Auto lending expert: How Capital One became #1 in auto loans

Today’s guest is Sanjiv Yajnik, President of Financial Services at Capital One. Sanjiv joins the show to share the story of how Capital One became one of the biggest auto lenders in the U.S. and the core qualities dealers will need to thrive in the market of the future.

Sanjiv Yajnik started his professional career not in the automotive industry but rather in engineering. He explains that his first role out of college saw him building ships in Japan. After starting his family and realizing he wanted to focus on being a parent, Sanjiv traveled to Canada, where he eventually found a position working for Circuit City. It was there that he helped create CarMax, marking his first entrance into the car business. In 1998, Sanjiv was picked to join Capital One’s team, which had been founded just three years before.

Almost a decade after joining Capital One, Sanjiv found himself heading the firm’s automotive business in the midst of the 2008 financial crisis, one of the most critical times in the industry’s history. Both dealers and consumers were floundering. In an effort to combat the challenges of the recession, Sanjiv gathered a council of dealers to help him devise a finance program that catered to the retail automotive sector’s needs. The result of this team effort produced the Diamond Dealer Program, an innovative auto lending initiative that gave retailers some much-needed stability.

Since the launch of the program, Capital One has become the nation’s top originator of car loans. The company’s success in the sector came rapidly, even though, as Sanjiv notes, his team does not have a volume target. Instead, he attributes the firm’s achievements to its focus on identifying the problems facing dealers and devising solutions to address those challenges.

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The current market landscape is complex although dealers still have a lot to be optimistic about. New car prices are up about 26% since 2019, while used prices have risen 24%. Monthly payments have gone up even more, making affordability a top priority for today’s buyers. And yet, car sales continue to rise in spite of the financial hurdles: Sanjiv explains that this is due to the lasting need for transportation, which has kept demand strong in spite of the COVID-19 pandemic.

From Sanjiv’s perspective, putting a customer in a vehicle they are unable to afford is one of the worst things a dealer can do for their business. Retailers should instead focus on connecting the buyers to the right models for their needs. Unfortunately, the process of helping a shopper find the best match, especially when they had their hearts set on a different model, can be incredibly difficult. Capital One’s Navigator platform gives dealers the end-to-end support they need to handle this process more efficiently. The tool is so widely used that more than 30% of all subprime buyers in the U.S. get their vehicle through the Navigator platform.

Dealers have grown increasingly worried about a number of changes taking place in the automotive industry. One of these is the transition to digital retail, which many believe will dominate car sales in the future. However, Sanjiv notes that e-commerce has a long way to go before replacing the in-store shopping experience. Why is that? Vehicles are expensive and play an important role in the lives of their owners. Because of this, few are willing to purchase a car without seeing it first. This makes physical storefronts incredibly important for the auto sector. And while some would assume that younger generations are more inclined to use the internet to complete their car purchase, Capital One’s data suggests that car buyers aged 18-34 are actually some of the most likely to purchase at the dealership.

• An excellent culture: Having a work environment that helps employees thrive and grow will always be necessary for automotive excellence.
• Ability to compete for leads: Only 6% of leads generated by a dealership will go on to purchase a vehicle within a year. Competition for this small piece of the pie is only going to become more difficult in the coming decades, so dealers will need to leverage all the tools at their disposal to identify prospective buyers.
• The latest technology: To stay competitive, dealers will need to increasingly rely on products that enhance their toolkit’s connectivity and adaptability.
• Frictionless, fast throughput: Even though dealers must become more technologically-reliant, Sanjiv warns that they can’t forget to refine their processes. Implementing the right strategies will ensure their investments in tools and solutions don’t go to waste.

8. Big problem, tiny solution

Dealers have three problems.

• When customers come into the store on a busy day, dealers and sales staff are often forced to make them wait for service. This can kill a dealership’s reputation if the process takes too long.
• When employees service buyers and recommend them the right vehicle, it can be difficult to attribute the sale to the right staff member. This lowers motivation among the team.
• Service and sales operations typically lack integration, making it exceptionally difficult to transition a driver from one department to another.

To combat these issues, Capital One began researching a system that could bring digital solutions into the physical world. Sanjiv shows off the company’s newest product: a card, no bigger than a driver’s license. Dealership employees can simply tap the card to a customer’s phone, which will then perform a range of actions, from pulling up inventory to running a pre-approval (without any impact to the shopper’s credit). The process is fast, works in both a sales and service setting, and allows the shopper to look at their options before officially starting their appointment. It also lets dealers track who talked to the customer so that sales can be properly attributed.

9. Why are dealers quitting?

This year has seen a record-breaking spike in dealership mergers-and-acquisitions activity, spurred by fears that the car business is changing too fast and becoming too unprofitable. Sanjiv believes this surge was inevitable, although he disagrees with those leaving. Innovation is playing a bigger role in competition between dealers. Unfortunately, these new technologies take excessive amounts of money to develop and acquire. This, coupled with declining car prices, means that automotive sales will be a lower margin business in the future. However, Sanjiv notes that by improving processes, dealers can still drive incredible volumes. While he believes the car business will remain profitable for years to come, he adds that those who are leaving the industry now are creating more opportunities for other dealers to acquire more storefronts and improve their volume over time. Those who understand the importance of throughput are the ones who are staying in the business, he concludes.

10. Helping customers helps dealers

Customers often (mistakenly) believe the one providing them a loan is the dealership, rather than the actual financing institution. This means that they often blame their dealer when issues, such as repossession, occur. To combat this, Capital One does everything in its power to ensure customers retain ownership of their vehicle regardless of their circumstances. For example, the company only charges customers a single late fee, while other businesses charge late fees every time the customer is delayed. This helps improve net promoter scores and keeps the relationship between dealer and customer positive.

11. The road ahead

Looking ahead, Sanjiv believes that the car market will continue to evolve but not at the pace others might predict. For instance, he argues that electric models will take decades to dominate the industry since there are so many gas-powered cars on the road today. These vehicles will last a long time before exiting the market. Throughout this extended transition, dealers will be necessary to provide service and help buyers find the right models for their needs. However, while that change will be slow, Sanjiv does expect the car business to become more competitive in the years ahead. Innovation will separate the winners from the losers.

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