5 minutes with Nate Chenenko, director, Carlisle & Co.
Dealership service departments that don’t offer point-of-sale financing to customers are missing a big opportunity, according to research by Carlisle & Co. Point-of-sale financing, led by the two largest providers — Sunbit and DigniFi — lets customers pay for a costly repair in installments. Instead of a customer possibly skipping a $1,000 repair bill because he or she doesn’t have the money, the customer might approve the work if they could pay $100 a month for 10 months. Customers can apply for the financing on the spot and typically pay lower interest than their credit cards charge. Payback typically occurs over three to 12 months. Beyond the interest, fees to customers are extremely low — a few dollars for late fees. For dealers, most of the finance providers charge a monthly fee of a few hundred dollars. The finance providers also take a percentage of each transaction, which is typically 1 to 2 percentage points above the credit card interchange dealers already pay. Carlisle & Co. Director Nate Chenenko, 35, discusses why dealership fixed ops departments should consider adding this service. Here are edited excerpts.
On the benefits for the dealer
First, point-of-sale financing helps service retention. Although you’re not making the service cheaper, you’re making it more affordable by allowing people to fit the payments into their lifestyle. We estimate offering point-of-sale financing will increase service retention by 2 points. Not 2 percent — 2 points. For example, if your service retention is an industry average 42.5 percent, you may be able to get to 44.5 percent. This assumes you only take share from independent repair facilities — it does not include any other potential customers you could conquest. Also, point-of-sale financing generates higher dollars per repair order, based on our consumer survey. Part of this is statistical bias, for a few reasons, but mostly that customers don’t finance inexpensive transactions like oil changes. Based on our data, we believe customers who finance spend roughly 20 percent more per transaction. Of course, not everyone finances, so we incorporate that into the math.
On the overall impact for the dealer
Depending on the dealer’s existing service retention and dollars-per-RO numbers, the outcome differs. The average dealer would see a 6 percent increase in fixed operations sales. This encompasses parts and service sales.
There are some down sides. The fees cut into dealer margin very slightly — remember, fees are often only 1 to 2 points higher than credit card interchange fees. Service advisers must be trained. And it is yet one more subscription at the dealership — and dealers already have so many subscriptions.
Overall, we feel point-of-sale financing is an extremely low-risk way to increase your service retention and fixed ops margin.
On what automakers are doing to help dealership fixed ops departments bring this option to customers
Most manufacturers have point-of-sale finance vendors on their “approved vendor” list, which helps. Some manufacturers are subsidizing the dealer’s cost to use point-of-sale financing. This means they’re paying for the monthly fee or covering a portion of the transaction fee. However, manufacturers are only doing this for a relatively short period of time.
On whether dealership customers, who typically have a higher income, would be interested in point-of-sale financing
We see higher take rates on finance options from higher-income customers. This could be because higher-income customers are more likely to be approved. Dealer customers typically have significantly higher income than non-dealer customers, so this shows dealer customers are likely to use financing, even though you might expect they don’t need it.
On what automakers can do to help point-of-sale financing become more common in the service drive
We recommend automakers follow this progression:
1. Conduct research on their customers from their brand. Our research is industrywide, and results may differ for their brand.
2. After that, they should run a pilot. Pick a few dealers and pay them to use point-of-sale financing. For some, they should pay the monthly fee. For others, cover the percentage the point-of-sale financing company takes. See which ones incentivize the desired behavior.
3. Over the long term, track dollars per RO for point-of-sale financing versus credit cards and versus cash. And track service retention at the customer level (do customers who use point-of-sale financing return more regularly/consistently?) and at the store level (do stores that offer point-of-sale financing see better retention than they did before?).