Attending the Auto Financial Services Association conference in San Francisco provided unique insights related to consumers and the future for auto financing, including the legal and regulatory environment and challenges that both auto lenders and dealers face in prime and subprime auto lending.

The number of auto lenders competing for subprime consumers has nearly doubled since 2009. While this is a benefit to consumers trying to make one of the largest and most important purchases for their household, auto lenders are facing stiff competition and need to understand the risk profile of the applicant and be quick and adept to make a decision.

Here are a few key takeaways:

  1. Auto loans are expected to continue to grow in 2015; January sales for the big 3 US automakers are expected to be in the double digits
  2. Fierce competition is driving lenders to evaluate and create products and programs to understand consumers better and improve the overall customer experience
  3. Trust is one of the biggest challenges that auto lenders and dealers face – solving this challenge is the cornerstone of business model
  4. Consumers believe that auto dealers are making close to 20% margin on a vehicle sale, the average consumer based on survey results believe that between 8%-10% is a fair profit margin and in fact, auto dealer margin is closer to 4%
  5. Simplifying the buying process for consumers could give auto lenders a competitive advantage

Financial institutions are in a unique position to use internal consumer information and develop auto marketing campaigns and programs that would increase their auto loan portfolio. There are consumers within their customer base who have auto loans with other lenders or have auto loans that are maturing and the consumer is ready to purchase or lease a new vehicle. Developing retention programs or creating a unique product offering to leverage this knowledge with alternative data can benefit the organization by increasing the auto portfolio and deepening the customer relationship while at the same time simplifying the auto financing process.

As a lender, are you thinking about ways to integrate Next Gen alternative data into the credit underwriting process that can improve the customer experience, simplify the buying process and lead to more profitable customer relationships whether auto sales grow or flatten?

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