The auto finance industry is undergoing significant transformation, driven by recent challenges and new opportunities. As we look ahead to 2024, it’s clear that the industry must continue to adapt to the changing landscape. Here’s a closer look at the key challenges auto lenders will face and how they can turn these challenges into opportunities.
Digitizing Customer Contact
The pandemic forced auto finance companies to quickly adapt to a surge in call volumes and the need for remote operations. This rapid shift highlighted the critical importance of digitizing customer contact. Early pandemic responses included:
- Deploying digital solutions like live auto-chat.
- Redeploying back-office staff to call centers.
- Engaging third-party providers for surge support.
These measures provided immediate relief and set the stage for long-term efficiency improvements.
Key Strategies:
- Leveraging Digital Technologies
- Robotic process automation (RPA) for back-office tasks and customer self-service platforms can help manage volume volatility, reduce operating costs, and serve customers more efficiently.
- Advanced Volume Forecasting
- Using sophisticated analytics to predict and prepare for fluctuations in customer contact.
- Building on Cloud Technology
- Cloud platforms enable exceptional customer and employee experiences backed by AI, analytics, and automation.
Making Finance Flexible and Safe
The pandemic necessitated the rapid rollout of remote solutions like e-signing and remote vehicle inspection, which will likely become standard practice. For instance, Volkswagen Financial Services aims to grow its contract volume by over 30% by 2025 through a solid digital and direct-to-consumer channel.
Key Strategies:
- 360-Degree Customer Views
- Utilizing structured and unstructured data with digital analytics to offer tailored finance solutions.
- Robust Risk Management
- The industry has spent millions implementing strong controls for credit decisions and underwriting, and using intelligent detection technology to combat synthetic identity fraud.
Maintaining Empathetic and Personal Collections
COVID-19 greatly disrupted collections, with over half of customers worried about repaying their loans as early as March 2020. Auto lenders responded with empathy by extending loan terms and pausing repayments. Continuing this compassionate approach while managing risk is crucial as financial difficulties persist.
Key Strategies:
- Personalized Collections Strategies
- Using 360-degree digital views of customers to offer tailored repayment plans and sustain goodwill.
- Automated Processes
- Segmenting customers by risk and using data-triggered events to deploy high-touch contact strategies, such as loan restructuring discussions.
Reimagining the Used-Car Segment
The secondhand car market, traditionally considered higher risk due to subprime borrowers and uncertain residual values, now offers significant growth opportunities. Demand for used cars is high, with online platforms like Carvana reporting an 80% increase in sales between March and May 2020.
Key Strategies:
- Sophisticated Remarketing Platforms
- Using advanced digital pricing tools driven by analytics.
- AI and Machine Learning
- Investing in these technologies to accurately forecast residual values and capture secondhand market share.
Economic and Market Considerations
- Auto Loan Payments Will Plateau
- Interest rates are predicted to decrease in 2024, which is good news for borrowers. In 2023, 53% of new and 87% of used car loans had an APR over 6%, resulting in record-high monthly payments. Although payments may not decrease significantly, resolved staffing and supply chain issues could stabilize the market.
- Delinquency Plateau
- Many borrowers are already burdened with high auto loan payments from 2023, potentially leading to a plateau in delinquencies. This could strain lenders as they manage a high volume of troubled accounts.
- Economic Uncertainty
- Concerns about a potential recession could lead to increased unemployment, making it harder for borrowers to keep up with payments.
- Shifting Consumer Priorities
- With ongoing inflation concerns, consumers may prioritize other expenses over auto loan payments.
Conclusion
For auto lenders, adopting technology and innovation is essential to overcome the challenges of 2024 and beyond. By focusing on digitization, flexibility, and empathy, they can build resilient business models that thrive despite economic uncertainties. Leveraging digital tools, advanced analytics, and AI will help meet customer expectations and enhance efficiency, turning today’s challenges into tomorrow’s opportunities.
Take your auto finance business to the next level with Fusion CX’s advanced solutions. Contact us today to learn how we can help you stay ahead in the rapidly evolving landscape.
