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Stephanie Butler, manager of Process Architects, in Advisory Services at Baker Hill, a part of Experian continues from her last post by adding how to get back to the risk management basics. With all that said, what is next? You’ve learned the lessons and are ready to begin 2009 fresh. How do you make sure that history does not repeat itself? Simply get back to the basics by: • Refocusing your lenders The lenders are your first line of defense. Make sure they understand the importance of accurate, complete information. Through their incentives, hold them accountable for credit quality. Retrain them, if necessary, on credit policy, financial analysis, business development, etc. • Creating or enhancing your loan review staff A strong, internal loan review staff is crucial. They are your second line of defense. By sampling the entire portfolio on a regular basis, loan review can see trends that an individual loan officer cannot. Loan review can aid in the portfolio management concentrations, policy adherence and portfolio growth. By reporting to either the holding company or credit administration, loan policy review can give an unbiased opinion on the quality of lending and the portfolio. • Bring back the credit department and formally-trained credit analysts For larger commercial loan underwriting requests, it is important to bring back the use of credit analysts and the credit department for in-depth financial analysis, loan write-ups and the discussion of strengths and weaknesses. Don’t forget to train the credit analysts! If you don’t feel you have the skill set within your institution for training, there are many good courses that your credit analysts can take. Remember, this is your bench for future lenders. • Bring accountability back Everyone in your organization is accountable for a specific job or task. You must hold your entire team, including senior management, accountable for their tasks, roles and the process of risk management. Remember, a lot of lessons were learned in 2008. The key is not to waste this knowledge going forward. Don’t keep doing what you have been doing! Embrace the potential to improve your lending practices, financial risk management, training opportunities and customer satisfaction. 2009 is a new year!
This post is a feature from my colleague and guest blogger, Stephanie Butler, manager of Process Architects in Advisory Services at Baker Hill, a part of Experian. Are you tired of the economic doom and gloom yet? I am. I’m not in denial about what is happening — far from it. But, we can wallow or move forward, and I chose to move forward. Let’s look at a few of the many lessons that can be learned from the year and some action steps for the future. 1. Collateral does not make a bad loan good Remember this one? If you didn’t relearn this in 2008, you are in trouble. Using real estate as collateral does not guarantee a loan will be paid back. In small business/commercial lending, we should be looking at time in business, repayment trends and personal credit. In consumer lending, time with an employer, time at the residence and net revolving burden are all key. If these are weak, collateral will not make things all better. 2. Balance the loan portfolio Too much of a good thing is ultimately never a good thing. First, we loaded our portfolios with real estate because real estate could never go bad. Now, financial institutions are trying to diversify out of real estate and move into the “next great thing.” Is it consumer credit cards, commercial C&I, or small business lines of credit? It’s anyone’s guess. The key is to balance the portfolio. A balanced portfolio can help smooth the impact of economic trends and help managing uncertainty. We all know that policy requires monitoring industry concentrations. But, balancing the portfolio means more than that. You also need to look at the product mix, collateral taken, loan size and customer location. Are you too concentrated in unsecured lending? How about lines of credit? Are all of your customers in three zip codes? 3. Proactive vs. reactive The days of using past dues for portfolio risk management are gone. We need to understand our customers by using relationship management and looking for proactive markers to anticipate problems. Whether this is done manually or through the use of technology, a process must be in place to gather data, analyze and anticipate loans that may need extra attention. Proactive portfolio risk management can lessen potential charge-offs and allow the bank to renegotiate loans from a position of strength. Be sure to check my next post as Stephanie continues with tips on how to get back to risk management basics.
Part 2 My colleague, Prince Varma, Senior Client Partner — Portfolio Growth and Client Management, shares his advice on the best practices for portfolio risk management in these trying times. Boy; this is an interesting time. Banks today are at a critical threshold — the biggest question that they are trying to answer is, "How do we continue to grow — or at least avoid contracting — without sacrificing profitability or credit quality?” The urge to overcompensate, or engage in ultra conservative lending practices, must be resisted. That said, we are already seeing a trend in which mid-sized and regional lenders are abandoning mid-tier credit. This vacuum is being filled by community banks and credit unions which are implementing aggressive risk-based pricing programs in order to target the small business market. These organizations are also introducing "safe and secure" campaigns that specifically target existing clients of banks in the news — and attempting to entice those clients to switch over. We are strongly urging banks to engage in an analysis of their existing portfolios in order to pinpoint opportunities for expanding their relationships with existing key clients. Many senior executives are expressing apprehension about undertaking new projects given current levels of uncertainty. Our best advice is two-fold.. First, focus on identifying those areas where process remediation will have long term and sustained value. Second, do not allow uncertainty to paralyze your internal improvement efforts. Strong business cases lead to good decisions; don't let fear and apprehension cloud what you know needs to be done.
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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.