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Affordability vs. Income: Uncovering Hidden Opportunities in your Auto Lender Marketing

At the recent AFSA and NADA conferences, we heard economists from across the industry discuss the possibility of an economic downturn and potential impacts to the auto industry. However, there was no argument that one of the biggest challenges facing the auto industry today is vehicle affordability.

Affordability is a challenge for new and used cars
Amid rising interest rates and increased vehicle prices, the share of new car buyers with a monthly payment of more than $1,000 rose to a record high in the fourth quarter of 2022. Industry observers noted that slightly more than 15 percent of consumers who financed a new car in the last quarter of 2022 drove away with a monthly payment of $1,000 or more compared with 10.5 percent a year ago.¹

Furthermore, the average price people paid for a new car in December 2022 set a new record of $46,382, according to analysis from J.D. Power and LMC Automotive. Sure, there are signs inflation is coming off its highs of 2022, but in the world of automotive, sticker prices are up 2.5 percent compared with a year ago.²

The news is not much better for used vehicles. Even though prices were 8.8 percent lower in December 2022 compared with the prior year, consumers are still paying more compared with typical depreciation patterns. Case in point, the average price for a used vehicle in December was $30,899, a $7,146 increase (or 30 percent) compared with the price consumers expected to pay when vehicle depreciation forecasts were originally established.³

One challenge is that many auto marketers are still relying on legacy marketing strategies and data that do not take the current pricing conditions into consideration. They have not aligned their customer marketing with their pricing data, and they are still using traditional income data to target customers. For example, they are using in-market preference data to target someone who may have indicated that they are interested in a 5-Series, when based on current pricing, their new sweet spot of affordability may lie in a 3-Series.

This is extremely crucial because virtually every sale is dead the moment a customer realizes he or she can’t afford the car they’ve been looking at. In a typical market rebates and incentives can help make a vehicle more affordable, but for now the vast majority of manufacturers and dealer partners are still holding back on incentives and rebates waiting for inventory levels to come back.

Most of the legacy income and marketing data that auto marketers currently use is directionally inaccurate or out of date in this quickly changing economic environment. Using this legacy data is eroding a significant amount from their bottom line and is not allowing them to optimize their marketing dollars.

How more advanced consumer economic data can help auto marketers find hidden opportunities
Auto marketers including lenders, dealers and manufacturers are now leveraging new sets of sophisticated data to get a clearer view of consumers’ ability to not only purchase, but make ongoing payments on their loans.

Using more advanced data sets can help auto lenders, dealers and manufacturers gain a more accurate financial picture of a potential buyer. For example, rather than relying on consumer-reported surveys of income that may be as much as two or three years old, they can instead leverage economic and income data that is based on anonymous measured financial information gathered directly from banks, credit unions, and other financial companies. With these economic insights, auto marketers can take the guesswork out of aligning which vehicle and promotional offer is the most appropriate for each shopper.

For example, marketers can use economic measures that incorporate not just a household’s likely income, but also factor in how much discretionary funds a consumer might have after accounting for fixed expenses such as shelter, utilities, transportation, and other life expenses. So an auto shopper with a high income and high discretionary funds might be directed toward a premium model, whereas one with lower discretionary funds might be offered a standard model.

Many of today’s auto shoppers have affordability at the top of their list of concerns, making it even more important for auto marketers to explore new datasets that can provide a more comprehensive picture of a shopper’s financial situation. Today’s sophisticated data is more accurate and can provide a more holistic picture of a person’s ability to spend, as well as meet loan commitments month after month. With this level of insight, dealers, lenders, and manufacturers will put more people into the right car, at the right price, with a higher degree of confidence that they can afford the payments long after the sale.

¹: https://www.cnbc.com/2023/01/04/share-of-car-buyers-with-monthly-payments-over-1000-hits-record-high.html

²: https://www.cnbc.com/2023/01/19/even-with-used-car-prices-falling-buyers-paying-7point1k-above-normal.html

³: https://www.digitalcommerce360.com/2019/09/06/marketers-waste-21-of-their-marketing-budgets-because-of-bad-data/

Lena Bourgeois
Lena Bourgeois
Lena Bourgeois is the automotive general manager for Equifax, responsible for leading a high performing automotive team across sales, product, technology, operations and marketing. For more information, please email [email protected].
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