By: Wendy Greenawalt The auto industry has been hit hard by this Great Recession. Recently, some good news has emerged from the captive lenders, and the industry is beginning to rebound from the business challenges they have faced in the last few years.  As such, many lenders are looking for ways to improve risk management and strategically grow their portfolio as the US economy begins to recover. Due to the economic decline, the pool of qualified consumers has shrunk, and competition for the best consumers has significantly increased. As a result, approval terms at the consumer level need to be more robust to increase loan origination and booking rates of new consumers. Leveraging optimized decisions is a way lenders can address regional pricing pressure to improve conversion rates within specific geographies. Specifically, lenders can perform a deep analysis of specific competitors such as captives, credit unions and banks to determine if approved loans are being lost to specific competitor segments. Once the analysis is complete, auto lenders can leverage optimization software to create robust pricing, loan amount and term account strategies to effectively compete within specific geographic regions and grow profitable portfolio segments. Optimization software utilizes a mathematical decisioning approach to identify the ideal consumer level decision to maximize organizational goals while considering defined constraints. The consumer level decisions can then be converted into a decision tree that can be deployed into current decisioning strategies to improve profitability and meet key business objectives over time.  

By: Staci Baker With the shift in the economy, it has become increasingly more difficult to gauge — in advance — what a consumer is going to do when it comes to buying an automobile.  However, there are tools available that allow auto lenders to gain insight into auto loans/leases that were approved but did not book, and for assessing credit risk of their consumers.  By gaining competitive insight and improving  risk management, an auto lender is able to positively impact loan origination strategies by determining the proper loan or lease term, what the finance offer should be and proactively address each unique market and risk segment. As the economy starts to rebound, the auto industry needs to take a more proactive approach in the way its members acquire business; the days of business-as-usual are gone.  All factors except the length of the loan being the same, if one auto dealer is extending 60-month loans per its norm and the dealer down the road is extending 72-month loans, a consumer may choose the longer loan period to help conserve cash for other items. This is one scenario for which auto dealers could leverage Experian’s Auto Prospect Intelligence(SM).  By performing a thorough analysis of approved loans that booked with other auto lenders, and their corresponding terms, auto lenders will receive a clear picture of who they are losing their loans to.  This information will allow an organization to compare account terms within specific peer group or institution type (captive/banks/credit union) and address discrepancies by creating more robust pricing structures and enhanced loan terms, which will result in strategic portfolio growth.    

Since 2007, when the housing and credit crises started to unfold, we’ve seen unemployment rates continue to rise (9.7% in March 2010 *)  with very few indicators that they will return to levels that indicate a healthy economy any time soon. I’ve also found myself reading about the hardship and challenge that people are facing in today’s economy, and the question of creditworthiness keeps coming into my mind, especially as it relates to employment, or the lack thereof, by a consumer. Specifically, I can’t help but sense that there is a segment of the unemployed that will soon possess a better risk profile than someone who has remained employed throughout this crisis. In times of consistent economic performance, the static state does not create the broad range of unique circumstances that comes when sharp growth or decline occurs. For instance, the occurrence of strategic default is one circumstance where the capacity to pay has not been harmed, but the borrower defaults on the commitment anyway. Strategic defaults are rare in a stable market. In contrast, many unemployed individuals who have encountered unfortunate circumstances and are now out of work may have repayment issues today, but do possess highly desirable character traits (willingness to pay) that enhance their long-term desirability as a borrower. Although the use of credit score trends, credit risk modeling and credit attributes are essential in assessing the risk within these different borrowers, I think new risk models and lending policies will need to adjust to account for the growing number of individuals who might be exceptions to current policies. Will character start to account for more than a steady job? Perhaps. This change in lending policy, may in turn, allow lenders to uncover new and untapped opportunities for growth in segments they wouldn’t traditionally serve. *  Source: US Department of Labor. http://www.bls.gov/bls/unemployment.htm

