Future is what every business look at right from the start and the auto lending companies are no different from this universal business principle. Therefore, the auto lending market of today needs to look beyond 2019 in order to sustain in the future, which the experts anticipate to change dramatically which may even result in the volume of business shrinking for the auto financing companies.
However, all is not so bad even if this is the stage where the concept of mobility is sure to change in the future. There are ways in which the auto financing companies, the traditional ones as well as the other sources such as Liberty Lending and its likes can prepare for the future of mobility.
There is one thing that needs to be followed and kept in mind at this stage. This is the fact that the transition from today’s state to the future state of mobility will not happen linearly or uniformly. This is because the needs for mobility may vary depending on different factors such as:
- With the demography
- With the geography
- With the available technology and
- With the social attitudes.
All of the above will progress unevenly and the different stages of mobility will likely to exist concurrently in the foreseeable future.
That means the stakeholders need to prepare themselves according to the prevailing market situations so that they are ready to operate in a multifaceted as well as in a much more complexmobility ecosystem in the near future.
Auto finance value chain
There are a few specific and rudimentary steps of the auto finance value chain that even after all the turmoilwill persist in the future of mobility. In this situation:
- Loans and leases will still need to be underwritten, originated, and sold
- Assets will require being disposed of and the
- The finance products will need a dramatic change as anticipated in the future of mobility.
The financial services industry is as it is huge and sophisticated. In addition to that, with the beginning of marketplace lending as well as other disruptive trends it has become increasingly innovative and dynamic. With such features of the lending market it is required to execute each one of those steps to create the best products that will meet the needs of the customers. In such a situation there is a high chance that several auto finance companies will deviate from their capabilities significantly. These finance companies will need to:
- Determine the particular segment or segments they want to service in the future mobility ecosystem
- Evaluate their existing practices and current operations
- Make the necessary amendments in their policies to enhance or alter their functional capabilitiesand
- Determine and identify all those resources and new skills that they will need to compete with successfully.
All these will help the auto financing companies in the future of mobility bring about the necessary changes that will in turn help them in many different ways such as:
- Rebalancing their business
- Ramping up their associated capabilities
- Dialing back investments in consumer markets
- Increasing their returns and profits.
All these indicates that there is a significant need to put in extra effort by the different auto finance players at different levels of mobility, especially those into commercial auto lending.
On the other hand, if the large and diversified banks are concerned it may be much easier for them as they will simply have to shift their business from one specific division such as auto lendingto another for that matter such as equipment lending.
However, for the captives, they will need to be focused heavily on consumerbased auto lending and leasing. For them especially, the need for making such transformative changes will be greater. This is because they need to explore an entirely new business area and models. This will affect their capabilities that are needed for commercial finance.
The sales aspect
Sales happen to be the first significant step in the auto finance value chain. This will need the auto finance companies to find and connectwith those specific customers who need money to buy a car. Today, this connection is established indirectly through dealerships as more than 80% of cars are financed in this way through a dealer.
When it comes to captives’ relationships with OEMs and dealers it is considered that:
- These are critical for access to the customers or for the purpose of loan or lease subvention.
- Such indirect relationships as well as the ability to influence customer loyalty towards a specific carmakerare two most unique sources of strength for the captives.
- These important foundations will continue to provide them with a competitive advantage in the lending market for the personally owned vehicles irrespective of it being autonomous or driver driven.
All these will remain significant for the captives even as the auto retailers and dealers adjust their own business prototypes to the future of mobility.
Shared vehicles in future states
Lastly, the auto finance value chain must consider the shared vehicles in future states 2 and 4 to recreate or refurbish their financing model. They will need to focus on Business toBusinessor B2B model and approximate more closely the rental car fleet of today.
However, if they wish they can simply shift to the equipment financing markets as well such as:
- Construction
- Machinery
- Trucking or
- Office equipment.
Typically, sales in the lending market whether it is for auto, equipment, home or any other are driven by the level of individual relationships established and maintained between the financer and the commercial customer. The financier here can be a typicalcommercial bank or any specialty money lender such as a fleet finance company.
In auto finance however, most of it is a dealer-centric approach or the more frequent ‘Feet on the street’ approach which is typically a direct sales approach. Several financial institutions provide a dedicated sales manager for their larger business customers.
No matter whatever is the approach, staying updated with the changes in the market and customer behavior is the key to success in auto financing.