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Hello, everyone, and welcome to the roadmap from Auto Finance News.
Since 1996, the nation's leading newsletter on automotive lending and leasing.
It is Monday, February 23rd, and I'm Johnny Martinez, deputy editor of Auto Finance News.
This week, I am joined by Keith Mate, the leader of Synchrony's auto and oil and gas business, to dive into data from a new Synchrony survey report that estimates drivers underestimate
the annual cost of car ownership by nearly $4,500.
But before we get into the report, Keith, why don't you tell us a little more about yourself and Synchrony's auto and oil and gas business?
Yeah, thanks, Johnny.
Happy to be here on the roadmap.
Always good to chat with you guys.
My name is Keith Maid.
I am the Senior Vice President and General Manager of our auto business at Synchrony.
It's a business that we've had for going on 40 years.
and one that extends pretty much throughout the entire aftermarket of the automotive industry.
We try to help all consumers who can benefit from introducing affordability and through financing options with the total cost of ownership.
So the study of the survey that we're here to talk about today fits squarely into that.
And it's been it's been a big priority of ours to help to help consumers throughout the entire ecosystem figure out what makes sense for them and how we can help.
Fantastic.
Well, we'll get into some of that on the back end of it as to the role you guys are playing in the industry.
But I think the best place to start is sort of the headline of the report, right?
Because that headline is very striking.
Drivers underestimating annual car ownership costs by more than $4,500.
What maybe surprised you most about that gap and sort of what you guys saw in the results of that as far as car ownership costs?
You know, I think what surprised me most in reviewing the results was, like you said, it was just the totality of the dollars that people
aren't prepared for.
we see it every day in the average order values or the transaction sizes that find their way onto our cards.
They haven't gotten smaller.
over the last four or five years, we've seen continuous incline in the average transaction values, both the first time somebody engages with us and even on the repeat side.
And so
The fact that you can use our cards for a variety of things helps us actually see how prices are changing across the entire landscape of the automotive aftermarket.
That includes maintenance, repairs, car registration costs, car insurance costs, gas, tolls, all those things.
And when we see somebody transact in one of those categories, we see how much they pay.
They all continue to go up.
So the overall amount was quite shocking.
I think when you take it down another layer, Johnny, you find that actually different generations are paying even more than others.
We definitely saw a variation in younger generations versus older generations, you know, due to, you know, a variety of things that
that we had more data on.
Yeah, no, that was definitely something I picked up on as well.
And I do want to get into that in a second.
But one of the things I want to address on the overall picture of it is how do you think this disconnect between maybe the perceived cost and the actual cost really starts playing into the
the financial stability of the consumer, the car buying process, especially as we're seeing these new car prices continue to rise, and we keep hearing about issues in affordability.
So it no question that consumers, for a variety of reasons, are questioning their need for a new vehicle as often as they were years ago.
You know, the number pierced 50,000
for new vehicles.
the way the market is going with OEMs and electric vehicles coming in and out of the market is going to probably make that number stick for a little while.
But we are seeing consumers choose used a little bit more.
They continue to lean into lease.
They're holding on to their vehicles a lot longer.
Now they are better built vehicles.
They are designed to last longer.
With that design comes incredibly more sophisticated technology and specialized equipment.
So ensuring that the vehicle is operating properly, given all those mechanics, it requires another level of observation and vigilance.
So I think when we try to evaluate consumer affordability vis-a-vis how they want their mobility to occur, it leads you to believe that they expect better quality, they expect more for their dollars.
And they expect to have these vehicles for a long time.
And so making sure that they're operating properly comes with cost.
Gotcha.
Okay.
No, that makes a ton of sense.
And you touched on it there and it was part of the research as well that, you know, customers are keeping cars longer.
And you also are seeing the number of multi-car households declining and you touched on a lot there.
But as far as
Maybe is this something that we're going to see temporary with the current market conditions, or is this maybe more of a structural shift?
And that's, after that, we can kind of get into maybe the generational differences of it all.
I don't think it's a structural shift, Johnny, as much as I think it's been in the breadcrumbs for a little while.
I mean, when I think about sort of in a post-COVID world where we're all trying to figure out what normal looks like, I think a few things sort of come to mind.
First is ride sharing, right?
The prevalence of the Ubers, the Lyfts.
I'm a big fan of Waymo when I travel to the certain cities that have it.
I don't know if you've used it yet, but it was a little scary at first, but it's cool.
But I think what you're finding is comfort in ride sharing or whatever you want to call it.
I do think we're starting to feel more of a return to office culture,
right?
So it's getting people to and from their offices more regularly and more often.
And for Gen.
Zs and millennials specifically, which where we saw a bigger discrepancy in the data than with other generations, those younger generations are, in order to sort of perpetuate
of vitality through their career, they need to be there in person.
