In todays’ contemporary auto finance market the most important factor is the ability to evaluate a vehicle. This happens to be the key differentiator in this market that will also help the money lenders to price their loan products better and raise the opportunity to realize greater profits.
In this regard servicing and underwriting plays an important role when it comes to the more connected and smarter vehicles. It is due to the fact that:
- There will be an increased volume of data as well as in variety which will slowly but surely erode the auto finance industry and the ability of its machinery to differentiate.
- This should be done based on the superior asset knowledge especially for the future state three when the state of the vehicles will become more knowable and transparent in real time.
- This will in turn make residual management much easier but it will be commoditized at the same time.
That means, the most important factors to consider then will be the ability of disposing the personally owned assets in the consumer market more efficiently making the best use of those markets that offer clearinghouses for both buyers as well as the sellers.
What does this mean? This means that all of the organized outletsof the captives through the dealerships will become more competitive and enjoy the advantage comparative to the traditional banks and other types of lenders such as Liberty Lending and others.
Commercial asset disposition
There are a few significant effects to be noticed in the commercial asset disposition area as well when the different states of future vehicles are concerned.
- In the future state II, the disposition of commercial assetswill be much similar to what it is today wherein the heavily depreciated car are sold frequently through auctions.
- In comparison, the future state IV may offerthings that will differ fundamentally from the used car market and auto finance of toady.
However, there are a few key factors that will be unknown but needs to be considered to establish the value of different types of vehicles to offer a loan on them.
- In order to establish the values for the shared autonomous vehicles this approach will make these vehicles quite inexpensive and utilitarian making it easier for the buyer to make a purchase and the financer to offer a loan to make such a purchase.
- When it comes to lease residuals and rental fleet, it is typically assumed that the vehicles will be far more useful having a new lease of life after the initial contract for auto financing is made.
- As far as the shared electric or cell fuel powered ‘pods’are concerned if you consider the initial period of service of these special vehicles, it may be a little more than scrap and to be considered cautiously. This is more like those well used taxicab of today.
When it comes to auto fleet financing, this will need the financers to consider all possible lending risk modelsthat are closer and much similar to asset based inventory lending. They will need to assume that a good stock of goods is available for collateral that can be replenished constantly.
The modular nature of vehicles
Considering the modular nature of the vehicles these are required to be kept in service through:
- Replacement of electric motors on the wheels a regular basis
- The regenerative braking
- The battery packs that must be pulled out and reused
This will create a larger market in reusing these components potentially.
However, in any given scenario the most important role that will be played in the auto and auto financing industry is the speed at which technological innovations are taking place.
- If all the key components such as batteries, sensors, and other components become obsolete quickly then the residual values of these cars will fall dramatically.
- On the other hand, this aspect will make it easier for the auto financers to evaluate, offer and manage their loan products as these will now requires a much shorter time for forecasts.
As and when the auto finance market matures, the effects and answers to these will become very clear. In addition to that it will also create a possibility for a lengthy transition period on the other hand that the auto finance companies will now have to face and space out to make and lose money. This will however dependon how the auto finance companies choose to value the cars, especially the shared autonomous vehicles.
The emerging opportunities
Just like all other industries the transformative changes in the auto finance industry will affect the future of mobility in different ways such as:
- It will create both winners and losers thereby shifting the core of the auto finance industry.
- It will at the same time generate new avenues of opportunities for the auto finance companies as well.
This means, those finance companies that decide to stay with their existing business models will need to make the necessary changes based on the role and effects of the traditional leases and car loans offered to the individual consumers in the future states one and three.
It is also highly likely that the loans will be made at a much lower volume because the entire auto finance market on the whole will shift its focus on putting more emphasis on commercial lending.
In addition to that, those companies that operate in the fleet financing space as well as those companies that are planning to enter onto it in the future states two and four, will now have a clear and greater opportunity to establish themin this rapidly growing market. This is due to the shared mobility which will become much of the norm of the market to ensure a larger and stronger binding of the populace.
That means, in short it can be said that there is an entirely new range of opportunities lying out there for the auto finance companies in the future of mobility. And this is surely a very good sign.