KETTERING, Ohio (Nov. 4, 2010) — When it comes to offering a proprietary credit card to their customers, tire dealers and auto repairers “are really late to this party,” said Mike Mattevi, vice president of auto finance for GE Money, the consumer lending unit of General Electric Co., which offers the CarCareOne credit card.
Unlike big ticket retailers, such as furniture, flooring or jewelry stores, “where you literally can't be in business without offering credit, our auto guys are really late to understanding how credit can really help them. And consumers are really asking for it more and more,” he said.
“They average $1,500 transactions, which is a good transaction for offering credit because it's something consumers like to spread out over time,” Mr. Mattevi added.
The recession has caused some cash-strapped customers to defer needed repairs, so a credit card offering deferred payment plans can allow tire dealers the ability to take care of their customers, he said.
Dealers can show their customers they care by telling them, “I want you to get the repair done right, I can offer you a great credit product, so instead of writing a check for $1,500 today, you can spread these payments over time. You can make sure your budget is not strapped. You can use the bank's money for six months,” Mr. Mattevi said.
Recent federal regulations have eliminated the 90-day/same-as-cash credit option, but dealers can offer six-month or 12-month payment plans with the credit card program.
“The relevance of credit today is higher than even before the recession hit because consumers are looking for creative payment options if they're a little bit strapped for cash…Dealers who are offering credit every day to every customer are the ones saying to us, 'I'm stealing sales from my competitor. I'm keeping my customer in my shop and my customers are happy because they are getting what they need today,'” he said.
“The key message for our dealers in the auto space is this is a product that has been proven since the 1960s. It is a product consumers like. They like the deferred payments and no-interest option that you can't get on a Visa or MasterCard,” he said.
“What we saw happen when the recession hit was that consumers were actually opting for tire replacement and repair and service on their vehicle rather than buying a new vehicle. So we saw consumers seeing even more value on our products and services because it allowed them to repair or service their vehicle today vs. either putting off the repair and keeping the car unsafe, or doing a half repair or half service. And we certainly saw a decrease in new car sales, which meant the consumers were more and more repairing and servicing the vehicle that they had.”
GE has 20,000 dealers in its credit card program in the U.S. A majority, about 15,000, are single locations or no more than two or three locations. Others are large nationwide chains, such as Discount Tire Co., Pep Boys—Manny, Moe and Jack and Ford Motor Co., with 2,000 car dealerships.
While the CarCareOne card is available to any automotive business, the three types of businesses for which the card is the best fit are tire and wheel replacement, repair and service and auto dealerships, according to Mr. Mattevi.
The tire and repair businesses are the company's largest markets by virtue of having more locations.
GE Money has experienced an increased interest in its credit program lately, signing 150 to 200 dealers per month on average, according to Mr. Mattevi.
That is an improvement over 2008 and early 2009 when “dealers kept their heads down, trying to keep their businesses running, and stepped away from credit and got back to the basics. Now dealers are looking for ways to drive more business,” he said.
Under the CarCareOne program, a dealer pays a transaction fee which is a percentage of each transaction, in most cases around the same rate as a Visa/MasterCard transaction fee, he said. As long as the dealer submits at least six applications a month, the credit company will waive the monthly fee.
GE Money offers free POS materials and customer lists to which dealers can send direct mailers, make phone calls, and insert promotions in the monthly credit statements.
Dealers can offer interest-free deferred payments for six months on purchases over $299 throughout the year. They also can offer no-interest/deferred payments for 12 months as special promotions. The CarCareOne card is accepted at any dealership or service shop that offers the card.
An added benefit GE Money promotes is that once the consumers have the proprietary credit card embossed with the dealership's name in their wallets, they are more likely to return to that dealership. “They may throw it in a drawer, but a year-and-a-half from now when their daughter's car needs a repair, they'll remember they have a dedicated line of credit at the dealership,” he said.
“And that's what our dealers love is the repeat customer, the consumer loyalty, building that trust. So they really use the credit product to not only to help the customer to do what they need to do, but it's also to create that loyalty,” he said.
He admits not every customer is going to want the credit card, but the dealer can offer it to everybody, just like they offer all their other products and services.
“Our most successful dealers will talk to a customer about credit options at the beginning of a conversation. Many of them will prequalify a consumer,” he said. They offer credit upfront and equally to everybody as one of their services. They don't wait for the customer to say they can't afford the purchase that day. “That's been our most successful best practice,” he said.
Surprisingly, it's not always the customer who is strapped for cash who is most interested in credit but customers who reason “I'll use GE's money for six months” or “I'm going to be getting my income tax refund, and pay it off then,” he said.
GE Money actually changed its approach to promoting its credit card program this year after conducting a series of focus groups and surveys of their automotive aftermarket clients.
“We learned so much about what motivates our dealers and why they went into business for themselves and what they are looking for every day when they turn the key on their front door. It helps us to figure out how to craft our credit product to fit that need,” Mr. Mattevi said.
“They overwhelmingly said 'I do what I do because I wanted to own a small business. I wanted to be an important part of my community. A good day for me is when all my customers trust me. They know that I care for them and that I'm here to help them,'” he said.
