Flexible pricing can help make payments more affordable for younger car buyers

Being more flexible while still maintaining high PVR can work for everyone if you approach it the right way.

As if the post-pandemic and supply chain issues weren’t enough the last few years…now financial experts are still banging the drum that a recession could still be just around the corner and inflation is still a looming concern. Everything costs more and the sky is falling. 

Unfortunately, delinquencies are on the rise, and this presents an opportunity for F&I staff to not only be aware of this trend but to find creative ways to help younger borrowers be able to protect themselves financially from unexpected out-of-pocket expenses.

F&I departments that are also shifting to working directly with their providers to get better pricing for products which in turn eases the burden on buyers for the long term.

Being more flexible while still maintaining high PVR can work for everyone if you approach it the right way where everyone wins.

Younger buyers are falling behind rapidly on payments.

According to new industry studies, Q1 of 2023 has shown a steep uptick in delinquencies among Millennials and Gen Z buyers. The increase represents the highest quarter-over-quarter increase since 2010 on the heels of the Great Recession.

Pundits and analysts want to point to a combination of economic stimulus payments and student loan forbearance that created a buying frenzy with younger car buyers during COVID. They are buying more car than they would have been able to afford pre-pandemic and as life comes back to normal, those financial decisions have come with serious consequences.

A shift to work-from-home saved many people the expenses associated with long commutes to the office and for those with families, being home meant not having to pay for childcare.

All of this resulted in more disposable income and higher corresponding credit scores to be able to buy cars that perhaps were previously out of their budget. And if purchased before 2022, more favorable interest rates made it even more beneficial to buy a new car.

Current stats have 4.55% of Gen Z (18-29 years old) buyers at 90 days late on car payments and 3.06% of Millennials (30-39 years old) delinquent the same.

This represents the worst delinquency rates since the Great Recession in younger cohorts.

Where F&I Can Help Younger Borrowers

Even with the slowdown in new car sales due largely to higher interest rates and some caution among buyers who believe a recession is looming, F&I departments can see this not as an obstacle to continuing to create a high PVR but as a creative way to continue the trend of higher profits.

Buyers will always need service contracts to help keep them from a financial freefall in case of unforeseen breakdowns.

Creative and fair pricing in these situations can help a buyer not have the unwieldy payment that could take them right into delinquency.

If you have a direct relationship with your F&I provider, you may have room in the back-end cost to offer a better deal for your customer because there may be no agent commission to have to compensate for when setting your VSC price.

Offering a Better Deal Sometimes Can Make Good Sense

Being able to be flexible in uncertain financial times also means F&I departments can still maintain high profits. It doesn’t have to be either-or. 

It also buys a lot of goodwill in your market if your dealership is known for fair VSC prices and F&I managers who lead with empathy and creativity to construct deals for buyers that make it easier for them to make their payments on time. Everyone knows…. people talk.

Buyers who are pushed into unreasonably high-priced F&I products are at an immediate disadvantage right from the start. And the risk of chargebacks increases once the buyer must make that first giant payment. 

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Kristine Cain
Kristine Cain
Kristine Cain is a contributing writer for CBT News. She has over 26 years of experience in the automotive industry specializing in F&I and B2B sales.

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