Black Book Lender Solutions, the finance company of the wholesale valuation guide, recently surveyed dozens of auto finance company executives. The survey inquired about their thoughts and feelings about the auto finance market in 2016 and moving forward.
As many industry analysts continue to warn of an impeding sales plateau, the auto industry continues to soar higher. According to AutoData Corp., the new-vehicle SAAR was 17.42 million units in April of 2016, compared to 16.75 million units in April of last year. Also, 1,506,977 light vehicles were sold in April 2016, which topped last April's 1,454,951 mark. May's SAAR stayed strong at 17.46 million.
It makes it an interesting time to take the temperature of the room, and Black Book's survey gives us a glimpse into what finance companies are saying and thinking about the major industry talking points.
Black Book asked the following ten questions to various auto finance company executives earlier this year, just so you have an idea of what they were trying to get a feel for:
- 1. What do you expect to happen to loan balances in 2016?
- 2. If growth in the market does not continue and loan balances remain flat or decrease, what is your biggest concern?
- 3. What is your strategy for profitability if you book fewer loans in 2016?
- 4. What is your expectation for interest rates in 2016?
- 5. What data are you leveraging currently to navigate the changing market?
- 6. How important is collateral data to you currently?
- 7. How frequently will you do a portfolio analysis in 2016?
- 8. If your portfolio is shrinking, how likely is it that you will look for external portfolios to buy?
- 9. How likely are you to mine your currently portfolio for additional organic growth?
- 10. What options would you consider for altering auto loan parameters?
Let's take a look at some of the key findings from the survey.
No surprise here: the general consensus is that lenders are pretty upbeat about the market's prospects and their ability to continue to fill portfolios. Here are some other highlights that are relevant to dealerships:
- They Expect the Good Times to Continue in 2016
When asked what they think will happen to loan balances in 2016, 61.29% of respondents said they believe they will continue to increase. Meanwhile, 35.48% expect balances to plateau, while only 3.23% think they will decrease. As for interest rates, 67.74% of those surveyed believe rates will stay low in 2016, while 32.26% think they will steadily climb toward 2008 levels.
- What about Profitability if Loan Numbers Slip?
If they were to book fewer loans in 2016, it appears that the majority of lenders have the framework of a contingency plan in place. If fewer auto loans are made, these auto finance executives said their strategies to keep profits up would be: exploring alternative finance options such as leasing (29.03%), extending terms (29.03%), marketing to current customers to generate organic growth (25.81%), and altering parameters of their current program guidelines (22.58%).
- How Auto Loan Program Parameters Might be Altered
The survey respondents also listed the options they would consider for altering parameters (note: they were allowed to pick more than one choice). Here were the top answers given: 57.14% said they would expand credit eligibility criteria, 57.14% of them believe they would consider financing older model vehicles, and 42.86% of respondents said they would extend loan terms.
The Bottom Line
As Barrett Teague, Vice President of Black Book Lender Solutions, put it: "The first thing that is very encouraging is that our lenders are looking at the marketplace and they're very optimistic." He added that "they look like they've gone in and made some contingency plans in case the market does plateau a little bit."
It's good news for your special finance department that lenders could develop less rigid standards if loan numbers start to dip. It would allow more credit-challenged consumers to get a chance to finance the vehicles that they need.
If your store's special finance department could use a boost right now, why not get in touch with Auto Credit Express. With the help of our premier leads, unparalleled call center services and profit-focused software, your dealership can sell more cars, increase your grosses and make more money. To learn more, get in touch with us by calling 888-535-2277 or by filling out our convenient contact form online.