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By: Joel Pruis So we know we need to determine the overall net yield on assets required to cover the cost of funds and the operating expenses but how? In the movie Moneyball, the Oakland A’s develop a strategy to win 99 games by scoring 814 runs and only allowing 645 runs by the opposition. In order to generate the necessary runs, Peter Brand boils down all the stats into one number, on base percentage. By looking at the on-base percentage of all the players in the league, Brand is able to determine the likelihood of generating runs. There are a few key phrases/quotes from this scene that need to be highlighted: “it’s about getting things down to one number” “People are overlooked for a variety of biased reasons and ‘perceived’ flaws.” “Bill James and mathematics cut straight through that [biased reasons and perceived flaws].” Getting things down to one number is the liberating element for the Oakland A’s and for banking. We have already identified the one number for banking – Net Yield on Assets. Let’s define this a bit further though. For this exercise, net yield means the gross yield (interest income plus fee income) on assets less charge offs. We are looking to see what is going to be the consistent return on the assets less what can be expected net charge off related to the assets. When Billy Beane and Peter Brand got it down to the one number “On Base Percentage” it altered the player selection process and highlighted the biases of the scouts such as: Giambi’s brother was “getting a little thick around the waist” “Old Man” Justice Justice will be “lucky if he hits his weight” in July and August Justice’s “legs are gone Hatteberg “can’t throw” Hatteberg’s “best part of his career is over” Hatteberg “walks a lot” None of the above comments used any facts or data to disprove each player’s on base percentage. Can you imagine if they were underwriters or lenders? What type of compliance issues would we have on our hands with the above comments? Biased against disabilities (Hatteberg with nerve damage); Age Discrimination (“Old Man” Justice), Physical Appearance (Giambi’s brother “getting a little thick around the waist”), these scouts would be a compliance liability let alone obstacles in any type of organizational change. But one can readily see how focusing on one number liberates the thinking and removes the old constraints or ways of thinking. One of the scouts commented that Hatteberg had a high on base percentage because he walks a lot, considering a walk as a negative while a hit is a positive but why? Why is getting on base by being walked a negative but getting on base with a hit is positive? The result is the same as the movie points out. How about in commercial lending? If we focus on net yield on the portfolio as the one number, does that do anything to remove biases? I believe that it does. One example is the perception of charge offs in a portfolio. To this day the notion of a charge off in a commercial portfolio, even in the small business portfolio, is frowned upon and can jeopardize one’s career. Similar to the walk, the charge off is not desired but if we focus on the one number, net yield, it actually removes the stigma of the charge off! If we need at minimum a 6% net asset yield and we are able to generate a gross yield of 9% with an expected loss rate of 2%, we actually exceed our “one number” of a targeted net yield of 6% with an expected net yield of 7%. With that change that removes the biases and flawed perception, can we now start to find opportunities that provide us with the ability to step away from the norm; stop competing with the rest; and generate that higher return that is required? What are the potential biases and flawed perceptions that will need to be addressed? “High Risk” Industries? “Undesired” Loan types? Consumer vs. Commercial? Real Estate Secured vs. Unsecured? Loans vs. Treasuries or other earning asset types? But just as in the movie, you need to be prepared for the response you may get from the traditional ‘seasoned’ lenders in your organization. When Billy Beane puts the new strategy into place at the Oakland A’s, the lead scout responds with: “You don’t put a team together with a computer” “Baseball isn’t just numbers, it isn’t science. If it was anybody could do what we do but they can’t.” “They don’t know what we know. They don’t have our experience and they don’t have our intuition.” Ah, just like the traditional baseball scout is the traditional commercial lender with the years of experience, judgment and intuition. I used to be one and used almost word for word the same argument against credit scoring and small business before I truly understood what it was all about. Don’t get me wrong. Experience, judgment and intuition is valuable and necessary. But that type of judgment tends to get into trouble when it stops looking outside for data and only relies on past personal experience to assess the next moves. Experience is always important but it has to continually review, assess and interpret the data. So let’s start looking at the different types of data. On deck – How do we know how many runs the opposition is going to score? The use of external data.
