There is no doubt that the world of retail is undergoing rapid change, as brick-and-mortar staples face off with dynamic Internet retailers for market share. This is even more evident in the auto industry as we move into the fast lane, doing business online. The changes are heavily influenced by the power of today’s trendsetting millennials.
People in the millennial generation–those born between 1982 and 2000—make up the largest generation in U.S. history. Totaling more than 83.1 million consumers, they currently represent more than 25 percent of the U.S. population. They are connected to each other, to brands and to the world. This “always on” consumer shares opinions with peers – and the world – through social media. They have a higher propensity than boomers to be satisfied by, and potentially loyal to, a brand that is authentic, highly responsive and offers value, according to the J.D. Powers’ 2016 Millennial Insight Report.
Many of these young people were entering the labor market when the Great Recession hit. Carrying higher levels of student debt, they also have found their finances impacted by lower employment levels, slow job growth and smaller wage growth. Not surprisingly, they do more extensive research than other generations when considering a purchase and often base their decisions based on getting the greatest value for their money.
As wage growth remains slow, many millennials have delayed such life milestones as marriage, having a child or purchasing a home. This has caused concern for many in the auto industry. As recently as 2013, a Goldman Sachs study showed 30 percent of millennials did “not intend to buy (a vehicle) in the near future” and another 25 percent were “indifferent” to a car purchase. Conventional wisdom held that vehicle ownership was not important to millennials. The prevailing opinion was that we would move to a “sharing” economy, defined by such on-demand services as Uber and ZipCar, or subscription-based peer-to-peer options like Getaround or Car2Go.
But flash forward to 2016, and this generation is defying the stereotype. Today millennials are buying cars, a lot of them. They now account for almost 30 percent of all retail vehicle sales, according to the 2015 J.D. Powers New Autoshopper Study. By 2020, experts predict that millennials will account for more than 40 percent of new vehicle purchases. When combined with Gen X, they will buy four out of every five new vehicles.
All of this aligns with what we’re seeing in the credit union space. Today, this age group/segment represents the largest segment of auto loan originations through CU Direct’s CUDL platform, financing over $6.7 billion in auto loans in 2016 alone, according to CU Direct millennial funding data through December 31. And with their economic power on the rise, this trend should only accelerate.
Why does it matter? Millennials are the future, as they’ll be purchasing – and financing – vehicles for the better part of the 21st century. They represent immense opportunity in the short and long term. Each year they spend approximately $600 billion on retail purchases. Data from Accenture predicts that will increase to more than $1.4 trillion annually as soon as 2020. With millennials’ personal income set to account for over 46 percent of the whole by the year 2025, there’s a lot of potential for credit unions as we look for future growth.
As previously mentioned, the millennial buyer is a value shopper. A car’s price matters more to them than technology, fuel economy, safety and all other features, according to this article from Think With Google. If they need an auto loan, they look for it online, researching financing options to find the most value. They’re open to influence when looking at potential lenders and expect companies to connect quickly, providing personal service in new ways. Brands that truly embrace the mobile, digital and service revolutions are likely to thrive with this generation of car buyers.
So, here are two key strategies to consider as you look to connect with this vital segment about auto loans.
1. Evaluate your online experience. A full 96 percent of consumers leverage online research to shop for a vehicle, while 75 percent of all shopping time is spent online, according to the J.D. Power 2015 New Autoshopper Study. In-market shoppers spend more than 14 hours sifting through information on multiple devices and may turn to social sites and YouTube to help narrow their search.
For millennials, online is mobile first. They actively shop on a smartphone and cite the mobile experience as highly influential in their choice of what vehicle to purchase. They cross-shop and often prefer texting to a phone call.
Credit unions should ask themselves if their online experience is better than what their competitors offer. Is your website streamlined, easy to use and sophisticated? Is it mobile-friendly? While 22 percent of consumers prefer to use finance apps to research a product (say, an auto loan), 52 percent of consumers prefer to use a mobile site to learn about new finance products where simplicity and ease of use is key, according to this Think With Google article.
Members heavily use third-party websites to shop for a car. Do you offer a tool? If not, consider one. If you do have an auto shopping site, is your partner promoting its brand or yours? Can members easily see that you can help them find (and finance) a vehicle when they visit your home page, log in to home banking or view your mobile site? Can your members connect with your credit union in one click to ask a question or inquire about a loan, or do they need to fill out a lengthy form to get information? How soon do you respond? For millennials, speed matters. Your site and response time is either an advantage or a barrier.
2. Look at lending through a digital lens. Millennials have been trained by online retailers to expect great information, a fast buying experience, and overnight delivery. How can credit unions meet these expectations? To attract the millennial shopper to your auto loan, marketing should be digital first and focus on key factors, including value or savings, ease of application, speed of response, and a streamlined, convenient process. And it should be a priority to ensure information about your product offering and services is clear, simply displayed on your website and easy to understand.
Manufacturers and dealerships place online payment and quote tools front and center on their sites to attract shoppers and gauge their purchase intent, as loan application leads tend to close at a higher rate in the industry than vehicle leads do. To help capture every opportunity, credit unions should prominently place payment calculators on their sites, and even consider home page placement if they’re actively seeking to grow auto loans. Make it easy for members to start the application process, even if that’s just asking for enough information to get the ball rolling and make that connection.
Also, credit unions should evaluate how much of their lending process can be automated or managed through digital channels. Regardless of your process, keep the lines of communication open and provide proactive and frequent updates as to the loan’s status to keep the millennials engaged.
Millennials do care about cars and need auto loans. They are looking for a direct connection – that life in the fast lane kind of experience -- when they purchase and finance their next car. Auto shopping is already an online experience, and auto lending isn’t far behind. Is your credit union ready? If not, put the pedal to the metal and rev up that engine, because the future is here!
Marci Francisco is VP/sales of CUES Supplier member CU Direct, Ontario, Calif.