A number of seemingly unrelated factors are bringing big changes to auto finance, especially in the subprime market: higher balances, longer terms, more delinquencies and a changing regulatory landscape will heat up competition and increase pressure on auto dealers and lenders alike in the coming years. Independent dealers especially will need to look at innovative solutions to manage risk while working with subprime clients.
Loan balances are up, but the subprime markets are not growing as fast as the rest of the market—in fact, the riskiest loans are at their lowest share of the market in over a decade. The average prices for new and used vehicles are higher than ever before, driving both the length of the average auto loan and average monthly payments to record highs as well. Longer loan maturities carry risks for lenders as the consumer must continue paying for longer as the car depreciates further.
This trend is driving more and more consumers to delinquency: in the third quarter of 2017, nearly 10% of subprime auto loans were at least 90 days overdue. Today it is even worse: a record 7 million Americans are 90 days behind on their car payments. Increased borrowing and lending costs are driving small subprime auto lenders out of the market, and there is some worry that larger lenders will begin to follow suit.
Meanwhile, regulation of the auto finance industry is shifting from the federal level to the states. This will create uneven regulatory environments across the country, with risks of state investigation depending more on individual attorneys general than on federal standards—a confusing and difficult ecosystem in which lenders will need every tool in the toolbox to survive.
With this confluence of changes in the auto finance market, it will become important for independent dealers to avoid the risks associated with loan defaults by reliably recovering vehicles when necessary. The dependability of both the GPS devices and the asset tracking services are paramount for the ability of the dealership to safely work with auto ABS (asset-backed securities). For the independent dealer, day-to-day business operations rely on precisely this type of risk management. It will be more important than ever to choose a provider that is trustworthy and reliable—your business could depend on it.
To learn more about how CalAmp can help your vehicle finance company or automotive dealership address a larger segment of the market while lowering your exposure to default, check out here.