In a previous blog post, Ben Werner wrote about the report FICO helped coordinate with the National Automotive Finance (NAF) Association for the non-prime auto financing market. The report serves as a key source of benchmarking for those who participate in or support non-prime automotive financing. Below is an infographic which provides a more visual representation of the findings.
How to get set for CECL In my last blog post, I started to outline my “10 Requirements for an Effective CECL Software Solution,” where I focused on three requirements your organization needs to do to get ready for CECL implementation. This post will address four requirements for getting set for CECL, i.e. what capabilities your solution must have to provide a stable platform for CECL execution and analysis. 4) How to get set for CECL – Seamless process orchestration A robust CECL software solution will orchestrate all end-to-end expected credit loss (ECL) calculations from data input to component model calculations to final reporting and detailed outputs. It will automate processes wherever possible but will also allow manual intervention where required to incorporate management overrides. This orchestration will occur “behind the scenes” but the effects still need to be transparent to the user. All inputs, models, calculations, parameters and key outputs... [Read More]
For the past 22 years, the National Automotive Finance (NAF) Association has produced a report for the non-prime auto financing market which serves as a key source of benchmarking for those who participate in or support non-prime automotive financing. This year, FICO was pleased to coordinate the survey, market data, and generate the final analysis and report. The study collected survey data from 40 different non-prime financing sources that represent about $35 billion in portfolio value on topics like financial performance, competitive landscape, and investment priorities. The data from the survey was then complemented with data from TransUnion and IHS Markit to show transactional loan data on how the larger market is performing. FICO looked at things like the number of non-prime loans completed, average FICO Auto Score, average amount financed, delinquency rate, and other performance metrics. We also incorporated vehicle value data from Black Book and alternative data from FactorTrust... [Read More]
Analytics - including machine learning and optimization - is taking off in the auto manufacturing industry, and has the potential to go much further.
Today we have released the findings from our first ever global consumer survey on automotive finance perceptions. FICO’s independent research surveyed 2,200 adult consumers across nine countries including the US, Canada, Mexico, Chile, Australia, New Zealand, Germany, Spain, and the UK. The respondents were between the ages of 18-64 who acquired a loan on a new/used vehicle within the last 3 years. The findings cover the financing aspect of both new and used vehicles from the beginning of the journey where customers start to research, the middle where negotiation, ‘shopping around’ and the loan origination begins, and the end where the deal is formalized and the consumer walks away with their vehicle. 5 Surprising Findings in Automotive Finance (1) Americans love speed, right? The country that invented McDonalds should have the shortest wait times for auto finance. Wrong. It turns that the US is ahead of only Mexico in terms... [Read More]
Countdown to Competitive Advantage If you are working in auto finance, you are no doubt aware that new accounting rules are being introduced to improve the forward-looking estimate of expected credit losses on loans and leases. CECL, or the Current Expected Credit Loss model, has been designed to ensure earlier recognition of credit losses to do all we can to avoid a repeat of the GFC experience. Having a canary in the coalmine is something we should all embrace. The main challenge with CECL is that it will require higher levels of capital to be kept in reserve and lead to changes in lending practices and portfolio and product management. It will also require a significant amount of work to meet the implementation deadline of 15 December 2019, which is now less than 21 months away. Based on our experience with global clients working to comply with IFRS 9, this... [Read More]
Guest Post: Today’s blog is from Dr. Sven Beiker, founder and managing director at Silicon Valley Mobility, LLC. He was a featured speaker at our Automotive Mastermind event held earlier this month in Silicon Valley. Silicon Valley Mobility is a mobility consulting and advisory firm in Palo Alto, CA. looking at the trends of automation, communication, electrification, and commoditization. === “Automobile – quo vadis?” or “where are you going?” That’s easy to answer right? The car is becoming ‘autonomous, connected, electric, shared’ and the automotive industry is now becoming the mobility industry and everything will be fine. Easy enough? Well not really – let’s take a closer look. We will start with the motivation for those new trends. There are quite a few challenges with the automobile today. Much of which results from the fact that cars are too easy and convenient to use, so that there are too many in... [Read More]
One of my favorite movie scenes is from Blade Runner. A policeman is interrogating his detainee, asking a series of questions to determine whether the person is a real human-being or a synthetic. Funnily enough, this scene parallels the problems discussed at a FICO roundtable on ‘How to Fight Auto Loan Fraud’ held this week at the AFSA Vehicle Finance Conference & Expo. While none of the 25 attendees resembled Harrison Ford, they agreed they were getting busier looking for synthetics, just a different kind of synthetic. In this case, we were talking about synthetic identities, a type of fraud in which a criminal combines real and fake information to create a new fake identity that is used to open fraudulent accounts and make fraudulent purchases. The use of synthetic IDs in the auto loan industry has been a growing problem in the last 18 months. Attendees at the roundtable... [Read More]
“She loves me. She loves me not.” Even adults engage in versions of this classic petal-plucking exercise, particularly when it comes to owning cars. In recent years, ride-sharing services like Uber and Lyft have become global forces. Hourly car rentals are available from companies like Zipcar, and both tech companies and automotive giants are investing in self-driving cars. Is a new generation, Generation Digital – those born surrounded by technology – bringing the end of one of our longest-running love affairs, with driving? Not so fast. While the long term has yet to play out, in the short term, consumers still want to own cars. What the numbers say After years of pent-up demand during the Great Recession and slow recovery, people are starting to buy cars again. Automotive News reports that the average number of new vehicle sales per US dealership rose 4.8% in 2015 to 966 units, the... [Read More]
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... [Read More]