Challenges of gig economy & impact to CPO, finance

The Gig Economy. It’s here. It’s now.  It’s real. 

But, what is it? And how does it impact car dealers? The answer to the latter may have some implications for financing and certified pre-owned.

(More on that below).

I was Ubering to the airport last week and chatting up the driver.  I asked him how long he’s been working as an Uber driver, the amount of hours he puts in and if it’s his primary source of income.

He told me a story that I’ve heard from other drivers, bartenders, restaurant servers and other service-oriented people today.  That is that he has two jobs.  That he loves the ability to have flexibility in his hours and to earn extra money.

Side gigs are becoming the new norm for millennials.  From Uber driver to bartender to server to blogger, it's not uncommon for workers to have multiple jobs to earn a little extra money or pursue a new opportunity that interests them more.

According to a new CareerBuilder survey, 29 percent of workers have a side gig, a trend that is especially strong among the millennial demographic. Forty-four percent of those ages 25-34 and 39 percent of those 18-24 have a side gig; that's compared to 29 percent of those 35-44, 22 percent of those 45-54 and 19 percent of those ages 55 and older.  That’s a lot of car buying consumers having part-time jobs!

The Federal Reserve Board's Survey of Enterprising and Informal Work Activities provides a detailed look at those working in the online and offline gig economy.

Key data from the study includes:

• 36 percent of U.S. adults work full or part-time in the gig economy.
• One in five (21 percent) of those who report having a job also report having a second full- or part-time job.
• 11 percent of adults in the United States have engaged in paid services using an online gig platform

These studies show the gig economy is large and that having multiple jobs/sources of income is common for a large number of Americans.

The gig economy is large and growing and it’s here now.

While there's no consensus on what "work" is, especially, again, in the online gig economy, it’s certain that many people are working extra jobs for extra money and for more excitement.  Some are blogging, some are selling through online retailers, starting their own web based businesses or earning money as a secret shopper or survey taker.

Pew Research says that roughly 24 percent of adult Americans earned money in the digital “platform economy” in the past year. This works out to about 59 million Americans!

Now, the challenge to dealers: how do you get these millennials approved for credit?

Most lenders have rules that only look at the primary source of income.  So if an applicant earns $2,000 per month on the first part time gig, and $1,000 per month on the second, the lender won’t see that as $36,000 in annual income — it counts as only $24,000 and will possibly land them in a subprime loan.

Getting a car loan with only a part-time job can be difficult, but it is still possible. There are several factors that will determine whether you are approved or denied. These include: income, number of hours, and down payment.

One of the primary factors between approval and denial is the consumer’s ability to repay the loan. That will hinge on exactly how part-time their job is. If they only work under 20 hours per job/per week, it will likely be denied, no matter how much is put down. That’s because it’s unlikely that there will be sufficient income to repay the loan. Many lenders require a minimum weekly income of $375 per week.

And, did I mention that if they have a Beacon below 620 (and can prove to be above minimum income levels), your customer will probably have to come up with half the deal as a down payment?  No wonder F&I professionals grimace at a gig economy customer!

And, if you can get them done, will they be able to also buy F&I products?  Quite the dilemma.  Now, don’t get me wrong, the second job will help the buyer with the debt-to-income ratio, but the mindset for most F&I professionals today is that part-time jobs are trouble waiting to happen.

It’s not all doom and gloom when it comes to the gig economy consumer. 

These are consumers that know what they want in a vehicle. 

They are looking for a vehicle that reflects their lifestyle.  They want technology.  They require safety and security. They also know their own challenges and limitations due to their work choices.

These are perfect candidates for your off-lease vehicles.  Those two to four year old vehicles that still have modern technology and part of the manufacturer’s warranty remaining, yet have already seen the heavy part of depreciation, are great fits for the Gig generation.

These are mostly millennials and they are attracted to certified pre-owned vehicles.  Look at working with your captive lender on special lease deals, which may require some money down, but can be workable to help the OEM maintain residual values and help you move that unit.

Mine your CRM system’s data for consumers in this category, those who have bought CPO vehicles from you in the past two years for repeat business.  These are consumers that you have helped build credit, and now it’s time for them to update their in-vehicle technology and for you to reap the rewards of the relationship you started with this consumer.

And, don’t be afraid to put the first-time gig-generation buyer into an older, yet CPO eligible vehicle.  Giving some extra effort and leveraging your lender relationships will start the relationship with them when no one else is willing to go the extra mile.  Then leverage your technology to stay in contact with them and these millennial buyers will be loyal customers of you and your dealership.

And after you’ve done all that work and have a happy customer, brag about it on social media.  Get a testimonial from the new buyer and post it.  Have them review you and your dealership and drive their friends to you.  They love being active on social media, so it’s a win for them and you!  Become the expert in this growing segment of the marketplace!

The millennial generation is not going away.  They are the biggest segment of the car-buying public today and will be for quite some time.  Understand their model of the world and work your strategies and processes around that model, and you’ll grow your sales and revenues tremendously in 2017 and beyond.

So the next time someone comes into your store that has multiple part time jobs, realize that they are the new norm in car buyers.  Find a way to welcome these buyers and a way to get them done, and you will have a competitive advantage over your competitors.  And in today’s economy, every competitive advantage is important!