Probing Into The Tussle Between Commercial And Consumer Auto Lending
The final rule of the Consumer Financial Protection Bureau has resulted in a lot of changes both in the practices and policies of the auto lending market. The changes and new regulations of the CFPB rule have forced the auto lenders to make some chances in their concept and practices in order to stay compliant with the law and regulations implemented.
They now have to focus also on reviewing their current processes and policies and plan for a better policy for the future in order to stay in this competitive market of auto lending and provide a better service part from being able to resolve the compliance issues and threats. In addition to that they must now also focus on other areas such as:
- Reviewing staffing needs and training materials so as to ensure adequate and proper addressing of consumer compliance and protection issues for the senior management, board of directors, and other employees and
- Evaluating the culture of compliance so as to ensure that all including the board of directors, senior and middle management are committed to it and the regulatory requirements for the proper promotion of consumer protection.
Apart from that, the auto lenders both direct and indirect lender, traditional and other sources such as Liberty Lending now needs to process and accept payments that are associated with all of the related services such as shared mobility. It also includes paying for the trip itself as well as any other ancillary services such as entertainment during it.
Analysis of the market
When the auto lending market is analyzed it is found that due to the current changes in the CFPB final rules and regulations about 35% of the entire auto lending market may eventually shift their focus in commercial transactions more if not completely than consumer financing.
According to the experts, there are a few significant challenges posed by this shift of the auto lending companies.
- The most significant one, however, is that the shared autonomous vehicles are more likely to become predominantly utilitarian especially in those urban areas that are densely populated.
- This will, in turn, result in lower residual values as well as prices per unit so much so that it will make the auto lending financing look more like ‘small ticket financing' for specific items such as low priced medical equipment, commercial office equipment and others.
- This eventually will create a space that will have a large number of traditional players that will have the ability to challenge financiers.
In addition to all of the above, this shift will deal with the more sophisticated commercial borrowers who will be typically financing in large volumes. This could mean tighter margins.
Magnitude of the change
If you want to understand the magnitude of this upcoming change in auto lending due to CFPB final rule you will need to take different data into consideration. This data is used on the current auto finance market assumptions and the upcoming trends. With the help of this data you will be able to understand different aspects such as:
- How widely and quickly each of the states in the future will adopt the corresponding impacts on the vehicle types, sales, and values.
- It will also help you to know about the forecasts that can be derived from such shifts regarding the types and sizes of vehicles financing that will be needed in the future of mobility.
All these estimates may be preliminary but are also very conservative. These suggest that the future visions and policies in auto lending will combine together to reshape and remake the auto lending landscape.
The used car market
There is an increase in the used car market which may or may not be the direct influence of the shift in auto lending and the major players in the market. A recent research suggests that:
- Dealers sell more than 38 million used cars in a year and
- More than 55% of all of these purchases are made on financing of some kind or the other.
However, the experts say that this change brought in the business policies by the auto market and by the future of mobility will result in an untimely ripple all across the used car market as well.
The most significant reason for this is that the autonomous technology is adopted now more extensively in more and more new vehicles. This eventually may result in the market arriving at the tipping point wherein the resale value of those used cars that are less advanced and primarily driver-driven could drop precipitately.
In addition to that the experts point out towards another significant effect on the market by the users car sales. They say that:
- In case the shared autonomous cars are populated by the less expensive and utilitarian electric pods that have narrow service life, it will lead to zeroing the needs and sale of the used cars.
- That means it will effectively generate the future state 4 indicating a significant decline in its supply.
This eventually means that there will be an excessive demand for the more expensive personally owned autonomous vehicles. The will raise the need of auto financing and lending will be in larger volumes and larger loans. This will eventually hit the used car market typically below the belt.
The eventual scene
Today's auto market as well as auto financing market thrives mainly on the individuals buying cars. The features of this type of business are:
- It is dealer driven
- Consumer focused and
- Point of sale concept business.
However, due to the new rule and the shift in the auto market, the auto lending market is now experiencing changes wherein people are increasingly forging purchasing a car and are typically opting to access the on-demand mobility instead even more.
This means the auto finance business will also have to shift its focus towards providing such type of financing to the commercial owners of such shared vehicle fleets. The experts estimate that the overall size of auto lending market may shrink considerably from the $1 trillion mark putting their annual revenue at risk.