Expanded auto-repair financing options gain traction

DETROIT — Nearly two-thirds of vehicle owners in the U.S. are unable to pay for a $500 auto repair bill out of pocket, according to new research by Cox Automotive's Xtime customer retention platform.

In addition, the research shows that 29% of primary service recommendations and 71% of additional work go unsold because of customers' lack of funds.

There have long been means for these customers to borrow to cover a repair: credit cards, family resources or the last resort — payday or auto title loans with punishing interest rates.

More recently, products devoted to repair lending have emerged. In 2015, financial services company Sunbit Inc. began working with dealers to offer quick-approval loans for repairs. In 2018, DigniFi, then known as Confident Financial Solutions, launched a similar product.

DigniFi's loans range from $350 to $7,500, although the typical amount financed is $1,200 to $1,700. The loans are payable over 12 to 36 months, depending on credit and customer preference, without prepayment penalties. No interest is charged for the first 60 days, a policy temporarily extended to 90 days because of COVID-19.

In November, DigniFi expanded its offerings with DigniFi ExpressWay, a revolving line of credit that can be used in multiple areas (sales, parts, collision, etc.) with up to six months of deferred interest. And in July, Xtime announced that it integrated with DigniFi to launch FlexPay, an easy-to-use payment option offered directly through the Xtime platform.

To use DigniFi, shops pay a monthly subscription fee of $199 to $1,850 or 4.5% of the funds loaned.

Sunbit's loans range from $60 to $6,000, with the typical amount financed at $800 to $1,000. The loans are interest-free for 30 days and are paid over three, six or 12 months. Sunbit takes a 3% cut of the loans paid to the shop.

The product serves both sides of the transaction, said John Canales, vice president of business development at DigniFi. Customers can finance their repairs on friendlier terms than a credit card or other type of loan, and dealerships enjoy higher dollar amounts on repair orders because customers feel reassured about payment.

Lately, many more consumers seem to need reassurance.

"Since COVID-19, we've seen a 25% to 30% increase in customers using the service," said Robert Rendino, sales director at Clear Lake Nissan in League City, Texas, a suburb of Houston. "People are getting laid off. Hidden behind COVID is the recent drop in oil prices, and many people here are tied to the oil industry."

The increased fears of layoffs, Mr. Rendino said, have led people to spend more conservatively and invest more in repairs.

"Our salespeople present trade offers to service customers facing a big bill, say a $2,800 transmission repair," he said. At least four times in one month, "customers turned down the trade and used DigniFi to finance the repair. Typically, that would never happen."

If consumers are more interested, so are dealerships.

"From November of 2019 until the beginning of March, roughly 200 dealerships had signed up to use ExpressWay," Mr. Canales said. Since March, about 600 more have joined.

More than 4,000 dealerships now use DigniFi's core products.

"During the worst part of 'stay at home,' we saw a drop of 20% to 30% in payment plans volume," said Tal Riesenfeld, vice president of sales at Sunbit and one of its co-founders. However, he notes that this was during a 50% drop in foot traffic.

Fewer people were walking into the dealerships, Mr. Riesenfeld said, but "more of them were trying to keep money in their pockets and leveraging financing."

The Sunbit exec added that April was his company's largest-ever month for adding dealerships — more than 240. About 3,000 dealerships now use the system.

Both companies have observed that customers tend to spend more on repair orders financed through their systems, a trend that has continued during COVID-19.

"About 75% of our customers are using Sunbit, and we're averaging about $600 a ticket," Ruben Serna, parts and service director at Rock Honda in Fontana, Calif., said. Historically, he said, "the average ticket is usually about half that."

Use of the system is up considerably, Mr. Serna added.

"About 40% of customers were using it last year. We're seeing about $80,000 a month lent on parts and labor," he said.

Mr. Serna said he believes that both the increased demand for payment plans and the increased service spending are tied to COVID-19 concerns.

"People are trying to make ends meet and take care of their family," he said, "but a vehicle that's safe is a necessity now."

Alex Kwanten is a reporter for Fixed Ops Journal, a publication that's part of Automotive News, a Tire Business sister publication.