Leveraging the Rebound: How Lenders Can Capitalize on the Changes in Auto Lending
Although the endgame is the same – a new car in the driveway – nearly everything else about auto financing has changed in the last five years. Today’s car buyers are exhibiting different traits and habits that sometimes challenge the traditional indirect lending model for both lenders and dealers. With 2015 new car sales projected to increase for the sixth straight year, lenders need to respond to these changes in order to capitalize on this rebound.
What are some of the key changes shaking up the auto finance industry – and how should lenders respond effectively?
Buyers want a better, quicker experience. Eager to avoid spending an entire afternoon buying a car, consumers are increasingly using online and other digital channels to research what to buy and how to finance it, from selecting the color to rate-shopping and completing the loan application. They may envision a trip to the dealership, but only as a final step to pick up the keys. Lenders must consider new ways to deliver the digital lending experience consumers – especially millennials – expect.
Millennials are driving the mindset change. Millennials are the fastest growing category of auto loan consumers, representing 27 percent of total auto loan originations last year, according to TransUnion. More than any other generation, tech-savvy millennials want instantaneous information, a variety of choices and individualized experiences. According to a 2015 survey by Edmunds.com, 80 percent of millennials use their mobile devices to help them with at least one car buying task, compared to 46 percent for other age groups.
Self-sufficiency will only increase. Consumers of all ages increasingly expect self-service access to more and more information and tools, and now typically come to the buying table armed with facts and figures gleaned online about what they’re buying, how much they’re willing to pay and how they expect to finance that purchase. McKinsey’s 2013 Retail Innovation Consumer Survey found 80 percent of new-car customers – and almost 100 percent of used-car customers – start the car buying process online.
Credit scoring analyzes more factors. Deals are now measured in minutes instead of days. Risk must be quickly assessed even while traditional indicators of credit worthiness – job history, stability, home ownership – are shifting dramatically. Millennials are buying new cars at a faster rate than other age groups, but they are also more likely to have limited or student-debt-saddled credit histories. The ability to make a mortgage payment no longer serves as the best indicator of whether or not a borrower will make a car payment.
There are other major developments on the horizon. Just as new regulations caused a shift in home mortgage lending practices, the auto financing industry expects growing accountability tied to consumer protection. At the same time, consumers will expect more and more information and tools to be at their fingertips.
Financial institutions need to understand industry trends and be prepared to react. An experienced lending technology provider can facilitate this adaptation, helping lenders build on strong dealer relationships to get pulled into the buying process earlier and implement the right tools to meet consumer expectations for a smoother, more digital process.
Want to know more about the capitalizing on the changes in auto financing? Attend Leveraging the Rebound in Auto Lending and other sessions dedicated to lending at Fiserv Forum 2015.