By: Joel Pruis I am going to take some liberties here. Nowhere in the movie Moneyball does Peter Brand tell us how he got to the magic number of winning 99 games to get to the playoffs. My assumption is that given the way that he evaluates the Oakland A’s, he also evaluations the other teams in their conference. Assessing the competitive landscape provides Brand with the estimated runs their opponents will generate. Now we could take the approach that such analysis would correlate to assessing how your competition is going to perform but I am going to take a different approach. I would compare the conference assessment in Moneyball to be similar to an economic forecast/assessment. We need to assess what are the overall conditions in which we must operate that will allow us to generate the net yield on the assets of our financial institution. Some of the things we need to assess to determine what we will be able to generate related to the net yield on assets would be: Gross yield on assets Current interest rate environment (yield on treasuries, federal home loan bank, etc. Interest rate trends (increasing, declining, trends toward fixed rates, variable rates) Industry information General trend of businesses across the nation How are businesses faring? How well are they paying their creditors? Are they relying more or less on credit? Are new businesses being started? Are they succeeding? Are they failing? General trends (same as above) within your financial institution’s market footprint One such source of the industry information is the Small Business Credit Index generated by Experian & Moody’s Analytics. In the recent release of the Small Business Credit Index, small business is indicating stronger from the prior quarter moving from 104.3 to 109. But this is from a national perspective. Depending on your financial institution, it is important to always get an overall view of the economy but more importantly, what is happening in your particular market footprint. Just as the Oakland A’s in Moneyball maintained an overall perspective of Major League Baseball, their focus for success was targeting their specific conference to reach the playoffs. So as we look at information such as the Small Business Credit Index, we are able to see highlights of regional trends (certain states west of the Mississippi are doing better while certain states along the east coast are not) and specific industry trends. From such data we need to drill down into our specific footprint and current portfolio. We need to review such items as: What industry concentrations do we have that are doing well in the economy and how is our portfolio doing compared to the external data? What industries are we not engaging that may provide a good opportunity for our financial institution? What changes are taking place in the general economy that may impact our ability to achieve our expected results? What external factors must we be monitoring that may impact our strategy (such as the impact of Obamacare and how it will impact the hiring for businesses with more than 50 employees?) Just as in Moneyball, Brand continues to monitor the performance of the overall league (and the individual players for future trades), we need to continually monitor the national, state and local economies to determine what adjustments we will need to make to achieve our strategies. So we have assessed the general environment, on to strategies or “How do we win 99 games with a total payroll of $38 million?”
Contact information such as phone numbers and addresses are fundamental to being able to reach a debtor, but knowing when to reach out to the debtor is also a crucial factor impacting success or failure in getting payment. As referenced in the chart below, when a consumer enters the debtor life cycle, they often avoid talking with you about the debt because they do not have the ability to pay. When the debtor begins to recover financially, you want to be sure you are among the first to reach out to them so you can be the first to be paid. According to Don Taylor, President of Automated Collection Services, they have seen a lift of more than 12% of consumers with trigger hits entering repayment, and this on an aged portfolio that has already been actively worked by debt collection staff. Monitoring for a few key changes on the credit profiles of debtors provides the passive monitoring that is needed to tell you the optimal time to reach back to the consumer for payment. Experian compiled several recent collection studies and found that a debtor paying off an account that was previously past due provided a 710% increase in the average payment. Positive improvement on a consumers’ credit profile is one of those vital indicators that the consumer is beginning to recover financially and could have the will—and ability—to pay bad debts. The collection industry is not like the big warehouse stores—quantity and value do not always work hand in hand for the debt collection industry. Targeting the high value credit events that are proven to increase collection amounts is the key to value, and Experian has the expertise, analytics and data to help you collect in the most effective manner. Be sure to check out our other debt collection blog posts to learn how to recover debt more quickly and efficiently.