So we're seeing the commute happen again.
But I also think that when you tie the ride sharing, the return to office, the younger generations, we also remember that a lot of these people live in either urban or ex-urban environments where they're coming and going from a big city rather than, you know,
people that are in older generations hanging out in the suburbs.
So it makes the commutes a little bit shorter.
It makes the cost of owning a vehicle and those environments a little bit more expensive.
You got to find parking.
Generally, there are tolls.
You're using some of those ride sharing services to change things up a little bit.
So it
It definitely plays into, it definitely plays into that angle that, it's not necessarily the shift that we're worried about, it's about sort of the usage and how people are diversifying their mobility.
Gotcha.
Okay, no, that makes sense.
And you touched on it a bit there as far as, you know, what is happening with the Gen.
Z and millennial population, sort of how they're...
cost impact is maybe a little different than what's happening with everyone else.
Why are the younger drivers bearing the highest cost, especially when they're also one of the ones you'd expect to be using rideshare and things like that a lot more?
Yeah, I think what we're finding is a good question.
I think the nature of those generations to be buying more newer models, right?
Let's just quickly agree newer models.
more sensors, more technology, more consumer electronics options.
You've got the EV side of things, which brings a different kind of cost element or premium to it.
So first and foremost, younger generations like newer things.
That's never really been much of a debate.
However, compared to other generations, a couple things come to mind.
The first thing is when those cars have issues,
Older generations were a little bit more prepared to tackle them themselves in their garage.
The internal combustion engines and the cars that were pretty popular in the '90s and even the early 2000s, they were not that difficult to maintain.
Something routine was going on.
You had the ability to phone a friend, phone a family member, grab a buddy, and get some help to change your oil, change a tire, fix something on the interior.
Newer generations aren't necessarily prone to do that. There's a lot more do it for me in those generations. Not good or bad, just a fact. And for those individuals that prefer to outsource that service, there's a lot of merchants and dealers and garages that'll do it.
But it costs even more now than it did before to have that work done. Labor rates are higher. Parts costs are higher. In some cases, some of these garages may not have the expertise. They may have to outsource it. So overall, the cost of getting it addressed in a do-it-for-me sort of model, especially for newer vehicles, is just inflating the costs.
beyond what was expected. And if you're going to sit here and throw, you know, how much will it cost to fix my transmission into ChatGPT or Perplexity or Gemini, you know, you're going to get a number. And then when you realize that some of these garages or dealers are dealing with, you know, labor rate hours upwards of $200, you know, some of that's just not being factored into the original
equation in the budget. Not to mention the thing that has a ton of value and that's the lost time of the individual without their vehicle and having to figure out how am I going to get around to where I need to be in order to pay for what I just asked somebody else to do. Gotcha. No, for sure. And it's fascinating. Funny enough, I recently had some, the tires were placed on my car and I was talking with my father about it, who's, you know, we got a pretty big age we got between us.
about how, the place I go to get all that stuff done does a bunch of the maintenance work after the fact and will do stuff to the tires, do the rotation, bouncing all that down the road versus for him, he will go to a random garage, get it done, and he knows that he'll do all the repairs after the fact. Yeah, there's been, you know, I'd say a structural shift in how a lot of that knowledge just transferred generations or didn't. And
we've picked up a lots of other knowledge along the way, but, those that do it for me culture, which also exists in home ownership, right? And personal care, right? There's lots of things where, we used to rely on ourselves and now, an ecosystem lives around us and it costs.
It costs a lot to outsource things and sometimes those costs are underestimated. Gotcha. And so taking all that in mind and sort of tying it back to what you guys are doing, right? How are we seeing or are we seeing maybe how these younger drivers, this younger generation is managing, especially the financial side of all of this differently than maybe the older generations and sort of how do you guys
work yourselves into that at synchrony to kind of meet the younger generation where it is compared to where the older generation is as far as all of the financial side of this. Yeah, so I think a couple things that we spend a lot of time studying is the sort of pre-buying experience, so to speak. Like we just talked about today,
whether we're still using Google or we've extended ourselves into an AI bot, we are generally curious about how much something's going to cost or how long it's going to take to fix or what options are available to you. And so we spend a lot of time in that sort of pre-buying journey that we call it the path to purchase. And, you know, over time,
We used to rely on a 60 to 75 day path to purchase. That path to purchase has now shrunk. A big reason why that time duration was longer was information wasn't, it wasn't hard to find, but maybe it took a little bit longer to piece the whole picture together. In today's environment, especially over the last couple of years,
as AI has started to play a more important role in our every day, it's not hard to find information. So people are a little bit more, they're eager to act on it when they feel confident that they have what they need. And so we try to play into that as well. We try to watch what's happening with consumers as they're researching, and then what we try to do
is use a variety of capabilities and technology to just be present with those at those research moments, at those buying moments, at those browsing moments to influence or try to have our payment options, our flexible financing solutions be visible so people can understand what their options are.
