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They have started to shift away from time-based collections management activities (the 30-, 60-, 90-day bucket approach). Instead, the focus is migrating towards the development of collections strategy that is based on the underlying risk of the individual – to look at how he is performing on all of the obligations in the total relationship to determine the likelihood of repayment and the associated activities that can facilitate that repayment. They’ve found they can’t rely purely on traditional models anymore because consumer behavior has dramatically changed and an account only approach doesn’t reflect the true risk and value of the individual’s relationship.
By: Prince Varma Good day all. My last blog revolved around practical approaches to effective client relationship management. It time to get back to a “risk” type conversation. I recently told my wife that if I hear the phrase “…in this economic environment …” uttered as a caveat one more time, I’m going to scream. I have truly come to anticipate the beginning or introduction to interviews and articles to lead in with this sentiment and it’s driving me nuts. In these economic times (you can tell I’m from the sales side, I cleverly changed the phrase), it is clearly not business as usual within most financial institutions. Conversations with CEOs and bank presidents over the past two months have usually followed the same theme, “I’ve got money to lend, but I just can’t find a decent deal” or “I’ve got applications up the wazoo, but the quality just isn’t there.” So, what is going on? The obvious answer is that we are looking at applications more closely and the credit side (risk management guys) is deliriously happy because everytime they make a recommendation about “reviewing the opportunity further” they also don’t hesitate to mention, “in this economic environment.” Really, what is the scoop and how do we adjust on the front line? Clearly, we know that deeper reviews and management of risk is being undertaken. The problem is that the established standards are no longer valid. Yes, the basics ratios still need to be run, but let’s face it, in this economic environment a company’s historical performance is no longer an effective indicator as to their future performance. The playing field is no longer consistent. The past two to three years of financials are based on circumstances that no longer apply. This means that the analysts are having a difficult time establishing effective benchmarks from which to apply credit policy – and we know that those guys are the paragons of adaptability. We are being asked to evaluate risk in an uncertain circumstance. We are looking at projected revenues and earnings and examining receivables. We are also comparing this business to others in the industry, determining which other market segments have a direct (and indirect) impact on the performance of this one, reviewing business plans and evaluating management depth and experience. And, at the end of the day, either saying no, saying yes but not so much or holding our breath and hoping that divine intervention shows us the way. Does any of this should sound familiar to you? It should. We see these type of deals all of the time and we call them the start-ups. Ok, so what am I recommending? Quite simply, that we take a step back from our typical approach to the established business and engage with them the way we would a start-up. When an opportunity or request presents itself, restrain the urge to go down the garden path. Slow down! No… stop! Take a deep breath, put on your “economic development hat ” and approach the deal the way you would if it were a start-up (and I don’t mean running away at top speed in the opposite direction screaming). You should: look for or help them construct a short term (next four to six month) tactical action/priority plan; help them or review their 12-month business plan; o NOTE: If the business hasn’t realized that they need a short-term survival plan and a mid-term business plan… run! Run far and run fast! examine their market and have them explain why they will make it versus the competition; dig into their management expertise (think AIG); have them explain how their tactical and 12-month business plan will keep the doors open and the lights on (since its coming into summer we’ll cut them some slack on the heat); and finally review and revise their projections. If at the end of this, you still feel that the deal has legs, it probably does, and you’ve done a pretty thorough job building the business case for the credit side. Or, you could just lament that there really isn’t much out there in this economic environment.
By: Prince Varma Part 2 Two additional tactics that you should incorporate into your relationship management penetration strategy include: Conducting relationship reviews in addition to loan reviews; and Identifying and proactively monitoring changes in client behavior. Relationship reviews Relationship reviews are a comprehensive and thorough examination of the client’s business and should be the foundation for your relationship management process. They seek to provide both the client and the relationship manager with a roadmap for the upcoming 14- to 16-month period by identifying specific goals and concerns, as well as constructing a snapshot of the client today. The purpose of a relationship review is to understand the broader direction. Bluntly put, an annual loan review is not a penetration activity. Its primary focus is to verify the ongoing credit worthiness of an existing deal in the books. More details will come about this topic in a future blog. Monitoring changes in behavior Monitoring changes in client behavior through the use of “activity thresholding” is quickly becoming a mainstay in the financial industry. The idea isn’t new; however, the application of the concept to penetration is. Instead of having changes in credit score trigger an alert related to risk management and mitigation, we would instead look at thresholds related to line usage, number of deposit transactions, changes in average deposit amount and credit card transactions. These kinds of client behaviors and activities provide insight into what is occurring within a clients business and as such, allow us to provide recommendations for products and services that are meaningful and appropriate.
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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.