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With the National Automobile Dealers Association (NADA) Show set to kickoff later this week, it seemed fitting to explore how the shifting dynamics of the used vehicle market might impact dealers and buyers over the coming year. Shedding light on some of the registration and finance trends, as well as purchasing behaviors, can help dealers and manufacturers stay ahead of the curve. And just like that, the Special Report: Automotive Consumer Trends Report was born. As I was sifting through the data, one of the trends that stood out to me was the neck-and-neck race between Millennials and Gen X for supremacy in the used vehicle market. Five years ago, in 2019, Millennials were responsible for 33.3% of used retail registrations, followed by Gen X (29.5%) and Baby Boomers (26.8%). Since then, Baby Boomers have gradually fallen off, and Gen X continues to close the already minuscule gap. Through October 2024, Millennials accounted for 31.6%, while Gen X accounted for 30.4%. But trends can turn on a dime if the last year offers any indication. Over the last rolling 12 months (October 2023-October 2024), Gen X (31.4%) accounted for the majority of used vehicle registrations compared to Millennials (30.9%). Of course, the data is still close, and what 2025 holds is anyone’s guess, but understanding even the smallest changes in market share and consumer purchasing behaviors can help dealers and manufacturers adapt and navigate the road ahead. Although there are similarities between Millennials and Gen X, there are drastic differences, including motivations and preferences. Dealers and manufacturers should engage them on a generational level. What are they buying? Some of the data might not come as a surprise but it’s a good reminder that consumers are in different phases of life, meaning priorities change. Over the last rolling 12 months, Millennials over-indexed on used vans, accounting for more than one-third of registrations. Meanwhile, Gen X over-indexed on used trucks, making up nearly one-third of registrations, and Gen Z over-indexed on cars (accounting for 17.1% of used car registrations compared to 14.6% of overall used vehicle registrations). This isn’t surprising. Many Millennials have young families and may need extra space and functionality, while Gen Xers might prefer the versatility of the pickup truck—the ability to use it for work and personal use. On the other hand, Gen Zers are still early in their careers and gravitate towards the affordability and efficiency of smaller cars. Interestingly, although used electric vehicles only make up a small portion of used retail registrations (less than 1%), Millennials made up nearly 40% over the last rolling 12 months, followed by Gen X (32.2%) and Baby Boomers (15.8%). The market at a bird’s eye view Pulling back a bit on the used vehicle landscape, over the last rolling 12 months, CUVs/SUVs (38.9%) and cars (36.6%) accounted for the majority of used retail registrations. And nearly nine-in-ten used registrations were non-luxury vehicles. What’s more, ICE vehicles made up 88.5% of used retail registrations over the same period, while alternative-fuel vehicles (not including BEVs) made up 10.7% and electric vehicles made up 0.8%. At the finance level, we’re seeing the market shift ever so slightly. Since the beginning of the pandemic, one of the constant narratives in the industry has been the rising cost of owning a vehicle, both new and used. And while the average loan amount for a used non-luxury vehicle has gone up over the past five years, we’re seeing a gradual decline since 2022. In 2019, the average loan amount was $22,636 and spiked $29,983 in 2022. In 2024, the average loan amount reached $28,895. Much of the decline in average loan amounts can be attributed to the resurgence of new vehicle inventory, which has resulted in lower used values. With new leasing climbing over the past several quarters, we may see more late-model used inventory hit the market in the next few years, which will most certainly impact used financing. The used market moving forward Relying on historical data and trends can help dealers and manufacturers prepare and navigate the road ahead. Used vehicles will always fit the need for shoppers looking for their next vehicle; understanding some market trends will help ensure dealers and manufacturers can be at the forefront of helping those shoppers. For more information on the Special Report: Automotive Consumer Trends Report, visit Experian booth #627 at the NADA Show in New Orleans, January 23-26.
