fact is that they will account for nearly half of those purchasing cars over the next 10 years, according to an AutoTrader.com report. In order to successfully work with this emerging market segment, however, it is important for automotive dealers to acknowledge and manage this generation’s unique life situation and limited credit history.
Those dealers that take the time to have a deep understanding of non-prime financing programs; are more skilled in educating Millennials regarding the vehicle-buying process; are more effective in collecting the right information; and are better able to drive sales with today’s marketing tools – will ultimately reap the rewards of working successfully with Millennial car buyers.
Tip 1: Understand Non-Prime Financing Programs
As with any generation, Millennials have their own unique set of financial pressures, most notably, their significant debt load. In fact, 70 percent of college seniors who graduated last year have student loan debt averaging more than $29,000, according to the Project on Student Debt. While more Millennials have joined the ranks of the employed in the last few months, their ongoing challenges continue to impact both their credit worthiness and ability to purchase.
Dealers must understand these challenges and avoid the practice of “shot-gunning” applications to multiple lenders. Doing so can actually result in a number of declines and adverse action letters – ultimately causing a negative customer experience for many first-time buyers. Instead, dealers must be sure to have the right mix of lenders who will approve thin-file buyers. It is also important that the dealer really understands the lender’s programs, and what is required to approve the deal.
Tip 2: Educate First-Time Buyers
In general, Millennials tend to be very educated buyers. Nearly three-fourths of them research products online before making a purchase, and spend more than 17 hours researching a vehicle before buying it, according to AutoTrader. While Millennials may tend to be very educated about the actual vehicle, they are often not as familiar with the vehicle-buying process. These inexperienced buyers may find a car they want and become emotionally attached to it, but when confronted with a cumbersome loan process, many become easily frustrated if they cannot afford it.
To avoid this, dealerships should act as consultants and work closely with first-time buyers to set realistic expectations for what he or she can afford early in the process. Dealers should also stay tuned in to Millennial’s life changes. It is critical to ask more probing questions upfront about the buyer’s needs and financial challenges to ensure a smoother and more enjoyable process. These questions should be balanced with educating customers on the process, and what will be needed to set them up for success.
Tip 3: Collect Accurate Information & Leverage Alternative Data
According to Equifax data, only 44 percent of Millennials are prime (a credit score of 660 or higher) and just 46 percent have substantial credit history (three or more trade lines). As this group matures, the health of the auto industry will rely largely on how both dealers and lenders learn to evaluate Millennials. This will require access to better consumer insights and alternative data – like verification of rent, insurance and address – paired with accurate employment and income data from the buyers, including job tenure, employer contact information, income and work/home address.
Obtaining this information speeds the funding process, but it’s only half the battle, as verification of employment and income can be both challenging and time-consuming. This problem is intensified by Millennial’s expectations for immediate responses. They can quickly become frustrated with slow, cumbersome decisioning – potentially leaving the showroom and taking their business to a dealer that can better meet their expectations.
Dealers can achieve this balance by effectively leveraging instant access to real, employer-reported payroll data through The Work Number®, a proprietary database of income and employment information owned by Equifax. Not only does this increase accuracy in scoring and risk assessment, which can help credit underwriters make more confident decisions – dealers can also keep first-time buyers at the dealership and quickly work with them to purchase a vehicle.
Tip 4: Leverage New Marketing Tools
To adapt to Millennials’ service and convenience expectations, dealers should become familiar with some of the latest tools available to help quickly assess both the demographic and financial situation of buyers walking into their showrooms. Today’s marketing tools can not only help auto dealers quickly estimate the financial capacity of a buyer, but also help direct toward the make and model of cars they are likely to prefer.
Finally, because Millennials have a propensity to start their vehicle research online, dealers should leverage enhanced web analytics with financial insights for improved website traffic analysis and advanced advertising and marketing capabilities. Dealers can better understand who exactly is visiting their website, and then optimize their online campaigns to better target Millennials and first-time buyers with the most relevant information to meet their unique needs.
With Millennials projected to become the wealthiest generation in our country’s history (accounting for a collective annual income of $3.4 trillion by 2018), it is important for dealers to identify ways to work more effectively with this group and capitalize on a fast-growing market segment. For the vast majority of Millennials, the vehicles they buy over the next several years will be their first vehicle purchase. Dealers must bear that in mind and recognize their unique economic challenges; proactively educate them on the process; collect and leverage the right data to quickly match them with the right vehicles; and tap today’s marketing tools to optimize campaigns and provide Millennials with the information they want and need. Following these tips will ultimately equip today’s automotive dealers for success in 2015 and beyond.
Jennifer Reid brings a unique perspective to Automotive Services at Equifax with broad professional experience on both the dealer and lender faces of the automotive industry. Her established relationships with dealers, familiarity with helping customers make purchases, and combined 13 years in the automotive space bolster Reid’s reputation as an industry expert.