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of the printing and typesetting industry. Lorem Ipsum has been the industry’s standard dummy text ever since the 1500s, when an unknown printer took a galley of type and scrambled it to make a type specimen book. It has survived not only five centuries, but also the leap into electronic 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
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By: Wendy Greenawalt The economy has changed drastically in the last few years and most organizations have had to reduce costs across their businesses to retain profits. Determining the appropriate cost-cutting measures requires careful consideration of trade-offs while quantifying the short- and long-term organizational priorities. Too often, cost reduction decisions are driven by dynamic market conditions, which mandate quick decision-making. Due to this, decisions are made without a sound understanding of the true impact to organizational objectives. Optimization (optimizing decisions) can be used for virtually any business problem and provides decisions based on complex mathematics. Therefore, whether you are making decisions related to outsourcing versus staffing, internal versus external project development or specific business unit cost savings opportunities, optimization can be applied. While some analytical requirements exist to obtain the highest business metric improvements, most organizations have the data available that is required to take full advantage of optimization technology. If you are using predictive models, credit attributes and have multiple actions that can be taken on an individual consumer, then, most likely, your organization can benefit from strategies in optimizing decisions. In my next few blogs, I will discuss how optimization / optimizing decisions can be used to create better strategies across an organization whether your focus is marketing, risk, customer management or collections.
By: Tom Hannagan While waiting on the compilation of fourth quarter banking industry results, I thought it might be interesting to relate the commercial real estate (CRE) risk management position facing commercial banks from the third quarter. CRE risk is an important consideration in enterprise risk management and for loan pricing and profitability. The slowdown in the global economy has affected CRE credit risk because of increased vacancy rates, halted development projects, and the loss of value affecting commercial properties. As CRE loans come up for renewal, many will find that there have equity deficits and that they are facing tightened credit standards. If a commercial property loan started life at 80 percent loan to value, and the property value has dropped 25 percent, the renewed loan balance will be down at least 25 percent, requiring a substantial net payoff from the borrower. This net cash payoff requirement would be tough to accomplish in good times and all-but-impossible for many borrowers in this economy. After all, the main reason for the decline in property value to begin with is its reduced cash flow performance. Following the third quarter numbers, total U.S. commercial real estate is generally estimated at $3.4 to $3.5 trillion. Commercial banks owned just over half of that debt, or about $1.8 trillion according to Federal Reserve and FDIC sources. The (possibly only) good news with that total is that commercial banks owned a relatively small share of the commercial-mortgage-backed securities (CMBS) slice of CRE exposure. CMBS assets were 21 percent of total CRE credit or $714 billion, but banks owned a total of $54 billion, which represented only 3 percent of total bank CRE assets. Unfortunately, the opposite is true for construction lending. U.S. banks, in total, had $486 to $534 billion (depending on the source) in construction and land loans, representing 27 percent to 30 percent of banks’ total CRE holdings. The true credit risk management picture is much more revealing if we cut the numbers by bank size. According to Deutsche Bank research, the largest 97 banks (those with over $10 billion in total assets) had $14.8 trillion in total assets and $1.0 trillion of the banking industry’s CRE credits. This amounts to about 7 percent of the total assets for this group of larger banks. The 7,500 community banks, with aggregate assets of $2 trillion, had about $786 billion in CRE lending. This amounts to about 28 percent of total assets. That is roughly four times the level of exposure found in the larger banks. The 7 percent level of credit risk average exposure at the large bank group is less than their average level of equity or risk-based capital. For the banks under the $10 billion level, the 28 percent level of CRE exposure is almost three times their average equity position. The riskiest portion of CRE lending is clearly the construction and land development loans. The subtotals in this area confirm where the cumulative risk lies. Again, according to Deutsche Bank research, the largest 97 banks had $299 billion of the banking industry’s $534 billion in construction loans. Although this is 56 percent of total bank construction lending, it amounts to only 2 percent of this group’s total assets. The 7,500 community banks had aggregate construction loans of $235 billion. This amounts to about 8.5 percent of total assets. That is a bit over four times the level of exposure found in the larger banks. The 2 percent level of construction credit risk exposure at the large bank group is one-fourth of their average level of common equity. At banks under the $10 billion level, the 8.5 percent level of CRE exposure, compared to total assets, is about the same as their average equity position. According to Moody’s, bank have already taken about $90 billion in net loan losses in CRE assets through the third quarter of 2009. That means the industry has perhaps another $150 billion in write-offs coming. This would total $240 billion in CRE credit losses for the banking industry due to this economic downturn. That would equate to 13.3 percent of the banking industry’s share of total CRE credit. With the decline in commercial property values ranging from 10 percent to 40 percent, a 13 percent loss is certainly not a worst case scenario. Banks have ramped up their loss reserves, and although the numbers aren’t out yet, we know many banks have used the fourth quarter 2009 to further bolster their allowances for loan and lease losses (ALLL). The larger the ALLL, the safer the risk-based equity account. Risk managers are aware of all of this and banks are very actively developing their strategies to handle the refunding requirements and, at the same time, be in a position to explain to regulators and external auditor how they are protecting shareholders. But the numbers are very daunting and not every bank will have enough net cash flow and risk equity to cover the inevitable losses.
My last entry covered the benefits of consortium databases and industry collaboration in general as a proven and technologically feasible method for combating fraud across industries. They help minimize fraud losses. So – with some notable exceptions – why are so few industries and companies using fraud consortiums and known fraud databases? In my experience, the reasons typically boil down to two things: reluctance to share data and perception of ROI. I say "perception of ROI" because I firmly believe the ROI is there – in fact it grows with the number of consortium participants. First, reluctance to share data seems to stem from a few areas. One is concern for how that data will be used by other consortium members. This is usually addressed through compelling reciprocation of data contribution by all members (the give to get model) as well as strict guidelines for acceptable use. In today’s climate of hypersensitivity, another concern – rightly so – is the stewardship of Personally Identifiable Information (PII). Given the potentially damaging effects of data breaches to consumers and businesses, smart companies are extremely cautious and careful when making decisions about safeguarding consumer information. So how does a data consortium deal with this? Firewalls, access control lists, encryption, and other modern security technologies provide the defenses necessary to facilitate protection of information contributed to the consortium. So, let’s assume we’ve overcome the obstacles to sharing one’s data. The other big hurdle to participation that I come across regularly is the old “what’s in it for me” question. Contributors want to be sure that they get out of it what they put into it. Nobody wants to be the only one, or the largest one, contributing records. In fact, this issue extends to intracompany consortiums as well. No line of business wants to be the sole sponsor just to have other business units come late to the party and reap all the benefits on their dime. Whether within companies or across an industry, it’s obvious that mutual funding, support, equitable operating rules, and clear communication of benefits – to those contributors both big and small – is necessary for fraud consortiums to succeed. To get there, it’s going to take a lot more interest and participation from industry leaders. What would this look like? I think we’d see a large shift in companies’ fraud columns: from “Discovered” to “Attempted”. This shift would save time and money that could be passed back to the legitimate customers. More participation would also enable consortiums to stay on top of changing technology and evolving consumer communication styles, such as email, text, mobile banking, and voice biometrics to name a few.
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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.