Malay Mail: J.D. Power says applicants seeking wider auto-finance choice

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JULY 5, 2017: KUALA LUMPUR — Market research company JD Power said more than half of the respondents (55%) to its survey on car loan applications said vehicle financing products do not fully meet their needs. 

The respondents said they expected financial institutions to come out with a variety of financing choices. 

“With the majority (93%) of respondents stating that their car finance deal is a fixed rate product, the feedback from customers is loud and clear — they are looking for more financing product choices,” said JD Power service industries practice leader Anthony Chiam. 

Variable rates, balloon financing and deferred payments are just some of the products that customers are showing an increasing interest in.

“Finance providers in Malaysia are expanding their product range to offer customers more choices.

“For example, captive finance providers in Malaysia already offer innovative products aside from traditional ones, for example, hire purchase balloon and 2-tier plans. 

“Furthermore, there is a move towards providing additional services and products, such as payment protection insurance or road-assistance cover to enhance their value proposition,” said Chiam. 

The survey also revealed that more than 70% of customers are using traditional methods (via paper or in-person) to apply for their car loans.

However, over 55% stated that they would prefer to use digital methods for their next car finance product. 

Chiam said customers who complete their applications online or via mobile phones have an overall satisfaction score 29 points higher than those who fill out a paper application or verbalise their application to the dealer representative. 

“Furthermore, digital applications have a faster approval time, enabling higher customer satisfaction. 

“Our findings show that, among customers completing their car finance application online or via mobile phone, 35% of applications were approved within the same day, while only 8% were approved on the same day if applied through traditional channels,” he told Malay Mail in an interview recently.

Chiam said digital channels also provide greater control and transparency for customers — such as the ease of making payments, altering contact details and applying for refinancing. 

The development of the shared economy industry, such as Grab and Uber, is also impacting both car ownership and revenue streams. The recent partnership between Perodua and Grab could be taken as an example in this case. 

He noted that from the customer perspective digitalisation and mobile services are becoming increasingly important. 

“Similarly, the attractiveness of Islamic Finance will continue. In order to respond to customers’ feedback, an increasing differentiation in products and additional services will likely be offered to the market. 

“Providers will, however, need to differentiate their services and products beyond price in order to deliver superior satisfaction and growth,” he said.

Malaysia’s Islamic finance industry has been growing rapidly over the past 30 years. 

The key driver of this achievement is the higher overall satisfaction among customers purchasing Islamic auto finance products compared to those buying conventional products (758 vs. 744 on a 1,000-point scale).

“Our study also found a higher satisfaction rating on Islamic auto finance products in relation to the perceived acceptability of the duration and payment terms. In addition, late penalty fees are generally lower on Islamic products (for example, CIMB charges 1% on Islamic auto finance products vs 8% on conventional loan per annum of the outstanding amount),” said Chiam. 

Commenting on Malaysia’s auto consumer finance outlook for this year, he said the industry is recovering moderately from the market slowdown last year. 

According to the Malaysian Automotive Association (MAA), April sales have increased by 1.3% compared to the same time last year.

“Long-term fundamentals are also strong in the market with a very high percentage of new car buyers taking out finance. However, the market is often impacted by economic conditions,” he said. 

According to MAA, total sales of passenger vehicles dropped to 514,545 units in 2016.

The JD Power 2016 Malaysia Sales Satisfaction Index (SSI) Study found that 99% of car buyers finance their new vehicles in Malaysia. 

“From our most recent JD Power 2017 Malaysia Auto Consumer Finance Study, respondents report an average monthly repayment of RM1,000 over a period of six years,” Chiam said.