This year has been one to be recorded in history books for many of the wrong reasons. Like many other industries, auto lending has seen its fair share of challenges this year, but it has also experienced many opportunities for growth, which has helped Open Lending and our clients perform well in turn. I’m beginning to look ahead to 2021, and what the new year may bring for car lenders and borrowers alike, as well as Open Lending.
Auto Sales And Lending In The Age of Coronavirus Pandemic:
We can look to the second half of 2020 for a glimpse of what we might expect in 2021. The coronavirus pandemic completely shook expectations with new vehicle sales declining in March, April, May and June by 41%, 60%, 29% and 20%, respectively, according to an article from CUInsight. However, the used auto market experienced one of its biggest buying booms in years. According to CNBC, in part due to a lack of new cars arriving to dealerships because of factory shutdowns, used car sales increased in April and May; that trend continued through the summer and fall.
Dealerships and lenders learned to embrace technology more than ever before as states locked down many businesses and consumers feared for their health and safety. Dealerships quickly expanded their online presence, offered consumers contactless delivery and required scheduling of appointments for their showrooms. Likewise, lenders had to adapt their online loan applications and processes.
Open Lending has been performing very well, thanks to our clients who have determined that our programs are trusted and safe for interest-income generating auto-lending strategies. The near-prime and non-prime automotive loan market is a large, underserved sector with an approximate $14.6 billion revenue opportunity and an annual $250 billion underlying near-prime and non-prime auto loan market. We work every day to connect our lenders and dealers to reach every bit of it we can!
1. Dealers benefit from moving more vehicles, financing older and higher-mileage vehicles and upselling due to after-market sales allowances.
2. Our lenders receive loss mitigation benefits, seamless integrations and enhanced borrower experience.
3. Borrowers who have near- and non-prime credit are the real beneficiaries though, with access to loans at lower interest rates thanks to Open Lending’s Lenders Protection, lower payments and reduced or no down payments on vehicle loans.
Looking ahead to 2021:
With the beginning of Pfizer’s coronavirus vaccine rollout across the United States and questions about whether Congress will pass another relief bill, there are reasons to be both optimistic and cautious for 2021. An article from The Financial Brand reported that Fitch Ratings predicts new car sales will reach 15.6 million units, a 10% increase from the projected total of 14.2 million in 2020. While used cars sales performed well this year, Fitch also predicts that the used car numbers will fall back to pre-pandemic levels.
How the coronavirus will continue to affect lenders and consumers remains to be seen as new vaccines are expected to be distributed in phases through the first half of the year. The economic recovery could end up moving very slowly, and while many people will continue to go on as relatively normal as possible, others’ incomes have been drastically reduced or extinguished entirely, so lenders must be cognizant of the financial trends going into 2021. One thing I know helps mitigate those highs and lows when it comes to auto lending is the comprehensive consumer view and asset protection of Open Lending’s Lenders Protection.
As it stands now, there is hope and worry for 2021. What I can say for sure about next year is that Open Lending will continue to help your banks and credit unions bring in more auto loans with minimal risk efficiently and effectively, so let’s make next year a better and brighter one!