TL;DR:
- A survey by eLEND Solutions reveals that 90% of auto dealers and lenders believe AI-based pricing leads to inaccurate online payment quotes.
- Key issues include reduced lender transparency, mistimed decisions, and reliance on consumer credit scores, all impacting payment accuracy.
- Mismatched deals occur over 75% of the time, affecting customer satisfaction, profits, and the buying process.
- Most online quotes are driven by consumer credit scores, with differing definitions of ‘penny-perfect payments.’
- Negotiating payment terms before lender decisions causes dissatisfaction and deal rewinds.
- Involving finance early in the deal flow could improve the process for all parties.
- Pre-desking technology integrated with lender credit scorecard models is seen as a solution.
Main AI News:
In the world of automotive finance, the adoption of AI-based pricing has been touted as a game-changer, promising efficiency and precision in generating online payment quotes. However, a recent survey conducted by eLEND Solutions, an automotive fintech innovator, has unveiled a startling revelation – 90% of auto dealers and lenders believe that AI-based pricing is actually contributing to inaccurate online payment quotes. This startling consensus has left the industry reeling, as it grapples with the adverse impact on the overall buying experience.
The survey respondents highlighted several key obstacles to delivering precise online payment quotes. One pressing concern is the diminishing transparency from lenders, leading to mistimed and mismatched desking and lender decisions. Moreover, the heavy reliance on consumer-provided credit scores has further compounded the issue, resulting in payment quotes that fall far from the mark of ‘penny-perfect.’
Pete MacInnis, Founder and CEO of eLEND Solutions, weighed in on the matter, stating, “Over three-quarters of dealers and lenders in our survey say that the desked-deal and final decision match 50% or less of the time. That is an astonishing number, but one that doesn’t surprise us. This mismatch, born of multiple factors uncovered in our survey, creates deep friction in the buying process, impacting CSI, profits and more.”
One critical factor contributing to the inaccuracy of payment quotes is the lack of relevant, objective information used to generate them. According to 64% of dealer and lender respondents, today’s online quotes are primarily driven by consumer-provided credit score information. This, coupled with a faulty perception of what constitutes ‘penny-perfect payments,’ where 57% tie it solely to jurisdiction sales tax, license, and registration fees, instead of considering customer pre-qualification to a specific lender decision (43%), underscores the root causes of the problem.
Furthermore, over half of lenders and dealers report that payment terms are being negotiated with online customers before a lender decision is made. This premature negotiation approach has led to dissatisfaction among consumers and an increase in deal rewinds. A staggering 70% of respondents agree that involving finance in the deal flow prior to the first pencil, whether digitally or otherwise, would significantly improve the process for all parties involved.
The survey, conducted in December 2023, involved over 300 auto dealers and lenders. While the majority of respondents were auto dealers (76%), the results were remarkably consistent across both groups. Pete MacInnis noted, “It was important for us to hear from lenders in this survey, and it was remarkable how in sync they were with dealers.“
In the quest to overcome these challenges, there is a clear consensus among lenders and dealers. A resounding 94% believe that pre-desking technology, integrated with lender proprietary credit scorecard models, would greatly enhance the car buying and selling experience for all parties involved. MacInnis concluded, “The challenges to today’s digital finance are solvable, but only when our industry is willing to come together to change processes, increase transparency, and embrace tools that enable sales and finance to begin together at the start of the transaction.”
Key Takeaways from the Survey:
- 86% of respondents believe that inaccurate online digital retailing payment quotes have a detrimental impact on buying experiences.
- 90% of respondents assert that AI-based pricing at the customer qualification level is contributing to inaccurate online payment quotes.
- 57% of respondents associate ‘Penny Perfect Payments’ with jurisdiction sales tax, license, and registration fees, while 43% include customer pre-qualification to a specific lender decision.
- Consumer-provided credit score estimates primarily power initial online digital retailing payment quotes, according to 64% of respondents.
- Initial digital retail payment quotes match final lender decisions less than half the time, with 76% saying they match less than 25% of the time.
- 87% of respondents agree that there has been a reduction in lenders providing rate-sheet pricing bulletins.
- Lender loan pricing models are predominantly driven by ‘credit score plus other credit attributes and advance guidelines.’
- 54% of respondents say that payment terms are negotiated with the online customer before the lender decision.
- The desked deal matches final lender decisions less than 50% of the time, according to 72% of respondents.
- 74% agree that having finance involved in the deal flow prior to the first pencil would improve the process for all parties.
- 94% believe that pre-desking technology, integrated with lender proprietary credit scorecard models, would enhance the car buying/selling experience for all parties.
Conclusion:
The widespread belief among auto dealers and lenders that AI-based pricing is causing inaccuracies in online payment quotes highlights a significant challenge in the market. To address this issue and enhance the buying experience, the industry must prioritize increased transparency and the adoption of pre-desking technology integrated with lender credit scorecard models.