By: Wendy Greenawalt The auto industry has been hit hard by this Great Recession. Recently, some good news has emerged from the captive lenders, and the industry is beginning to rebound from the business challenges they have faced in the last few years.  As such, many lenders are looking for ways to improve risk management and strategically grow their portfolio as the US economy begins to recover. Due to the economic decline, the pool of qualified consumers has shrunk, and competition for the best consumers has significantly increased. As a result, approval terms at the consumer level need to be more robust to increase loan origination and booking rates of new consumers. Leveraging optimized decisions is a way lenders can address regional pricing pressure to improve conversion rates within specific geographies. Specifically, lenders can perform a deep analysis of specific competitors such as captives, credit unions and banks to determine if approved loans are being lost to specific competitor segments. Once the analysis is complete, auto lenders can leverage optimization software to create robust pricing, loan amount and term account strategies to effectively compete within specific geographic regions and grow profitable portfolio segments. Optimization software utilizes a mathematical decisioning approach to identify the ideal consumer level decision to maximize organizational goals while considering defined constraints. The consumer level decisions can then be converted into a decision tree that can be deployed into current decisioning strategies to improve profitability and meet key business objectives over time.  

By: Staci Baker With the shift in the economy, it has become increasingly more difficult to gauge — in advance — what a consumer is going to do when it comes to buying an automobile.  However, there are tools available that allow auto lenders to gain insight into auto loans/leases that were approved but did not book, and for assessing credit risk of their consumers.  By gaining competitive insight and improving  risk management, an auto lender is able to positively impact loan origination strategies by determining the proper loan or lease term, what the finance offer should be and proactively address each unique market and risk segment. As the economy starts to rebound, the auto industry needs to take a more proactive approach in the way its members acquire business; the days of business-as-usual are gone.  All factors except the length of the loan being the same, if one auto dealer is extending 60-month loans per its norm and the dealer down the road is extending 72-month loans, a consumer may choose the longer loan period to help conserve cash for other items. This is one scenario for which auto dealers could leverage Experian’s Auto Prospect Intelligence(SM).  By performing a thorough analysis of approved loans that booked with other auto lenders, and their corresponding terms, auto lenders will receive a clear picture of who they are losing their loans to.  This information will allow an organization to compare account terms within specific peer group or institution type (captive/banks/credit union) and address discrepancies by creating more robust pricing structures and enhanced loan terms, which will result in strategic portfolio growth.    

Since 2007, when the housing and credit crises started to unfold, we’ve seen unemployment rates continue to rise (9.7% in March 2010 *)  with very few indicators that they will return to levels that indicate a healthy economy any time soon. I’ve also found myself reading about the hardship and challenge that people are facing in today’s economy, and the question of creditworthiness keeps coming into my mind, especially as it relates to employment, or the lack thereof, by a consumer. Specifically, I can’t help but sense that there is a segment of the unemployed that will soon possess a better risk profile than someone who has remained employed throughout this crisis. In times of consistent economic performance, the static state does not create the broad range of unique circumstances that comes when sharp growth or decline occurs. For instance, the occurrence of strategic default is one circumstance where the capacity to pay has not been harmed, but the borrower defaults on the commitment anyway. Strategic defaults are rare in a stable market. In contrast, many unemployed individuals who have encountered unfortunate circumstances and are now out of work may have repayment issues today, but do possess highly desirable character traits (willingness to pay) that enhance their long-term desirability as a borrower. Although the use of credit score trends, credit risk modeling and credit attributes are essential in assessing the risk within these different borrowers, I think new risk models and lending policies will need to adjust to account for the growing number of individuals who might be exceptions to current policies. Will character start to account for more than a steady job? Perhaps. This change in lending policy, may in turn, allow lenders to uncover new and untapped opportunities for growth in segments they wouldn’t traditionally serve. *  Source: US Department of Labor. http://www.bls.gov/bls/unemployment.htm