WESTLAKE VILLAGE, Calif. — Given all the changes that have occurred in the auto lending space since the capital markets collapsed, there are apparently three key factors dealers prefer and look for in the lenders they work with and send much of their business to.

The three common themes dealers have highlighted as important include establishing proactive and ongoing lines of communication, improving speed and flexibility of approval and funding process, as well as providing satisfying interactions with dealers, according to the J.D. Power and Associates Dealer Financing Satisfaction Study out today.

If these three items are successfully implemented — dealer satisfaction scores of 901 or higher out of 1,000 — then lenders tend to book a higher number of the applications they review — 55 percent, compared with 25 percent. If a lender generates a score of 700 or lower, J.D. Power indicated that the lender is likely to fall into the 25 percent category.

Also, lenders that provide higher dealer satisfaction can also spend less money on processing new loans while enjoying higher risk-adjusted returns, J.D. Power stressed.

Basically, lenders with highly satisfied dealers close a greater percentage of the loans they approve, 77 percent versus 46 percent among low-satisfied dealers.

Likewise, highly satisfied dealers are also more likely to send a higher proportion of business to that lender in the future. For instance, the study found that 60 percent of highly satisfied dealers say they "definitely will" increase the percentage of business with a lender, while just 12 percent with low satisfaction in a lender say the same.

"As the market shows signs of recovery, those lenders that have continued to focus on communication, specifically about process changes that have been implemented as a result of recent economic challenges, and building strong relationships with their dealer network have more effectively managed dealer expectations," explained Paul Cuevas, director of automotive finance for J.D. Power.

"In doing so, these lenders have positioned themselves to be the lender of choice and capture more business," he added.

Dealers Turning to Banks

In another, perhaps not surprising trend, as some captive finance companies ran into trouble when the capital markets collapsed, this hurt their relationships with dealers.

While dealers normally depend on these institutions for retail and floor plan financing, dealers tended to deepen their relationships with banks to fill the gaps. In turn, banks have tended to be more willing to meet critical dealer financing needs, according to J.D. Power.

"Banks have helped to fill the void in the retail and floor plan markets created by the captive lending uncertainty and turmoil in the securitization market," explained Cuevas. "Even in the highly commoditized prime retail credit space, banks that provide a more highly satisfying experience benefit from dealers sending more business their way, which increased profitability.

"For example, deals booked with Huntington National Bank in 2009 with similar credit scores, loan percent to collateral value, term and down payments have buy rates that are 20 to 50 basis points higher compared with other banks competing in the prime space. This is a clear example of the considerable impact improving dealer satisfaction can have, regardless of provider segment or consumer credit."

Overall Dealer Satisfaction Increases Over 2009 Low

J.D Power also discovered that in all four credit categories analyzed, dealer satisfaction with lenders was up "considerably" from the lows saw in 2009.

Overall, J.D. Power found:

Prime Retail Credit

2009: 789, out of 1,000

2010: 847

Difference: Up 58 points

Subprime Retail Credit

2009: 717

2010: 767

Difference: Up 50 points

Retail Leasing

2009: 774

2010: 864

Difference: Up 90 points

Floor Planning

2009: 802

2010: 868

Difference: Up 66 points

Breakdown of Segment Winners

The firm revealed top lenders in prime retail, leasing and floor planning; however, no awards were presented in the subprime retail credit segment due to insufficient market representative.

This finding is highly likely due to the strong pullback in subprime loans that occurred with the downswing in the capital markets and the tough time many lenders had getting subprime securitizations pushed through. Now, the securitization market appears to be approving and more lenders are able to strike subprime securitization deals.

Prime Retail Credit Winners

To establish its list of top lenders, the company analyzed three factors in the prime retail segment, which include provider offerings, application/approval process and sales representative relationship.

The top winner, according to J.D. Power, is Alphera Financial Services, with an index score of 956. Officials noted this lender performs particularly strongly in sales representative relationships.

Meanwhile, BMW Financial Services at 947 and Mercedes-Benz Financial at 937 were close behind in the rankings.

Retail Leasing

In this market segment, J.D. Power reviewed four key indicators, including provider offering, application/approval process, sales representative relationship and vehicle return process.

Taking home top honors in this category is BMW Financial Services for the seventh consecutive year with a score of 944. Officials indicated this lender performs particularly well in the application/approval process.

BMW Financial is followed closely by Mercedes-Benz Financial with a score of 942 and Audi Financial Services with a score of 900.

Overall, the study results were based on responses from 2,557 dealer principals surveyed between March and April of this year.

Rankings for Prime Retail Credit:

Alphera Financial Services: 956

BMW Financial Services: 947

Mercedes-Benz Financial: 937

Audi Financial Services: 909

Toyota Financial Services: 900

Volkswagen Credit: 897

Ford Credit: 896

Huntington National Bank: 872

Honda Financial Services: 863

Branch Banking and Trust (BB&T): 852

Suntrust Bank: 850

Industry Average: 847

Harris Bank: 837

Wachovia Dealer Services: 835

Hyundai Motor Finance: 835

Bank of America: 830

Nissan Motor Acceptance: 827

Chase Auto Finance: 826

US Bank: 826

Fifth Third Bank: 824

Citizens Auto Finance: 818

Wells Fargo: 811

Capital One Auto Finance: 779

GMAC: 770

Included in the study but not ranked due to small sample size are AmeriCredit, Bank of the West, Kia Motors Finance, Lexus Financial Services, M&T Bank, PNC Bank, Security Service Federal Credit Union, Subaru Motors Finance and TD Banknorth.

Retail Lease Rankings:

BMW Financial Services: 944

Mercedes-Benz Financial: 942

Audi Financial Services: 900

Ford Credit: 895

Toyota Financial Services: 892

Volkswagen Credit: 891

Industry Average: 864

Honda Financial Services: 861

Nissan Motor Acceptance: 823

Kia Motors Finance: 821

Hyundai Motor Finance: 819

Chase Auto Finance: 780

GMAC: 773

US Bank: 759

Included in the study but not ranked due to small sample size are Bank of America, Lexus Financial Services, Subaru Motors Finance and Wachovia Dealer Services.

Floor Plan Rankings:

BMW Financial Services: 962

Mercedes-Benz Financial: 952

Toyota Financial Services: 919

Volkswagen Credit: 912

Ford Credit: 910

Bank of America: 868

Industry Average: 868

Chase Auto Finance: 856

Nissan Motor Acceptance: 832

GMAC: 754

Included in the study but not ranked due to small sample size are Audi Financial Services and Hyundai Motor Finance.