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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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Many desktop publishing packages and web page editors now use Lorem Ipsum as their default model text, and a search for ‘lorem ipsum’ will uncover many web sites still in their infancy.
By: Amanda Roth Doesn’t that sound strange: Pricing WITH competition? We are familiar with the sayings of pricing for competition and pricing to be competitive, but did you ever think you would need to price with competition? When developing a risk-based pricing program, it is important to make sure you do not price against the competition in any extreme. Some clients decide they want to price lower than the competition regardless of how it impacts their profitability. However, others price only for profitability without any respect to their competition. As we discussed last week, risk-based pricing is 80 percent statistics, but 20 percent art — and competition is part of the artistic portion. Once you complete your profitability analysis (refer to 12/28/2009 posting), you will often need to massage the final interest rate to be applied to loan applications. If the results of the analysis are that your interest rate needs to be 8.0 percent in your “A” tier to guarantee profitability, but your competition is only charging 6.0 percent, there could be a problem if you go to market with that pricing strategy. You will probably experience most of your application volume coming to an end, especially those customers with low risk that can obtain the best rates of a lender. Creativity is the approach you must take to become more competitive while still maintaining profitability. It may be an approach of offering the 6.0 percent rate to the best 10 percent of your applicant base only, while charging slightly higher rates in your “D” and “E” tiers. Another option may be that you need to look internally at processing efficiencies to determine if there is a way to decrease the overall cost associated with the decision process. Are there decision strategies in place that are creating a manual decision when more could be automated? Pricing higher than the market rate can be detrimental to any organization, therefore it is imperative to apply an artistic approach while maintaining the integrity of the statistical analysis. Join us next week to continue this topic of pricing with competition which is, again, an important consideration when developing a risk-based pricing program.
By: Ken Pruett I thought it might be helpful to give an example of a recent performance monitoring engagement to show just how the performance monitoring process can help. The organization to which I'm referring has been using Knowledge Based Authentication for several years. They are issuing retail credit cards for their online channel. This is an area that usually experiences a higher rate of fraud. The Knowledge Based Authentication product is used prior to credit being issued. The performance monitoring process involved the organization providing us with a sample of approximately 120,000 records of which some were good and some were bad. Analysis showed that they had a 25 percent referral rate — but they were concerned about the number of frauds they were catching. They felt that too many frauds were getting through; they believed the fraud process was probably too lenient. Based on their input, we started a detailed analytic exercise with the intention, of course, to minimize fraud losses. Our study found that, by changing several criteria items with the set-up, the organization was able to get the tool to be more in-line with expectations. So, by lowering the pass rate by only 9 percent they increased their fraud find rate by 27 percent. This was much more in-line with their goals for this process. In this situation, a score was being used, in combination with the organization's customer's ability to answer questions, to determine the overall accept or refer decision. The change to the current set-up involved requiring customers to answer at least one more question in combination with certain scores. Although the change was minor in nature, it yielded fairly significant results. Our next step in the engagement involved looking at the questions. Analysis showed that some questions should be eliminated due to poor performance. They were not really separating fraud; so, removing them would be beneficial to the overall process. We also determined that some questions performed very well. We recommended that these questions should carry a higher weight in the overall decision process. An example would be that a customer be required to answer only two questions correct for the higher weighted questions versus three of the lesser performing questions. The key here is to help keep pass rates up while still preventing fraud. Striking this delicate balance is the key objective. As you can see from this example, this is an ongoing process, but the value in that process is definitely worth the time and effort.
We've recently discussed management of risk, collections strategy, credit attributes, and the like for the bank card, telco, and real estate markets. This blog will provide insights into the trends of the automotive finance market as of third quarter 2009. In terms of credit quality, the market has been relatively steady in year-over-year comparisons. The subprime group saw the biggest change in risk distribution from 3Q08, with a -3.74 percent shift. Overall, balances have declined to just over $673 billion (- 4 percent). In 3Q09, banks held the largest total of outstanding automotive balances of $241 billion (with captive auto next at $203 billion). Credit unions had the largest increase from 3Q08 (with $5 billion) and the finance/other group had the largest decrease in balances (- $23 billion). How are automotive loans performing? Total 30- and 60-day delinquencies are still on the rise, but the rate of increase of 30-day delinquencies appears to be slowing. New originations are dominating in the Prime plus market (66 percent), up by 10 percent. Lending criteria has tightened and, as a result, we see scores on both new and used vehicles continue to increase. For new buyers, over 83 percent are Prime plus. For used buyers, over 53 percent are Prime plus. The average credit score changed from 762 in 3Q08 to 775 in 3Q09 — up 13 points for new vehicles. For used vehicles in the same time period: 670 to 684, up 14 points. Lastly, let’s take a look at how financing has changed from 3Q08 to 3Q09. The financed amounts and monthly payments have dropped year-over-year as well as the average term and average rate. Source: State of the Automotive Finance Market, Third Quarter 2009 by Melinda Zabritski, director of Automotive Credit at Experian and Experian-Oliver Wyman Market Intelligence Reports
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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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