Pandemic Paves the Way for Secondary Financing

Jan. 25, 2021

Wayne Martella could be an ambassador for secondary financing. The owner of five AAMCO stores in the Phoenix metro area, Martella says the partnership between his business and American First Finance Inc. has been a “godsend.”

“So far this year, between all of my locations, I’m probably at $700,000 in American First Finance work. That’s $700,000 in revenues that would never have been realized. It’s really important for us and our type of repair.

“We’re a catastrophic repair shop. We’re not a $400 set-of-tires type shop. When a catastrophic repair happens, whether it’s their A/C system or transmission or transfer case or differential, our customers get surprised,” Martella says. “There’s a lot of lights on your dashboard, but there’s not one that says ‘I’m going to break down soon so start saving now.’ So being able to offer a payment plan with three months no interest and scheduled payments after that is important.”

Martella says his American First Finance sales account for at least 30% of the company’s overall sales.

How the pandemic has affected financing

Auto Service Professional talked with representatives from six companies that offer secondary financing and leasing in the tire and automotive world, as well as Synchrony LLC, a primary, traditional lender. All of them addressed how COVID-19 has affected the market for their product. Here’s their take on the current environment.

Matthew Dishman, senior director of national sales for American First Finance Inc. (AFF): “Due to COVID-19 and state shutdowns, many primary lenders tightened their lending practices, thus increasing the opportunity for secondary financing. Some of AFF’s competitors completely ceased lending during the initial months of COVID-19. However, AFF never stopped providing ‘A Better Yes’ in all 50 states.’

Clint Cowley, chief revenue officer for Kornerstone Credit LLC: ‘With COVID-19, the importance of offering consumers secondary and tertiary financing options is stronger than ever. Due to uncertainty in the job market and the current economic climate, several first-tier providers have modified or increased their underwriting requirements. This has opened the opportunity for secondary and tertiary finance partners to step in and offer services to a broader customer base. Financing has adapted and evolved to the current business environment and as services resume, there has been a greater demand for financing products. Having different options available can create a competitive advantage for any tire dealer or auto repair shop owner. Consumers are looking to stretch their savings further and simple payment programs are a great way to do so.”

Ryan Slobodian, chief of staff for Snap Finance LLC: “There has never been a more critical time to offer secondary financing. The speed of the economic upheaval, combined with forbearance and other payment relief programs, created challenges for primary financing lenders, causing them to pull back on lending. There are now customers that no longer have access to primary financing but still have purchasing needs. Secondary financing is the solution. Snap Finance is available nationwide and in every market.”

Josh Borgstrom, vice president of sales at West Creek: “Safe transportation is always a necessity for those who are still on the road. In this turbulent market, consumers need all the support and payment options available. Offering secondary financing gives customers the flexibility they need to keep their vehicles running safely. If you’re not offering secondary financing, you’re pushing traffic to a competitor who does.”

Biggest perk of financing

ASP also posed additional questions to representatives from secondary financing providers:

ASP: What’s the single biggest perk of offering secondary financing?

Dishman, AFF: Saving more sales and adding repeat customers are the biggest perks of offering secondary financing. With AFF, all products and services can be added to the sales ticket without restrictions or limitations.

Cowley, Kornerstone: The biggest perk is the ability to offer customers a way to stretch out their savings. For many, this is an option that wouldn’t be available otherwise. Programs like Kornerstone Credit offer different payment options that can fit with any budget.

Slobodian, Snap: While there are many reasons to offer secondary financing, the biggest perk is offering a solution to the 40% of consumers who may not currently see your business as an option for their tire/automotive service needs. When tire dealers offer secondary financing, they’re able to provide financing solutions to an entirely new customer segment.

Borgstrom, West Creek: Ease of use, without a doubt. Most tire dealers that we work with have never used a third-party financing solution. These dealers have no problem with our intuitive and simple interface. When you have customers in the shop and a list of things that need to get done, your financing partner should be the least of your worries. We’ve built our application with simplicity in mind, and it makes all the difference to our tire dealer partners. West Creek is also a great way to support both existing and new customers. Existing consumers might fix additional items, if offered financing, versus coming back at a later time. New customers who are shopping for finance options will bypass dealers who don’t offer and talk about their financing options

Why you should reconsider it

ASP: For those shops who have so far resisted offering secondary financing, given the current economic climate, what’s the most important thing for them to reconsider now?

