Captive Providers Outperform Banks in Dealer Finance Satisfaction in China
Shanghai: 17 September 2014 — Captive providers in China outperform banks in overall dealer finance satisfaction, according to the J.D. Power Asia Pacific 2014 China Dealer Financing Satisfaction (DFS) StudySM released today.
The inaugural study examines dealer satisfaction with finance providers in two segments, retail credit and floor planning, based on three factors in each. Retail credit satisfaction is based on application/ approval process; finance provider offerings/ products; and sales representative relationship, while floor planning satisfaction is based on credit line; floor plan portfolio management; and floor plan support.
In the retail credit segment, dealer satisfaction with captives is 39 points higher (on a 1,000-point scale)than with banks (838 vs. 799, respectively). There is a notable gap in satisfaction between captives and banks in the West region (832 vs. 760, respectively) and in Tier 4 cities (849 vs. 713, respectively). Banks perform highest in the North region (830) and in Tier 1 cities (810).
“The study clearly shows that dealer satisfaction is positively correlated to sales volume and dealer loyalty,” said Joseph Yang, senior manager of auto finance at J.D. Power China. “This proves the fundamental rule that it is much easier to increase sales and retain customers when the customers are satisfied.”
Captives and banks in the retail credit segment each perform highest in the application/ approval process factor (856 and 806, respectively). However, compared with banks, captives deliver more often on three key performance indicators: can reach the credit staff at any time (45% and 38%, respectively); granting approval of application within two days (66% and 25%, respectively); and releasing funds within two days (54% and 27%, respectively). Captives and banks perform lowest in the finance provider offerings/ products factor (813 and 787, respectively).
In the retail credit segment, captives outperform banks in the use of digital communication channels by sales representatives as their main contact with the dealerships. Captives use digital communication channels at much higher rates than banks, most notably email (60% and 24%, respectively). Satisfaction is highest when salespersons at the dealership use live chat on smartphones or tablets to communicate with their lender (859), followed by online chat (854) and email (844). Satisfaction is lowest when communication is conducted via the telephone (818).
In the floor planning segment, dealer satisfaction with captives is higher than with banks (854 vs. 831, respectively), however this relationship varies by size of city, region of the country and domestic vs. international brands. Banks have higher satisfaction than with captives in Tier 4 cities (805 and 789, respectively), while satisfaction with banks and captives in the South region is similar (808 and 812, respectively). In addition, banks and captives have similar satisfaction among dealers of domestic brands (817 and 820, respectively).
Credit line is the highest-weighted factor in the floor planning segment; however, both captives and banks perform lowest in this factor (850 and 828, respectively). Although dealers expect their finance providers to offer a line of credit to fully meet their needs on inventory turnover of funds, this only occurs 29 percent of the time. When finance providers deliver on this KPI, satisfaction averages 866 but drops to 792 when it is not met.
Captives also outpace banks in floor planning product variety. In addition to new-vehicle service, captives provide a wider range of services than banks in floor planning offerings, such as display cars in the sales area and at auto shows, new cars for sub-dealers and spare parts inventories.
“When it comes to retail credit, there is still a wide gap between China and other developed countries in dealer finance penetration rates for both new vehicles and used cars, which indicates there’s plenty of room for improvement,” said Yang. “For floor planning services, both captives and banks should develop strategies to improve their offerings and provide dealers with products that better meet their needs.”
- The penetration rate of dealer finance in China has continuously increased during the past 6 years. In the luxury market, new-vehicle purchases with a loan have increased to 31 percent in 2014 from 8 percent in 2008. The market potential for dealer finance providers is still promising based on the anticipated increase in passenger-vehicle sales in China.
- The study shows high dealer satisfaction (satisfaction scores of 833 or higher in retail credit and 855 or higher in floor planning) can drive dealer sales volume. When satisfaction is high, dealer sales volume increases by 26 percent in the retail credit segment and by 20 percent in the floor planning segment.
- There is a strong correlation between dealer satisfaction and loyalty. Among dealers using finance providers that have high satisfaction (satisfaction scores of 833 or higher) in retail credit segment, 84 percent say they “definitely would” continue using their current lender during the next 12 months. Loyalty among dealers using providers with medium (799–829) or low (797 or lower) satisfaction drops to 69 percent and 51 percent, respectively.
- Program training and clarification is the service most expected by dealers and also the service most often provided by sales representatives. Dealership-performance consulting is the second most expected service; however, sales representatives struggle to meet dealer expectations in this area.
- Dealers expect same-day service for floor planning funds to be released after the application is submitted. However, only 23 percent of finance providers meet this expectation. When funds are released the same day, satisfaction is 871. When dealers have to wait one to three days for funds, satisfaction declines to 836.
The 2014 China Dealer Financing Satisfaction (DFS) Study is based on responses from 2,145 dealers, representing 47 vehicle brands across 73 cities throughout China, who were surveyed between January 2014 and March 2014.
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 Source: J.D. Power Asia Pacific China Sales Satisfaction Index (SSI) Study,SM 2008-2014