Project Summary: Enhancing Dealership Engagement with Dealer Navigator Through Revised Credit Policy

Background: Capital One offers a financial arrangement that permits dealerships to mark up interest rates by up to 5% on loans provided to customers with low credit scores. This practice, commonly referred to as "book power," is designed to accommodate the increased risk associated with lending to individuals with less-than-ideal credit histories. While this mechanism allows for greater flexibility in loan terms, it has been observed that dealerships do not benefit financially from utilizing the full extent of this markup capability. The lack of direct profit incentives has led to the underutilization of Capital One's Dealer Navigator platform, a tool intended to streamline the loan origination process for both dealers and customers.

Target Users

  • Dealerships: Auto dealerships that partner with Capital One for financing solutions, particularly those working with customers who have low credit scores. These dealerships are seeking flexible, profitable financing options to offer their customers while also streamlining their sales and financing processes.

  • Customers with Low Credit Scores: Individuals seeking auto loans who may have been marginalized due to their credit history. These customers benefit from more accessible financing options, which can now be more readily offered by dealerships encouraged to use the enhanced book power option.

Problem Statement: The current structure of the book power arrangement does not incentivize dealerships to leverage the Dealer Navigator system to its full potential. The absence of profit for dealers when applying the maximum 5% interest rate markup discourages engagement and limits the effectiveness of this tool in facilitating auto loans, especially for customers with low credit scores. This underutilization represents a missed opportunity for both Capital One and its dealership partners to enhance operational efficiencies and drive revenue growth.

Proposed Solution: In response to these challenges, our business team has proposed an adjustment to the existing policy by increasing the allowable interest rate markup from 5% to 7% for loans originated through Dealer Navigator. This policy revision aims to create a win-win scenario; it provides dealerships with a tangible financial incentive to adopt and utilize the platform, while also offering Capital One an opportunity to share in the additional profits generated by the increased markup. The proposal includes a structured profit-sharing arrangement that ensures both parties benefit from the enhanced engagement and use of the Dealer Navigator system.

Expected Outcomes: The implementation of this policy change is anticipated to drive increased adoption and usage of the Dealer Navigator platform among dealerships. By providing a clear financial incentive for dealers to engage with the system, we expect to see a rise in the volume of loans originated, particularly for customers with low credit scores who may otherwise struggle to secure financing. This initiative is projected to not only improve operational efficiencies for dealers and Capital One but also to expand access to auto financing for a broader segment of consumers. Ultimately, the proposed increase in book power and the introduction of a profit-sharing model are expected to foster stronger partnerships between Capital One and its dealership network, driving mutual growth and profitability.

Conclusion: By reevaluating and revising the book power policy, Capital One has significantly enhanced dealership engagement with the Dealer Navigator platform, leading to a notable increase in loan originations. This strategic initiative has not only improved customer access to financing, particularly for those with low credit scores but also facilitated mutually beneficial growth for both Capital One and its dealership partners. The introduction of a profit-sharing model and the increase in book power to 7% have been pivotal in achieving these results. Since the project's implementation, there has been a 5-10% increase in the volume of contracts, highlighting the effectiveness of these changes in driving higher loan activity. This initiative underscores Capital One's commitment to innovative solutions that benefit all stakeholders in the auto financing ecosystem, demonstrating a forward-thinking approach to addressing the needs of both dealerships and consumers.

Project Collaboration Process

Design Process

Key Features

  • Increased Book Power: The policy now allows dealerships to mark up interest rates by up to 7% over the base rate for customers with low credit scores, up from the previous 5%. This feature provides dealerships with greater flexibility and potential profitability in structuring loan offers.

  • Profit-Sharing Model: A structured profit-sharing arrangement between Capital One and dealerships that utilize the increased book power. This model incentivizes the use of the Dealer Navigator platform by ensuring that both parties benefit financially from the increased interest rate markup.

  • Dealer Navigator Platform Enhancements: Improvements and new features within the Dealer Navigator system are designed to streamline the loan application and approval process, making it easier for dealers to manage financing options and for customers to get approved.

Benefits with Result

For Dealerships:

  • Increased Profitability: The ability to earn profits from the interest rate markup encourages dealerships to engage more actively with the Dealer Navigator platform. Result: Since the implementation of the increased book power and profit-sharing model, dealerships have experienced a more lucrative partnership with Capital One, contributing to their bottom line.

  • Streamlined Operations: The enhancements to the Dealer Navigator system have simplified the financing process, making it more efficient for dealers to manage loans. Result: The ease of use and efficiency gains have been widely appreciated by dealership staff, leading to smoother operations and faster sales cycles.

  • Enhanced Customer Service: Offering more flexible financing options has allowed dealerships to serve a wider range of customers, particularly benefiting those with challenging credit profiles. Result: Improved customer satisfaction and loyalty have been noted, with dealerships better positioned to meet diverse financing needs.

For Customers:

  • Improved Access to Financing: The policy changes have made auto loans more accessible, especially for individuals with low credit scores. Result: Customers have benefited from enhanced financing options, enabling more individuals to secure auto loans for their vehicle purchases.

  • Transparent Financing Options: The Dealer Navigator platform offers clear and tailored financing options, which has improved customer understanding and trust in the financing process. Result: This transparency has led to higher levels of customer satisfaction and confidence in their financing choices.

For Capital One:

  • Increased Platform Engagement: The revised policy and profit-sharing model have incentivized greater use of the Dealer Navigator platform by dealerships. Result: Since the project's implementation, engagement levels have surged, indicating strong dealership buy-in.

  • Growth in Loan Volume: The initiative aimed to increase the volume of loans originated by incentivizing dealerships to offer more loans to customers with low credit scores. Result: There has been a 5-10% increase in the volume of contracts since the project's implementation, showcasing a significant boost in loan activity facilitated by the enhanced book power and Dealer Navigator platform.

  • Strengthened Dealer Relationships: The success of the project has further cemented Capital One's position as a preferred financing partner among dealerships. Result: The strengthened partnerships are evident in the increased usage of the Dealer Navigator platform and the positive feedback from dealers.