And I think that's the second part of it. So the first part of it is, what's it going to take for me to get 4 tires replaced for my 2024 Honda Civic? The next part is, okay, where can I go around me to do it? And then the third part of it is, how much it's going to cost and what are my options? And we're finding that consumers who engage in that sort of path to purchase journey are now armed with a lot of that
knowledge. And it's now expected when a consumer walks into an auto aftermarket, garage, a tire store, someplace that offers service, the consumer now expects to be presented with payment options. And that's where we really try to focus our time and attention.
For sure. No, that makes a ton of sense. And I think that's a great way to transition to some of the rapid style questions. And first and foremost, from a broader industry standpoint, how can financial service providers, lenders, automakers, and even regular service providers kind of work together to ease the cost burden on drivers and also make sure that, you know, you're delivering the options that kind of the modern consumer wants.
Yeah, so I think the best thing that we have to help ease the cost or the burden of some of these, you know, thousand dollar or multi-thousands of dollar services is to ensure that we're giving consumers as much transparency into their own personal situation as we can. You know, we all live very different lives. The economy is
is inhaling and exhaling with folks across all industries and all generations. And we're all going through life together with a number of forces that require us to pay attention to how much it costs to live, how much it costs to be a parent, how much it costs to drive around, how much it costs to eat. And there are moments where consumers lose sight of
their credit health. not usually until we try to buy a car, try to buy a house, try to apply for a credit card. Do we know what our credit scores are? And so what we try to do with our relationships with our partners at the retail level is ensure that consumers have the ability to
check to see if they qualify for credit without a harm to their credit score. There is that sort of, a world that we used to live in where every time you hit your FICO, it actually resulted in deterioration of your score. That no longer is the case. Pre-qualification with what we call a soft hit is widely used and strongly encouraged, gives customers comfort that
They can explore what options might exist for them without the feeling that they'll be harmed. No one wants to go into this situation feeling like, you know, my car's screwed up and my credit score's going to get dinged before I even have any work done. So we try to give them that comfort. The other thing that we try to solve for is in a situation, especially within auto, where
unless you're an enthusiast, you have a need, something broke, something's wrong, something needs to get fixed. I just don't feel safe going from here to there anymore until I get this work done, is ensuring that there's a solution for everyone. Because even the people that may not have the prettiest credit, they still need the tire. They still need to get to work. They probably need to get to work in a critical way. They might be living paycheck to paycheck. It's important.
that they have options. And so one of the things that we've done at Synchrony is we've found other lenders to work with to help solve for everyone. It's not a perfect recipe, but it's a recipe that really tries to solve for as many as possible. And that's something that is important today. There's a
a group of lenders out there for everyone. And there are seamless and technically sophisticated ways to ensure that consumers can get the access that they need, regardless of the situation they're in. Okay, no, fascinating stuff. And really just lasting on my end, with all that in mind, what's maybe 1 takeaway that auto
lenders and auto dealers should have about the results of this survey and even our conversations today? I think a couple things sort of come to mind. One is it's...
it is important to ensure that consumers have a real understanding of what they're getting themselves into.
You know, it's not the easiest to be able to estimate what the cost of a service might be, but when that cost of service is presented, it's really important that the merchants, the dealers, the garages,
be prepared to help ensure that customer knows the different ways that they could pay for it.
Because on average, we're finding that consumers have the ability to pay between $100 and $125 a month.
Very few of them have $500 in their bank accounts for an unexpected expense.
That includes a healthcare expense.
And so if you are armed with the right kinds of options,
that are accessible, I think you're going to find that consumers are more willing to move forward with the full list of items that need repair.
If you're helping them think through the possible solution to afford it, they're going to be more willing to just leave with everything you're recommending.
And so that comes with the openness and the willingness to say, hey, you know, this is what it's going to cost.
Or we think we might have a solution for you for 100 or $125 over the next 12 months.
What sounds better?
And let them take you through that journey of how they pay for things like this.
Because as we saw, the perception of the gap in cost is going to be very different than the realities of that cost.
And so they're going to be surprised.
You have to find a way to make them
understand it, accept your list of repairs, and leave with the repairs done.
And the only way to do that is to just be as open and transparent as possible through the presentment of the cost, the acknowledgement of the budget, and the solution that comes with finding the right consumer finance partner to help them get to the other side of it.
Okay, fascinating insight.
Yeah, it was great reading the report and hearing what you had to say about what's happening in the outer space and what people should know.
And I thank you so much for your time today and for joining us on today's episode of The Roadmap.
Yeah, Johnny, always a treat to work with you guys.
And thanks for including me.
Thank you.