The modern trends determine how the auto finance industry and its machinery will operate in the future to ensure a better future of mobility. The modern trends however largely depend on serving the different and varied needs of the customers. These needs however will vary with each future state and therefore the auto finance companies must also take this factor into consideration as well.
At some point of time and in a few markets the auto finance companies will continue to offer traditional loans and leases to the individual consumers.
However, in some other different segments the business models of the auto financing companies may look entirely different wherein more emphasis will be given on B2B or Business to Business form of commercial lending. These loans will be offered with tighter margins. Therefore, it will create a possibility of a much lower residual and new vehicle values.
Servicing matters
When it comes to differentiate between loan and lease servicing there seems to be comparatively very few opportunities today. This is especially for the personally owned auto market. Experts anticipate that there are few trends in the auto market noticed that are likely to continue such as:
- In this modern market, the auto finance players are now more focused on collecting payments from their borrowers in a much more convenient and a seamless process. In order to ensure this they now have a much more proven and established collection process designed and implemented especially for those borrowers who are delinquent.
- In addition to that, they are also focused on establishing a more frequent interaction with their customers. For this they rely on a largely automated interaction service. With such automated service the auto financiers can now do more useful things that help them to create and foster such relationship.
However, in this regards the role of the indirect channels cannot be overlooked because it remains the primary outlet for auto loan generation especially in the future states one and three.
Though there is a little upside in practicing this in state one and three but in comparison when the future states two and four are considered it is seen that the contract monitoring and management takes over with an increasing importance. This means that the lenders will now have to keep a close watch on the condition as well as the usage of these vehicle fleets. This by it is a time consuming and a very complex task.
When it comes to underwriting, all of that the auto finance companies need to do includes building a few things such as:
- The abilities to store
- The proficiency in analyzing and
- Acting on the quantities of data that emerge from the new mobility biota.
Fortunately, with the help of the large amount of data generated by the autonomous and connected vehicles make this complex task relatively and markedly easier for the auto finance companies, offline or online such as Liberty Lending. They are now able to monitor the status as well as the location of every vehicle in a real time basis that are registered on their books.
Future states of personally owned vehicles
Consider the future states one and three of the personally owned vehicles and each of these two states will experience diverse type of impacts.
When you take a close look at the future state one you will see that:
- It looks very much similar to the extended automotive industry of today
- This only indicates and represents an incremental change and
- Vehicles have become more intelligent and smarter.
However, since the vehicles will remain to be personally owned it is highly likely that they will continue to be sold through the different dealers. That means as a result the auto finance companies that will operate and serve this specific segment of the market will experience a comparatively lower impact to the fundamental operating model that they currently follow.
All they will need to do is make a few minor go-to market or operational changes that will allow them to continue competing with the existing as well as the new players in the industry.
It can therefore be concluded that auto financing will continue to be offered to the individual customers as long as long as the dealers continue to stock inventory. This is because it will help the auto finance companies to continue with their floor plan lending.
When you consider future state 3 where there is an emergence and acceptance of driverless vehicles you will see that:
- The vehicles are individually owned
- These are computer operated
- It builds a driverless revolution.
This means, there will be no need of a human driver to be accommodated in the car. This will have diverse yet positive effects on each of the players in the automotive industry.
- Since the cabin space in the car will be available more now and this additional space can be used for leisure or work. The car makers can customize the vehicles highly so as to meet the diverse needs of the individual consumers.
- On the other hand, if you shift your focus from the car manufacturers to those providing finance for these cars you will see that the change is there but it is far less dramatic. This is because the auto makers will continue selling and leasing vehicles to the individuals following a model that is much similar to the traditional auto financing model.
- When you consider the buyers’ side you will see that the size of individual loan have increased when two car families downsize it to one single yet more efficient and more luxurious autonomous car.
With all that said, it is unlikely that the higher price tags will fully offset the drop in the volume of sales volume. This is because many of the customers will now shift to shared mobility. This will in turn reduce the personal car ownership level.
On the other hand, the floor plan financing may also see a significant reduction as dealers will shift their focus from ‘stock on hand’ vehicles to ‘build to order’ models.