Dishman, AFF: More than 60% of adults have less than $400 of disposable income. AFF offers up to $5,000, has a 101-day early payoff option and flexible payment terms, making AFF a great option for many customers, regardless of their credit.

Cowley, Kornerstone: Consider that many of your customers and potential customers who may have been able to pay upfront or qualify for first-tier financing before may not have those options anymore and won’t be able to purchase what they need without secondary or tertiary programs. When you offer new finance programs, it is a win-win situation. The customers can take home what they need, and you improve your bottom line.

Slobodian, Snap: There are many customers who no longer qualify for traditional credit. Offering secondary financing allows businesses to reach these people. Owners and managers should consider the history and stability of the financing company they choose to partner with and should consider the company’s history, funding sources and customer service scores, such as net promoter scores.

Borgstrom, West Creek: You never know which of your customers need financing until you ask. This has always been the case, but even more so in today’s economic climate. Dealers often have a certain picture of what the secondary financing customer looks like or what their background is. 

“Now more than ever, it’s important to remember that any one of the customers walking through your door may need secondary financing, and it’s important to start the conversation,” he adds. “Using a combination of in-store signage and our social media and web resources, we encourage all of our repair shops to get the word out that they offer secondary financing. The customer won’t know it’s an option unless you tell them. Not offering financing is basically saying ‘no’ to your customer who wants to shop with you.”

‘Financing has become more relevant’

Perhaps the largest of any of the finance providers is Synchrony LLC, whose Synchrony Car Care program is available at more than 35,000 automotive parts and service locations nationwide, including many tire dealers. Synchrony also offers traditional financing: a retail credit card, with approval based on a customer’s credit worthiness.

Still, Steve Roe, senior vice president and leader of payment solutions for Synchrony, says demand for credit options is on the rise, given the COVID-19 pandemic.

“Financing in the automotive aftermarket industry has been prevalent for 30-plus years, but demand has been growing during this pandemic,” says Roe, noting Synchrony has added more customers to its program. “Shops should proactively offer financing to stay competitive.”

Roe says that Synchrony’s consumer surveys have shown that 76% of Synchrony cardholders always seek promotional financing options when making a major purchase.

That has remained true during the pandemic. Synchrony says a tire dealer who proactively uses consumer financing typically will have average repair orders that are two-or-three times higher than if they didn’t have financing. Since the arrival of COVID-19 and its economic effects, Roe says automotive businesses are seeing customers use a combination of tax returns, stimulus checks and increased unemployment benefits, along with the deferred interest offered by Synchrony Car Care.

“Financing has become more relevant,” says Roe. “Shops are offering consumer financing more often and making sure people know they have a variety of different payment options.”

And here’s one final plug from Roe as to why tire dealers should offer financing.

“Synchrony Car Care is not just a consumer financing program. It creates strong customer loyalty with six out of every 10 customers who will use the card again in the same shop within the next 12 months.”

Snap adds up to 60% of sales

Felix Almestica III is the director of operations for the 13 stores and two wholesale locations that make up Best Tire Center LLC. (Seven locations in Texas operate under the Tires to You banner, while eight locations do business as Best Tire Center in Washington.) The stores offer tires, wheels, alignments and accessories, but no automotive service.

When the first Tires to You stores opened in 2015, “we were struggling to get people in the door,” Almestica says. Adding Snap Finance LLC became a lifeline for the dealership. 

Because financing provided by Snap is not based on a person’s credit score, Almestica says it was a good “middle ground” that made the conversation at the counter easier. Customers didn’t want to open a credit card, but liked the idea of having a line of credit that they could use, pay off and reuse later. “There were days (when) if we hadn’t had Snap, we wouldn’t have had sales at all.”

Almestica said sales made through Snap Finance have grown to represent 60% of a store’s total income. On top of that, the shops have seen customers opt to buy extras recommended to them “because of Snap,” rather than cutting away at things to make the ticket fit into their budget.

About the Author

Joy Kopcha | Managing Editor

After more than a dozen years working as a newspaper reporter in Kansas, Indiana, and Pennsylvania, Joy Kopcha joined Auto Service Professional as senior editor in 2014. She has covered murder trials, a prison riot and more city council, county commission, and school board meetings than she cares to remember.