The automotive industry is constantly changing. Shifting consumer demands and preferences, as well as dynamic economic factors, make the need for data-driven insights more important than ever. As we head into the National Automobile Dealers Association (NADA) Show this week, we wanted to explore some of the trends in the used vehicle market in our Special Report: State of the Automotive Finance Market Report. Packed with valuable insights and the latest trends, we’ll take a deep dive into the multi-faceted used vehicle market and better understand how consumers are financing used vehicles. 9+ model years grow Although late-model vehicles tend to represent much of the used vehicle finance market, we were surprised by the gradual growth of 9+ model year (MY) vehicles. In 2019, 9+MY vehicles accounted for 26.6% of the used vehicle sales. Since then, we’ve seen year-over-year growth, culminating with 9+MY vehicles making up a little more than 30% of used vehicle sales in 2024. Perhaps more interesting though, is who is financing these vehicles. Five years ago, prime and super prime borrowers represented 42.5% of 9+MY vehicles, however, in 2024, those consumers accounted for nearly 54% of 9+MY originations. Among the more popular 9+MY segments, CUVs and SUVs comprised 36.9% of sales in 2024, up from 35.2% in 2023, while cars went from 44.3% to 42.9% year-over-year and pickup trucks decreased from 15.9% to 15.6%. 2024 highlights by used vehicle age group To get a better sense of the overall used market, the segments were broken down into three age groups—9+MY, 4-8MY, and current +3MY—and to no surprise, the finance attributes vary widely. While we’ve seen the return of new vehicle inventory drive used vehicle values lower, it could be a sign that consumers are continuing to seek out affordable options that fit their lifestyle. In fact, the average loan amount for a 9+MY vehicle was $19,376 in 2024, compared to $24,198 for a vehicle between 4-8 years old and $32,381 for +3MY vehicle. Plus, more than 55% of 9+MY vehicles have monthly payments under $400. That’s not an insignificant number for people shopping with the monthly payment in mind. In 2024, the average monthly payment for a used vehicle that falls under current+3MY was $608. Meanwhile, 4-8MY vehicles came in at an average monthly payment of $498, and 9+MY vehicles had a $431 monthly payment. Taking a deeper dive into average loan amounts based on specific vehicle types—as of 2024, current +3MY cars came in at $28,721, followed by CUVs/SUVs ($31,589) and pickup trucks ($40,618). As for 4-8MY vehicles, cars came in with a loan amount of $22,013, CUVs/SUVs were at $23,133, and pickup trucks at $31,114. Used 9+MY cars had a loan amount of $19,506, CUVs/SUVs came in at $17,350, and pickup trucks at $22,369. With interest rates remaining top of mind for most consumers as we’ve seen them increase in recent years, understanding the growth from 2019-2024 can give a holistic picture of how the market has shifted over time. For instance, the average interest rate for a used current+3MY vehicle was 8.0% in 2019 and grew to 10.2% in 2024, the average rate for a 4-8MY vehicle went from 10.3% to 12.9%, and the average rate for a 9+MY vehicle increased from 11.4% to 13.8% in the same time frame. Looking ahead to the used vehicle market It’s important for automotive professionals to understand and leverage the data of the used market as it can provide valuable insights into trending consumer behavior and pricing patterns. While we don’t exactly know where the market will stand in a few years—adapting strategies based on historical data and anticipating shifts can help professionals better prepare for both challenges and opportunities in the future. As used vehicles remain a staple piece of the automotive industry, making informed decisions and optimizing inventory management will ensure agility as the market continues to shift. For more information, visit us at the Experian booth (#627) during the NADA Show in New Orleans from January 23-26.
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typesetting, remaining essentially unchanged. It was popularised in the 1960s with the release of Letraset sheets containing Lorem Ipsum passages, and more recently with desktop publishing software like Aldus PageMaker including versions of Lorem Ipsum.