As Seller’s Market Abates, Car Dealers Lean on Consumer Data

Forward-thinking car dealers are using an array of modern data sources to get to know consumers in detailed and meaningful ways.

The goal: Know enough about car consumers – such as their family size, financial wherewithal, buying cycles and more – to expedite selling them a car.

So says Satyan Merchant (pictured, below left), senior vice president and automotive business leader at TransUnion, a credit bureau and financial information company.

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The trick is to put it all together to create detailed consumer profiles that help make the sales process smoother. It’s a matter of “keeping current customers and getting new ones,” Merchant tells Wards.

“It’s getting ahead of things by uniting all the data” drawn from both from inside the dealership and outside sources, he says. “At the dealership, the sales and service department have significant amounts of customer information. But sometimes those departments aren’t talking to each other.”

Some of the “cutting-edge” consumer data from assorted sources includes household information such as number of children and whether someone has recently purchased a house. (In many cases, new home buyers also become new-car buyers.)

Privacy advocates may say garnering such personal information is prying, but today most consumers “want auto dealers to know about them,” Merchant says. “It makes for a better customer experience.”

It was a seller’s market during the depths of the inventory shortages with demand outpacing supply. But supplies are increasing, and demand is slackening slightly, in no small part because of rising interest rates.

Auto retailing is one of the most credit-driven businesses. High interest rates that increase monthly payments can kill a deal.  

“Basis points (one equals 0.01%) are 500 higher than a year ago,” Merchant says. “That’s reflected in car-loan payments.”

For some people, today’s higher interest rates are as much a stunner as the higher price of vehicles.

“Any dealer would say consumers shop by monthly payment,” Merchant says. “So elevated prices and higher interest rates are double sticker shocks.”  

The average monthly payment on a new car now is $736, according to TransUnion’s latest Q1 2023 Quarterly Credit Industry Insights Report.

The average monthly payment for a used vehicle is $508. It was $413 two years ago. “The story is about affordability,” Merchant says.

The inventory shortage hurt annual vehicle sales. U.S. dealers delivered 13.7 million units last year, the lowest total since the recession year of 2011.

Accordingly, loan originations took a hit, according to TransUnion.   

Lending originations in the fourth quarter of 2022 were down 9.7% year-over-year to 5.9 million. That represents the lowest level since 2013’s fourth quarter.

Originations were down across all credit tiers – “everyone, from subprime to super prime,” Merchant says.

As auto production begins to normalize, there’s industry hope that the downtrend will reverse course soon, at least in the new-car market, he says. “The used market is expected to remain tight, as the lower level of new-car sales starting in 2020 means fewer recent-model-year used cars available today.”

He adds: “Affordability remains a central issue for consumers, especially those below prime.

Meanwhile, “we continue to pay close attention to delinquencies.”

Those are up but not dramatically. Loan payment delinquencies of two months or more rose to 1.69% in last year’s fourth quarter compared with 1.43% at the same time in 2021.