Survey shows trends in financing, experience, technology and demographics
By: Byan Ignozzi
PricewaterhouseCoopers (PwC) recently conducted its 2016 International Automotive Lending & Leasing Survey. This survey brought together and explained retail automotive trends. This was a cross-functional, global initiative that engaged leaders across the automotive lending industry and provided information on current and future industry trends. PwC surveyed executives from 12 countries, including the United States, using a structured questionnaire.
The survey revealed many interesting insights, most notably an overall positive sentiment across the industry, particularly in the United States. At the same time, disruptors driven by rapidly changing technology will demand a shift in organizational strategies as well as operations. Current US trends show a focus in three key areas:
- Technology drives transformation and profitability: Technology investments are the number one challenge to profitability, but also the focus of their largest transformational initiatives.
- Customer driven focus: Improving the customer experience is the largest investment focus for automotive lenders in the next 3-5 years.
- We’ll get there by enhancing Digital capabilities: Survey results clearly show a paradigm shift towards digital advancements like mobile, social media, and online P2P lending platforms to meet growing customer demands and increased profitability.
While the Survey provides insights into trends that are top of mind to automotive lenders today, PwC’s analysis of global Megatrends outlines overarching trends that are likely be seen in the future. These Megatrends that will likely have the most profound effect on the automotive lending industry are:
- Accelerating Urbanization: America’s urban population continues to grow rapidly, in terms of both raw volume and percentage of total population. The number of US cities with population greater than 1 million went from 37 in 2000 to 45 in 2015 and a predicted 53 in 2030. This shift towards urbanization is changing the transportation preferences of consumers living in densely populated urban cities, giving rise to many innovative companies offering progressive transportation and car ownership alternatives.
- Demographic Shifts: There are two key factors impacting demographic shifts. 1) Millennials now account for 27% of new car sales in the US, second only to Baby Boomers. 2) Life expectancies are extending, increasing the population of older borrowers. These two factors are driving shifts in consumer preferences causing lenders and dealers to think about how they attract and retain these two key demographic groups.
- Technological Breakthroughs: In recent years, we have seen technology advances in mobile devices, social media, the Internet, and data analytics that will continue to transform the automotive finance industry. These technology advances have created a more tech savvy population that expects immediate access to information.
The convergence of these Megatrends is causing automotive lenders to rethink the way they do business so that they are best positioned to take advantage of the following future opportunities:
- Leveraging partnership opportunities with non-traditional industry participants such as car sharing platforms and marketplace lenders
- Identifying different sources of alternative data for fraud mitigation, credit underwriting, and loan pricing decisions
- Thinking about customer experience and servicing strategies to address diverging consumer expectations
- Identifying methods for digital and mobile technology enhancement
Lenders should take into consideration various factors to effectively build on these opportunities:
Leveraging partnership opportunities with non-traditional industry participants such as car sharing platforms and marketplace lenders
The convergence of accelerating urbanization and technology breakthroughs are causing new companies serving the evolving expectations of consumers to emerge quickly, such as car sharing platforms and marketplace lenders. Lenders and dealers should consider forming strategic partnerships with these new entrants to limit disruption and drive market share. For example, recently a US captive lender partnered with a peer-to-peer lender and invited its customers in six US cities and London to sign up and rent out their vehicles for short term use. Proactive lenders and dealers should consider forming these types of partnerships to ensure that they are staying ahead of industry developments.
Identifying different sources of alternative data for credit underwriting and loan pricing decisions
The convergence between demographic shifts and technology advancements are causing a trend towards the use of alternative data for credit decisioning for consumers with atypical credit profiles. Millennials comprise a large segment of the population with atypical credit profiles caused by higher student loan debt, a thin credit profile, and the effects of the 2008 Recession. Traditional credit reports may not provide the information necessary to accurately categorize the credit risk of Millennials and other atypical borrowers. As a result, alternative data providers have entered the market. These alternative data providers use social media data, utility payment histories, and public records to supplement traditional data used in credit decisioning. The use of alternative data may help lenders approve more borrowers with atypical credit profiles.
Thinking about customer experience and servicing strategies to address diverging consumer expectations
Lenders who build the customer experience into their strategic plans will have an advantage as consumers are beginning to place a higher emphasis on the overall experience. For example, the convergence of demographic shifts and advancements in technology are causing automotive lenders and dealers to address the growing demands of Millennials. PwC’s analysis found that Millennials expect the loan origination transactions to be handled digitally from beginning to end. Millennials will make up a large portion of the population in the future; thus, lenders should begin thinking of ways to provide the digital, seamless experience that Millennials have become accustomed to in other industries. However, lenders and dealers should not forget the increasing population of older borrowers. The goal is to focus on the total customer experience for borrowers across the board, appealing to their differing needs and preferences.
Identifying methods for digital mobile technology enhancement
There is no doubt that a majority of consumers today prefer to perform their financial transactions online rather than in person. As a result, most lenders and dealers have adapted by providing some sort of internet or mobile outlet for consumers. However, our analysis also suggests that most mobile apps today do not meet the needs of all consumers. For example, consumers cited the following mobile app features, which are not yet widely offered, as valuable:
- Close to immediate decisioning
- Lock in interest rate on the loan
- Calculate the monthly payment I can afford
- Link mobile and dealer experience
- Compare loan products and rates
To stay on top of current trends and decrease the possibility of a disruptor entering the space, lenders and dealers need to consider including digital technology enhancement in their customer experience strategies.
As highlighted by PwC’s 2016 Global Automotive Lending & Leasing Survey, technology, customer experience, and digital are areas that are top of mind for lenders today. These areas will play out in the future via Megatrends that are creating a number of new opportunities. Lenders and dealers should consider making significant investments and laying the foundations today to successfully capitalize on these opportunities in the future.
For more information on Automotive Lending and Digital Transformation, please contact Bryan Ignozzi, PwC Partner leading Digital Transformation at bryan.ignozzi@pwc.com or Eva Ziegler, PwC’s Auto Finance Leader at eva.ziegler@pwc.com.
Sources:
2016 PwC Automotive Lending & Leasing Survey
Converging Megatrends – shaking up automotive lending – November 2015, PwC
