What Financial Institutions Are Doing to Keep Up With Auto Lending
According to the U.S. Bureau of Labor and statistics, the price of new vehicles has soared in 2021. A microchip shortage has reduced vehicle supply, and consumer demand has increased as conditions surrounding the pandemic continue to improve.
Per Cox Automotive, as of September 2021, dealers had only 915,089 new autos on their lots compared to 3.5 million just two years ago. According to Kelley Blue Book, the average price of a new vehicle hit an all-time high of $43,355 in August, an increase of 10 percent from a year ago.
Even with higher prices and lower inventory, the demand for autos persists. According to Raddon Research, almost four in 10 consumers say they plan on purchasing an auto in the next two years. But will consumers put off auto purchases as prices continue to surge – possibly into 2023?
Keeping Up With Auto Loan Growth
According to financial institutions that participate in the Raddon Performance Analytics Program, auto loans make up 35.1 percent of the overall loan portfolio, down from almost 40 percent at the end of 2018. The average institution had increasing auto penetration to their accountholder base over the past decade. Penetration increased from 19 percent in 2011 to 25 percent in 2018 and has been falling slightly to 23 percent currently. What are financial institutions doing differently to keep up with the ever-going hamster wheel of auto loan growth?
Catch their eye with incentives. Since the beginning of the pandemic, a common theme has been auto refinance loans, but many financial institutions are taking this a step further and offering cash incentives with the refinance offer and offering to delay payments for up to 90 days.
Resonate with all generations. Millennials and Gen Z want to look for that trusted financial advisor for their big financial decisions in life. A financial institution can capitalize on this by expanding their “first-time buyer” loan products.
Help consumers find inventory. Many financial institutions are partnering with resources such as CUDL to help their accountholders find a car to make the process easier. Just sending your accountholder to a dealer lot with a check might not be enough.
Lead with payment. With prices soaring, we need to offer tools to help members find what type of auto suits them best based on payment and alleviate the sticker shock.
With the ramifications of the microchip shortage not ending anytime soon, we must focus on making car buying easier for consumers. By offering incentives, designing loans that resonate with all borrowers, helping find inventory and leading with payments, you can make auto lending a seamless process for your potential auto loan borrowers.
While some of these steps may be easier to implement than others, the goal is to make the process easier on future borrowers. If we can get their attention, the next step is to help them through the process and make it as easy and enjoyable as possible.
But don’t forget about accountholders who already have an auto loan with you. The best candidates for loans are your current borrowers. Start a regular conversation with them starting at 18 months after the account is opened. You never know when they’ll be starting to look for their next auto. Don’t miss out on that opportunity.
Read our related blogs, What Successful Financial Institutions Are Doing to Capitalize on Rising Consumer Real Estate Demand and What Top-Performing Financial Institutions in Credit Card Growth and Penetration Have in Common.