Alternative financing The power of alternative financing

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TPMS Hyundai Elantra – 2023

Provide An Option For Your Underserved Consumer

Joy Kopcha By

Just as you are uneasy about the economy and how it might affect the customers who walk in your door, the tires you sell and the automotive repairs your technicians complete, consumers are anxious about how to pay for those service tickets. Represenatives of secondary financing companies say now is the time to offer another payment option.

MTD: It seems alternative financing is more popular in lots of categories. How is that affecting sales in tires and automotive?

Mary Jones, CEO, EasyPay Finance: Customers now expect more options and access to financing that works for them. Across categories, this translates to notably improved metrics if products can be purchased through a tailored and structured approach that matches customer need. It’s a growing trend that underscores the importance of tires and auto businesses incorporating alternative financing at the point of sale. All options are not created equal, however, so it’s essential to partner with a provider who understands the space, wants what is best for your shared customers and provides you with exceptional service.

Reid Bork, chief revenue officer, Katapult Holdings Inc.: With more individuals living paycheck to paycheck due to the current macroeconomic climate, there is greater demand for solutions that will meet consumers wherever they are on their economic journey — a demand we expect to continue to grow in 2023 and beyond.

Shawn Sieck, chief sales officer, Koalafi: Nearly one out of two U.S. consumers has a credit score below 660, unscorable credit or no credit score at all. Since these consumers typically do not qualify for primary financing like store-branded credit cards, they need other options to pay over time. For a vast majority of tire and auto retailers, having alternative financing options increases sales and conversion rates from the get-go. Plus, dealers that advertise these financing options early and often are bringing in new customers who were previously underserved.

MTD: What’s the forecast for tires/ automotive sales via alternative financing in the next three to five years?

Jones (EasyPay Finance): We expect strong and sustained growth in this sector. Consumers have made their choice clear. They want financing options and the flexibility to pay over time. We are particularly optimistic because we work with our merchant partners to provide training and resources designed for long-term success. We speak the language of the customer and introduce a lasting solution to an otherwise perceived decline in service options.

Bork (Katapult): Lack of access to credit is not a niche issue. More than 30% of American consumers are overlooked by traditional financing options. This leaves millions of consumers unable to obtain essential durable goods when needed. As a result, big-ticket items that impact quality of life remain out of reach, including tires. When it comes to replacing or buying new tires, when there is a need, it’s typically immediate. Unfortunately, this isn’t an expense that most consumers plan for. Lease-to-own (LTO) offers consumers the additional flexibility they may need to purchase the tires that will get them to work or wherever they need to go, while keeping their monthly expenses in check.

Sieck (Koalafi): With higher interest rates and inflation, we expect more consumers to choose to pay over time for larger purchases, especially necessities like new tires or repair work. To maximize sales, tire retailers and repair shops must incorporate these alternative financing options within their sales processes and point-of-sale systems. The simpler it is for the dealer and the customer, the better it is for everyone.

MTD: For tire dealers who haven’t yet added an alternative financing option, what’s one point you’d make to urge them to sign up this year?

Jones (EasyPay Finance): You’re leaving sales on the table. It’s as simple as that. If you aren’t actively offering financing options (primary and secondary/ alternative) to your customers, they will go to your competitors that do. With the right financing partner, it is easy to learn and develop a comfort level with the well-established options that exist today. There is little to no barrier to entry and significant upside once in place.

Bork (Katapult): For retailers, LTO options are vital, helping them reach a large, loyal consumer base and enabling formerly excluded consumers to obtain the goods they need, including tires and automotive parts. According to a Katapult survey, 54% of Americans are more likely to shop with a merchant that offers flexible payment options. Flexible payment options are often the only way for non-prime consumers to obtain necessary durable goods, especially as many traditional lenders tighten their lending criteria or increase interest rates. By opening up financial opportunity through LTO, retailers can also cultivate strong customer relationships for enduring loyalty and retention. At Katapult we see 50% of our customers come back to make a repeat purchase.

Sieck (Koalafi): We surveyed over 2,000 non-prime consumers who financed a high ticket purchase with Koalafi in 2022. Sixty percent of them wouldn’t have made a purchase if there was no alternative financing option for them. Ensure every customer has a path to pay over time.