What to Expect in 2020

As financial institutions and dealers close the books on 2019, it’s worth reflecting on a few data points that will prove useful in 2020. The Experian State of the Automotive Finance Q3 2019 Report reflected these key findings:

• Delinquency trends remained stable at 2.25% for 30-day delinquencies and 0.75% for 60-day delinquencies
• Banks and captives show increases in market share, while credit unions decline
• Credit scores continue to increase for new financing with average credit score reaching 725
• Used prime financing reach highest point since 2009
• Total market remains stable with modest year-over-year change
• Loan amounts set yet another record high
• Longer term loans continue to dominate the market
• Rates continue to increase across all risk segments

Couple these points with the increasing cost of new vehicles, a tight market for used vehicles and strong end-of-year sales numbers and you have a good outlook for the 2020 auto finance market. So, what’s a credit union or local bank to do to increase market share in a climate of rising vehicle prices, monthly payments and loan terms?

Work Smarter – Not Harder in 2020

In recent years, local credit unions and banks pulled back from direct auto lending, focusing more of their auto loan efforts indirectly through dealers. However, with increased regulations and pressure to increase dealership margins as much as possible, lenders have seen their profit margins shrink. They’ve now found that they can make more money in a direct lending model.

Of course, direct lending has its challenges, namely the ease with which dealers flip customers to secure funding with them instead of their local credit union or bank. Going into 2020, we’ll see local lenders become more strategic with their value propositions and customer service training to retain direct auto lending business. This includes evaluating their loan value-adds, such as consumer protection products, and investing in additional loan officer training.

To fortify their auto loan portfolios, lenders are evaluating their consumer protection product mix and are placing more emphasis on those products that help consumers most, like when large, unexpected repairs hit their budget, or when unexpected job loss occurs directly affecting their ability to make their auto loan payments. Vehicle service contracts and vehicle return protection can be very beneficial to the consumer while also increasing revenue for the auto lender. By highlighting products like a vehicle service contract and vehicle return protection, strategic lenders have a better ability to increase consumer confidence in a time when confidence is in short supply.

While punsters like to say 2020 will bring “perfect vision”, clear insight will only come to those who pay close attention to small shifts in the market, continue to invest in their people and products, and position themselves as ready, willing, and able to meet the needs of the market.