How Can Auto Financing Keep Pace with Market Change?

The auto financing industry has seen major market fluctuation over the past decade. When the recession hit and more cautious consumers deferred borrowing for new cars, auto financing sources consolidated and looked towards more conservative options themselves.

2013 saw the market start to rebound. Consumers once again became optimistic borrowers, and the industry took the opportunity to increase financing options to meet demand. For the most part, these loans have fueled strong growth for automotive financing sources.

However, since subprime financing has also grown, there has been an increase in borrowers getting loans who don’t have the ability to pay. To protect profitability, auto financing sources should employ two important tactics:

• Identify customers likely to become delinquent and take preemptive action. By taking a proactive and analytic approach to customer management, auto financing sources can prepare for the likelihood that certain customers may go delinquent and require greater attention. Understanding who these customers are, based on their behavior and risk profile, and then taking informed actions to support the relationship can be mutually beneficial. Financing sources will see increased profit with reduced risk. Borrowers will feel supported and avoid a negative brand experience.
• Leverage collection treatments that maximize the value of resources and other operational expenses. Predictive analytics can be used to identify the most effective recovery programs and get debtors back on the road to repayment. Applying risk-based strategies has proven successful to increase the amounts collected; they also keep operating costs down by proportionally focusing system treatments—including letters and collector staff efforts—on rewarding activities. Analytic segmentation can identify customers likely to self-cure so that costly resources remain focused on accounts that will benefit from action.

We’re working with a number of clients on these and other proactive strategies across the customer management lifecycle. And by introducing cloud-based solutions—most recently FICO® TRIAD® Cloud Edition—we’re extending those capabilities to organizations of all sizes, so they can boost customer decisions without the expense required to install and maintain an onsite solution. After all, healthier auto financing is something that we all benefit from—credit grantors and consumers alike.