No doubt, 2020 has sprung plenty of surprises on auto lenders. If anything positive can come out of a global pandemic, the disruption certainly taught the industry some harsh lessons. If applied correctly, lenders can use these lessons to emerge stronger into the recovery and stay prepared for future economic downturns.
Erin McCarty and Marina Hardy of Wolters Kluwer Lien Solutions share a free webinar, "3 Key Lessons for Auto Lenders in 2020," to help lenders understand and use these important takeaways to strengthen their businesses. McCarty serves as senior director of product management, and Hardy is the associate director of product marketing. The insights and suggestions they share will help inform effective planning for 2021.
Key auto lender lessons from 2020
Few people need a reminder of the pandemic's economic havoc. For just a few examples, gross domestic product dropped by almost a third, unemployment spiked as high as 14% at some points, and by May'20, 18 million Americans had fallen behind on auto loan and credit card debt. With that in mind, look at three particular obstacles for the auto lending industry.
1. Jurisdictional changes and auto titling
Lender processes may have worked well enough before COVID-19; however, with the need to cope with temporary waivers, spikes in defaults, and perhaps some additional flexibility for distressed borrowers, many lenders found their processes stressed and sometimes failing. Also, many Departments of Motor Vehicles closed or experienced decreased staffing, which slowed vehicle titling.
In response, Wolters Kluwer suggests developing ways to track DMV status, remain current with jurisdictional requirements and changes, and perhaps most of all, use automated systems to enforce best practices and improve visibility and efficiency.
2. Spikes in repossessions
For some time, moratoriums on repossessions may have masked an overall increase in defaults. Of course, these waivers varied by state, making the job of national lenders even more complex. With the moratorium expiration, lenders can expect repossessions to spike by as much as 30%.
While some borrowers have lost their incomes, others have started working remotely, so they may not consider their vehicle payments as high of a priority as they did in the past. At the same time, rising repo rates spurred a higher demand for auction space. Because of the pandemic, many auctions also reduced capacity. Thus, moving inventory will take longer.
Lenders need to pay particular attention to managing their default portfolios. In addition, the country has seen a trend of job seekers leaving for new jurisdictions to gain employment. Since cars are mobile collateral, lenders need to expect to have to conform to the laws in the state where the car is currently parked and not where it was first purchased. Lenders must improve their efficiency in order to employ sufficient resources to deal not just with an increase in repossessions but also with more complexity.
3. Increasing auto refinancing opportunities
Borrowers who still have the capacity to maintain their incomes and credit scores have taken advantage of low interest rates to refinance their vehicles, so refinancing rates have quadrupled during COVID-19. Still, so many lenders already struggle with capacity because of pandemic-related disruptions. That means they may lack the resources to take advantage of this growth opportunity.
Automation integrated with other digital solutions can greatly increase efficiency. These systems also reduce the costs per transaction, improve estimates, and reduce errors. During these times, successful lenders must rely upon high-quality tech to survive and thrive.
Learn more about the most important 2020 takeaways for auto lenders
Take just a few minutes to understand the three most important areas of insight for auto lenders in 2020 by watching this complimentary, informative webinar. Then, learn how to streamline and improve the entire loan process for your company and your borrowers with 21st-century technology and old-fashioned industry expertise. These tools will help you remain agile during business disruptions and emerge stronger in the future.