“It wasn't about 'I want to grow my business' and 'I want to have three tire shops' and 'I want to triple my sales this year.' It was 'When someone walks in my front door, I want them to know that I care about them, that they can really trust me and they walk out of my shop feeling good about the service that I provided for them.'”
The surveys indicated that what dealers hate the most is when customers leave their shops with half a repair or not getting the service or the tire they wanted because they couldn't afford it that day, Mr. Mattevi said. “Dealers want to offer products and services that fit their needs, not just get a large transaction, because they want the customer to come back.”
Mr. Mattevi said the study was insightful for his company “because we were marketing our credit product as 'increase your average transaction size,' 'grow your business,' 'open another shop' and that's not why they do what they do.”
“It's funny, we used to go to these trade shows and our banners would say 'Are you offering credit? Because the big chains are. Are you?' And actually guys hate the big chains because they feel like they're not there to really take care of the customer or care about them. And so we were actually doing ourselves a disservice by talking about that when we talked about credit,” he said. “They would say 'I don't want to be like the big guy. I'm in a small business for a reason.”
So now GE Capital promotes its credit products as a way for dealers to help their customers get what they need.
“We changed our thinking about why credit fits for our dealers, our partners. Before, we were thinking that they wanted to grow their businesses and get every transaction dollar size up. And they said 'I'm so not interested in that. What I want is to be able to have a consumer walk out feeling good about me. And they feel good about me when they can trust me and that I've offered them good products and services that meet their needs.' And credit's a great way for them to do that…It helps them to do the right thing for the customer,” Mr. Mattevi said.
The company recently produced a series of online instructional videos showing actual dealers demonstrating how they conduct “the credit conversation” with their customers and how to respond to customer reluctance.
Mr. Mattevi noted that credit card application approval rates have been as high as they've ever been. Only 20 percent of the U.S. population qualifies for a standard Visa/MasterCard credit account, he said. “We're approving in the mid-50 percent of our applications.”
In 2008 “it got a little scary,” he noted. “Unemployment was pushing 10 to 11 percent and so all the banks got a little bit more conservative with their approval rate. But we've been in the mid-50 percent range. It depends on the dealer. Some get higher approval rates than others.”
The recession also has sparked an increase in credit defaults. “Our losses have gone a little higher than we thought they would. But, like most banks, we tend to be relatively conservative with our loss projections,” he said, adding that defaults have been higher than they've been in the past five years, but “they're still manageable.”
“In general, more consumers, especially in 2008 and 2009, were kind of pushing their way through. All the foreclosures didn't help. We were impacted like everyone else…but it feels like we're coming out of that a little bit,” he said.
CarCareOne's average transaction is $1,200 to $1,500. The company experiences a higher number of delinquencies in larger purchases, such as for cars and houses.
A majority of delinquencies are due to unforeseen job loss or major medical expenses, he said. “I think customers are much more careful about the number of cards they put in their wallet….They're being more careful about how much credit they sign up for and more careful about knowing exactly how the credit product works.”
The company's dealer clients also were struggling, he said. “We usually lose every year about 15 percent of our dealers because a lot of them are the single mom-and-pop locations,” he said. However, it appears the small businesses are rebounding, he added, with some clients saying they are swamped with repairs that customers had held off on.
Credit cards can help dealers survive a sluggish economy because “every time they opened an account and got plastic in the customer's wallet, that creates loyalty. They're increasing the transaction size. The consumer is able to get what they want. So credit for a lot of our guys kept them going. Those repeat customers who may have been strapped for cash, who had the plastic in the drawer, came back and said 'I need to get my car repaired, I'm so glad I have this account. I can make these minimum monthly payments and still do what I need to do and get to work every day,'” Mr. Mattevi said.
Credit cards are popular no matter the economic conditions, he said. Generally, when the economy is bad and consumers are short on cash, they look for options for credit and creative ways to finance a purchase to get what they need, he said. When the economy is good, consumers are buying more cars and accessories and upgrading their tire purchases, so they also are looking for creative ways to finance those purchases by spreading out the payments rather than writing one large check, he said.
“We see maybe a little bit different customer coming through the door, depending on the economy. There is still a need (for financing) regardless of where we are.”
Six-month deferred payment credit card plans have replaced the 90-day, same-as-cash plans, thanks to a federal crackdown on credit practices. “So we're basically are now offering our consumers and our dealers a six-month promotion at the same cost as they had on the 90-day. So we lowered our cost to make it consumer friendly and dealer friendly,” Mr. Mattevi said.
The rate dealers would have paid for a 90-day purchase was a little less than the six-month purchase, “so we modified our program so the six-month promotion was at the same rate as the old 90-day,” Mr. Mattevi said. “We wanted to keep it simple for our dealers.” Through end of the year, GE also is cutting the 12-month payment plan rate.
Under federal regulations, credit contracts and billing statements have to clarify the deferred payment period as well as interest and late payment penalties.
“I don't think it's changed the consumers' behavior. If anything, they're more aware going in exactly what they're signing up for and that's been our goal all along,” he said.
“I think consumers are more careful now about financial planning. So I think what consumers are doing now is they're looking more carefully at the credit products they sign up for and they're making sure that there are no hidden charges and hidden fees,” Mr. Mattevi said.