As per a recent valuation in 2019, the global auto loans industry is currently estimated to be worth USD 220.18 billion, and as we approach a new decade, industry experts and thought leaders are predicting a 6.7% CAGR growth from 2020 to 2026.
It needs to be noted that until the end of 2019, the global automotive loans industry witnessed an incremental growth; promoting experts to term it as a buoyant industry. Countries like the UK witnessed significant growth in financing all the way from USD 28 Billion to USD 56.73 Billion from 2012 to 2017, but with the pandemic’s impact in 2020, the entire auto loans industry’s landscape has changed.
Changes to the Auto Loans Industry in 2020
• The pandemic has caused the global economy to slow down and population migration has reversed from urbanization – which means the demand has shifted from small & compact urban vehicles to larger vehicles more suited for longer distances. Auto loans companies also need to be better prepared to provide financing at the rural level.
• The auto loans industry is expected to see a rise in defaults to payments in the near future due to loss in jobs & increased economic constraints – whether this is a boon or curse is yet to be seen as it could either lead to higher profits from late payments or a rise in NPAs. Providing relaxation in repayments and extending loan tenures could be prudent in terms of handling the auto loans portfolio.
• With factors such as increased social distancing and a more prominent work from home norm, the need for mobility has seen a change. While the overall need for mobility has decreased, the demand for personal vehicles may increase due to people avoiding shared & public transportation.
• Lockdowns & social distancing is disrupting the supply chain leading to delays in product launches by OEMs (Original Equipment Manufacturers). This paired with the immediate economic slowdown may lead to a short-term decrease in vehicle purchases and the subsequent financing – in the longer term this is expected to bring a boom to demand.
The Future of Auto Loans: Upcoming Trends
Mentioned below are some of the most significant trends we are expecting to witness in the auto loans industry in the near future:
1. Mobility as a Service
One trend that is quickly catching up in the global transportation industry is the need for mobility-as-a-service, such as vehicles on subscription & rental vehicles. As the growth in the ride-sharing industry is expected to reduce in the current pandemic-ridden world, subscription & rental vehicles are expected to see a rise as people are more inclined to rent their own vehicle rather than use traditional modes of transport. This is expected to be a great new market for auto loans companies – with their expertise in valuations of vehicles, short-term financing for the deposit required to rent a vehicle could be facilitated.
There are multiple start-ups & technology driven channels to secure subscription/rental vehicles – like Revv & ZoomCar in India. Auto loans companies would probably need to be technology driven to work seamlessly with such providers – an auto loans management software which allows easy integrations would go a long way. Since ease of purchase from the interface is critical to sales on such channels, automation of financing using an auto loans origination software could help auto loans companies add value in this new market. This subscriptions market is expected to grow to a large extent since the providers will be taking care of servicing, insurance & maintenance of the vehicle and the customer needs only think about the deposit, subscription cost & fuel – this model allows the customer to afford a better lifestyle with less hassle.
By introducing changes that make the payments ecosystem inclusive such as short term credit services to customers, a flexible line of credit to operators & working with insurance companies for both customers & operators, auto loans companies can better own the customer relationship in this new space and garner more profits. An auto loans software system could aid companies achieve this versatility. Along with this, by creating finance products which are suited and customized to the needs of these mobility companies, finance companies can equip themselves to better penetrate the market and thus secure their future in these changing times.
2. Automation and Artificial Intelligence
Another exciting avenue that is currently being explored in the auto loans industry is the use of automation and artificial intelligence to access new avenues. If used properly, automation in an auto loans software can reduce the operating costs of auto loans companies – which would be a great boon especially in the short term where social distancing norms would constrict the human involvement in the process. An auto loans origination software can also increase the speed of acquisition and on-boarding of new customers applying for auto loans, while technology can add new channels for the same.
Machine learning is expected to enable auto loans companies to design products better suited for their customers by establishing vehicle & customer categorization. Most importantly, using a reliable auto loan servicing software, auto financiers can deliver the products through a channel that is cost-effective, reliable and highly efficient.
Right from suggestions to which type of financing programs will be better suited for customers in the long run, all the way to predicting the make and model of vehicles people are most likely interested in are expected to be major contributions that automation, machine learning & auto loans software are expected to bring to auto loan companies globally. These could become major differentiators for vehicle providers and auto loans companies in creating better customer experiences.
3. New Business Models
In 2020 we witnessed a world where we could subscribe to almost everything, and this trend is slowly being witnessed in the automotive financing industry as well. The present understanding of one vehicle, one owner, and one insurer is quickly changing. Thus, in the future, financing companies might need to consider options where one vehicle is owned by multiple people.
Hire-purchase has been observed to be a growing segment. Hire purchase finance software can be a key enabler in innovating the auto loans ecosystem to better serve these new avenues.
In order to meet such changing needs of customers, auto loans companies around the world need to rethink their business and revenue models and subsequently locate versatile solutions that not only meet the needs of their customers but also this dynamic business ecosystem. Innovation within subscription models to match vehicle life cycles with customers to ensure every type of customer can even get an upgrade every few years would be an example of a fresh revenue model for auto loans companies.
4. Electronic Vehicles
Electronic vehicles are a huge upcoming change in the automotive industry as a whole. This opens a whole new avenue for auto loans companies with respect to electronic vehicles – everything from subscription models to include electricity/charging bills to short term/monthly credit for electric charging.
Expectations for the Future
As the auto loans industry continues to grow by leaps and bounds and new auto loans software systems & technologies are introduced, experts predicted in 2019 that the industry will experience a growth of at least CAGR 6.7% from 2020 to 2026. At the end of 2020 though there is still a large amount of uncertainty. While the first vaccines have been rolled out, we’ve also seen the emergence of new strains of the COVID 19 virus – this leads us to a dilemma since we cannot predict how the new normal will change.
Auto loans companies would best ensure they are bootstrapped & versatile in order to best be prepared in these dynamically changing times. This especially applies to auto loans companies still using legacy systems and following a traditional model – times are changing fast and we need be abreast these changes to remain competent.