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OEM Trends in Customer Financing

After an increasingly challenging year, U.S. auto dealers are facing new hurdles related to customer financing. These will be important challenges to overcome as a new year approaches.

Many credit unions are offering lower interest rates than leading top automakers captive financing arms. Coupled with rising federal interest rates, few OEM incentives, and high sales prices, it’s now more important than ever that dealers proactively communicate with their buyers about their financing options.

Understanding changes to financing trends and providing resources to buyers is key to proactively building trust and customer loyalty, empowering dealers to remain competitive in today’s challenging market. It also presents a valuable opportunity to reach out to prospective customers, so the trusted relationship can be acknowledged prior to anything else.

The Benefits of Captive Financing

What is captive financing?

Captive financing is the financial arm extended by OEMs to the dealership level. These financial brands are easy to identify, usually going by names, such as Toyota Financial Services and Mercedes-Benz Financial Services, for example. These brand-specific finance organizations are different from direct lenders — banks and credit unions — and from other third-party lenders, like Capital One, because they originate directly from the OEM selling the vehicle.

How does captive financing benefit customers and dealers?

Captive financing options offer customers ease and convenience when it comes to purchasing a vehicle, whether it be in-person or online. Simplifying the customer experience around the captive financing power at your dealership is critical to improving the overall dealership customer experience — especially when it comes to F&I discussions.

Captive financing options also empower dealers to strengthen their relationships with customers by staying connected long after the sale. Customer interface and transaction data generated by captive finance customers can be used to fuel personalized campaigns and future buying experiences.

Recent Auto Financing Trends

As sales prices reach historic highs, interest rate increases ushered in by the Federal Reserve have quickly cascaded to the auto industry.

According to S&P Global Mobility, the average interest rate on a new vehicle loan rose to 4.8% in May 2022, its highest rate since pre-pandemic March 2020 (5.3%). This metric quickly climbed almost a full point from December to May 2022, meanwhile sales prices reached historic new highs. S&P Global Mobility notes, the average APR has risen this past May when compared to a year ago for the upper-level credit tiers, but not for the lowest tier, including credit scores between 300 and 600.

The cost of financing vehicles is high for a variety of reasons, including customer demand, inflation and rising interest rates. According to TransUnion reports, used vehicles “propel the debt metric,” with average used-vehicle monthly payments rising 22% on a year-over-year basis to $505 in Q1 2022.

Opportunities & Challenges Ahead

As the cost of financing a vehicle has risen, industry reports from Experian also found 62% of all vehicle financing in Q2 2022 was for used vehicles, leading to credit unions, typically able to offer lower interest rates for pre-owned borrowers, gaining a significant increase in market share.

S&P Global Mobility reports indicate lease shares and re-leases for cars both dropped down to record lows. In June 2022, the monthly lease volume of 155,195 was the second lowest since January 2019, with the exception of April 2020 due to COVID-19 shutdowns.

While economic indicators showcase affordability continuing to be a challenge for buyers, EV buyers have bucked the trend. Despite auto sales being diminished due to lack of inventory, electric powertrain volume, including both electric and hybrid, reached its highest volume ever in June 2022, according to S&P Global Mobility.

EVs are typically $5,000 to $10,000 more expensive than comparable ICE models. These buyers represent a significant opportunity for dealers to fuel the F&I department as consumer buying habits continue to evolve.

Cost of Diminished Loyalty & How to Proactively Retain Customers

With customer demand still high, these economic indicators and shifts away from captive financing could lead to losses, especially when it comes to brand and dealer loyalty.

Captive finance loans represent numerous opportunities to OEMs and dealers. Captive customers are also historically more loyal when they return to market. According to S&P Global, half of households who originally purchased their garaged vehicle acquired the same brand when they returned to market, versus 63% of lessees.

Households who purchased and financed their vehicle through a Captive are also more loyal to the brand when they return to market vs. those who financed through a non-Captive (52.4% vs. 48.2% make loyalty, respectively).

Loyalty customers are an invaluable supply of highly profitable sales, less likely to negotiate and more likely to generate service and other fixed ops revenues. Due to this, the immediate and long-term opportunities lost by a loyal customer defecting are significant. However, when it comes to captive customers, dealers and OEMs have a distinct return-to-market timing advantage.

The ability to accurately predict exactly when a buyer will be returning to market poses an invaluable opportunity for dealers to proactively engage customers. This is especially important during inventory challenges, empowering dealers to work through financial considerations and delivery delays to pave the path for an exceptional return-to-market and future buying experience.


Inventory shortages push brand loyalty to an eight-year low and affordability concerns rise, along with inflation. That being said, it’s important for dealers to understand trends surrounding customer financing trends, in order to maintain a competitive advantage.

Auto financing trends for dealerships have become clear paths for any prepared dealer: Credit union customer increases means a drop in captive auto financing at the dealership, serious concerns for future brand loyalty, and an opportunity for dealers to rethink how they present financing options altogether.

To maintain market penetration rates and proactively prevent customer defection as interest rates rise, dealers need to ensure they are: 

  • Maintaining personalized communication consistently with customers
  • Tailoring communications according to customer data and predictive insights
  • Proactively engaging customers before they return to market with a personalized offer that retains their business

Interested in learning how Mastermind empowers dealers to stay ahead of captive customers returning to market? Contact us for a demo.

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