How to Ride the Rising Tides of 2022’s Auto Lending Market

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Open Lending Gradient Background

Risk is a natural part of business – but being able to mitigate those risks, while simultaneously increasing your profitable car loan portfolio is what makes a successful lender. Due to uneven economic recovery the current atmosphere in the lending market, including steep rises in costs to own an automobile, may greatly impact traditional lending portfolios. It is imperative to ensure opportunities are available to non-prime borrowers to grow your portfolio and drive new opportunities.

Rising Regulatory Concerns

The Consumer Financial Protection Bureau shared, “Consumers with prime credit scores typically have many financing options, including borrowing directly from lenders. This provides them more leverage to negotiate interest rates. On the other hand, consumers with subprime credit scores often get loans indirectly through a smaller pool of lenders that operate exclusively through dealers or from buy-here-pay-here (BHPH) dealers that specialize in subprime lending. The result is less comparison shopping, fewer options, and less leverage to negotiate the interest rate.” The agency continued, “The current economic recovery is uneven, and some consumers have been hit harder economically due to the pandemic. We want to ensure that incentives are aligned between servicers and consumers, that servicers are making accommodations available to all consumers and that servicer practices treat consumers fairly.”

Credit unions and community banks offer consumers access to fairly priced credit and are working to get their communities back to work. Cars are critical to those returning to in-person work after the pandemic. In the meantime, their credit may have taken a hit.

Open Lending’s Lenders Protection™ has your back. Lenders Protection™ is a risk management program featuring proprietary data analytics to better rate a borrowers’ creditworthiness and is backed by default insurance coverage for near-prime auto loans. This market is significantly underserved, yet it’s one of the most profitable for lenders. Lenders Protection™ helps mitigate your concerns and your institution’s risk.

Rising Costs

In light of the COVID 19 pandemic, commuters avoided mass transit options as they started getting back to work. More were looking for vehicles and many had lower credit scores. CUinsight shared, “Demand increased for used vehicles as Americans avoided public transportation and ride-share services, increasing the cost of used cars and light trucks. To deal with the COVID-19 economic fallout, the government issued stimulus checks among other measures that have held auto loan and other delinquencies at bay.”

At the same time, supply chain issues decreased new vehicle production, creating the perfect storm to catapult new and used car prices. TrueCar recently forecast the quarterly average transaction price to be up 15% from a year ago and up 2% from Q1 2022. To be able to afford the payments, borrowers are looking for longer loan terms, which is a concern for lenders.

And we still have yet to see what will come of defaults and repossessions. However, our partners at Allied Solutions shared the many moving parts to consider if there’s a rush on those types of resources. For example, Suzi Straffon and Anne Holtzman of Allied Solutions shared with CUInsight six critical factors to monitor beyond government aid that may be masking delinquencies, but also repo needs and higher demand on loan loss reserves.

They also advised to work on your game plan now to shore up the necessary resources, tools and technology to handle the predicted increase in repossessions. Delinquencies in January 2022 were 2.9% higher than the previous January and our friends at Allied Solutions predicted 700,000 for this year, and according to,

They recommended 7 Steps to Mitigate Auto Lending Risk Factors:
  1. Develop your game plan now.
  2. Shore up resources, tools, and technology.
  3. Focus on data analytics.
  4. Ensure compliance and consumer sensitivity.
  5. Aggregate volume to create buying power.
  6. Invest in consumer self-service options.
  7. Optimize recovery services.

“Demand for repossession services will be exacerbated by the lack of people and resources needed to meet the skyrocketing needs,” Holtzman reasoned. She noted the uptick in delinquencies among the subprime market months ago. She added, repossession agents will go where there is volume and buying power, so smaller lenders may be left out in the cold. But, when you work with Open Lending, you can avoid all that drain on your resources and time, skip the hassle and aggravation. Our proprietary data analytics predict likelihood of default at a rate north of 90%. We update our data and algorithms each year with every new insight we can glean to improve our methodologies and the accuracy of Lenders Protection™. And, as we always have, we back that with default insurance provided by multiple A-rated carriers with an average recovery rate across the portfolio of 85%. You will likely be able to get the rest at auction, keeping your bank or credit union protected financially.

Rising Revenue Despite Sinking Originations

TrueCar also reported it expects total new vehicle industry sales to reach 1,166,569 units in June 2022, down 14% from a year ago and down 3% from May 2022. The online car-buying service added that, aside from fleet sales, U.S. retail deliveries of new cars and light trucks will be 1,023,466 units, down 15% from a year ago and down 5% from May.

Despite all the negatives, we’re optimistic. The near-prime auto lending market is a frequently overlooked, highly profitable segment in our experience across hundreds of lenders. Manufacturing may be down, but lenders can grab a larger slice of the pie by expanding their underwriting thresholds and mitigating the risk for greater profitability – our clients can earn a 300% to 400% higher net ROA than prior to partnering with Open Lending. The Lenders Protection™ program by Open Lending can help you take the necessary steps to mitigate the risk in your auto loan portfolio and increase its profitability while driving new opportunities in an expanded market to include near-prime borrowers.

We’re regularly adding more lenders who see the value in what Open Lending can offer their institutions and their borrowers. In the first quarter we experienced a 32% increase in certified loans and added 18 new clients, as well as expanding relationships with existing clients. Our top 10 financial institutions increased their certification volume by 166% in the first quarter of 2022 compared to Q1 of 2021.

The Lenders Protection™ program is unique in that it allows financial institutions and other auto lenders the ability to model their specific overhead and funding costs and set a target ROA for their insured portfolio. Our platform was built to help lenders say ‘yes’ to more auto loans by leveraging data and sophisticated, customizable analytics, resulting in a profitable auto loan portfolio with carefully managed risk characteristics.

Contact our experts today to learn more!


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