Spinning Your Wheels When it Comes to Auto Lending?Competition continues to ramp up and underwriting guidelines seemingly continue to tighten. Lenders need to expand their horizons and pick up more loans, but how? In the automotive realm, there are groups of consumers that should be of interest. Two particular generational cohorts stick out to me: Millennials and the iGeneration. When I speak about the iGeneration, I mean those old enough to actually drive and legally enter into a contract. Between multiple calls I have been on with customers and different auto industry events I have attended there seem to be two camps. To some they are considered “risky,” to others they are “diamonds in the rough.” Which side of the fence do you fall on?

Baby Boomers who?

Millennials make up around 80M of the current population. In early November, I attended an event hosted by the Filene Research Institute and they had a panel representative of all the generations. During the discussion, the millennials expressed this message to the credit unions in attendance that resonated with me, “Get us now, we will stick with you.” It told me that even traditional lenders are letting this important demographic slip through their hands. According to LexisNexis® Risk Solutions research, approximately 20% of millennials do not have a traditional credit score or report, making it difficult for businesses to confidently provide them with financial products and services. Yet a large segment of these young consumers are financially responsible and actually score as prime or near-prime using non-tradeline sources of credit risk data.

A poll conducted at the 2017 Auto Finance Summit revealed that 35% of the attendee respondents felt that direct lending is where they will increase their investment/spending the most next year. With the end of the year fast approaching, automakers are trying to close out strong. In November, auto sales reached almost 1.4M which is a record for the month, topping November 2016 as the best ever. Cars are a depreciating asset, but should be considered a good debt since it helps you to generate value. Automakers may look to juice incentives in December to make sure sales continue going in the right direction and to get rid of 2017 inventory and consumers have been trained to expect this. These particular cohorts are no different. They have the internet available with the swipe of a finger and are no stranger to doing research. If specials aren’t offered, they will wait. Once incentives appear, the floodgates could open up and prospective buyers will be pouring into dealerships. Wouldn’t it be nice to be able to grab some of this volume, especially when you have the tools to price the risk correctly?

It starts with the right approach

When setting sail on this path it is important that the right prospects are found. How nice would it be to have a lead list that filters criteria so that you can market to full file as well as thin and no-file consumers who were previously unavailable to market to? Those capabilities are now available to our customers. There is an untapped universe of consumers out there that until now, have never received a firm offer of credit. It would be ideal from a direct lending perspective to be able to reach these consumers before your competitors do. The steps would be relatively easy.

Leverage prescreen tools to qualify and segment your potential member/borrower list according to your own unique criteria, zeroing in on those individuals most likely to respond to your offers. First, gather the internal intel you need based on your most profitable members/borrowers. Once you have a good understanding of the characteristics that make up your most profitable consumers, work with us to leverage that intel to identify new potential members/borrowers. This isn’t a one-and-done strategy. Companies that are consistently successful will tell you that success comes from adjusting, testing, and monitoring criteria to find the best approach. For those of you concerned with the cost associated with regular prescreen marketing activities, consider the high dealer reserve cost associated with indirect loan purchases. Once perfected, the cost per new customer could actually be a lot less than indirect. Another word on prescreening: if you’ve tried before and been less than successful, don’t give up!

  1. Great article! I recently bought a car. The interesting thing is that in order to qualify for thousands of dollars of discounts I had to get financing through the manufacturer. As you can imagine, the interest rate was stupid high. Of course, I took advantage of the discounts, then I got a loan from a local credit union to pay off the car loan with the manufacturer and now have lower interest rate loan with the credit union.

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