The aim of automotive financing companies is to avail people of products and services that help them purchase vehicles, even when they can’t pay for them upfront. They are typically offered by banks, credit unions, among other financial institutions.
Auto financing services could range from payment instalment packages to offering full loans for vehicle purchase. At the moment, the industry is going through a transformation.
Industry research reported that the automotive finance market size was valued at US$232.09 billion in 2020, and is expected to continue to grow at a compound annual growth rate (CAGR) of 7.0% from 2021 to 2028. These promising numbers are indicative of the positive momentum of the industry.
Despite the major setbacks that beheld many companies, recovery efforts along with product and service innovation, are expected to launch a new epoch in automotive financing.
A lot of entities in this multibillion-dollar industry will begin to shift focus to certain things, as they look to expand and grow. These are some of the trends anyone with interest or stake in this enterprise should look out for.
1. Blockchain technology adoption
In a blockchain system, records are cryptographically sealed and very difficult or impossible to change, hack, or manipulate. This is a major reason why more companies are beginning to see value in the technology, and subsequently seek to digitize their products and services.
Between 2015 and 2017, there was upwards of US$ 1.7 billion of investment into the technology. Blockchain technology would offer a significant advantage to any entity that adopts it.
In a report on blockchain in auto finance, Deloitte proffered a few use cases for blockchain technology.
- Identity management
Identity management is an important aspect of auto financing. Financiers can use blockchain to access information on customers and clients.
This would be most useful during the onboarding process as well as during vehicle usage. Financiers can also use this information to provide custom made services to individual clients and customers.
- Vehicle history
Auto financiers, buyers and insurers can use blockchain to access information such as mileage, accident history, and changed parts on previously used vehicles.
This welcome information will be used to optimise processes and possibly drive down costs on vehicle servicing.
Blockchain technology can help users attain higher customer loyalty rates by helping streamline processes. Processes such as customer integration and transactions will become significantly seamless and therefore influence customer satisfaction positively.
2. Data-driven consulting services
Data is and will always be significant in vehicle financing. Financiers understand this, which is why successful financiers treat data generation and data storage as a priority, as they use them to provide services.
Soon, auto finance companies will take data services a step further and begin to serve as data experts and consultants to their customers. These companies would be able to present adequate data to customers in order to help them make the most optimal financing decisions.
3. Partnerships with OEMs
Original Equipment Manufacturers (OEMs) are best equipped to provide post-purchase services to customers, such as repairs and servicing. They are able to provide these services with more ease as a result of their better understanding of the vehicle and the availability of ideal parts.
More companies are beginning to catch on to this. In turn, they will begin to seek partnerships with OEMs to offer customers better deals. These deals will go a long way to improving customer experience as well.
4. Maas Financing
The global mobility as a service (MaaS) market as of 2018, was US$182.12 billion. It has been projected to reach US$210.44 billion by 2026, at a CAGR of 1.9% from 2019 to 2026.
The rise of ride-hailing and ride-sharing adoption is one of note in the transportation industry. Vehicles and systems used for MaaS are becoming increasingly attractive.
Automotive financiers who recognise this trend can look to finance these vehicles and systems. Customers working within MaaS systems will also demand special attention, as they would become profitable prospects.
5. New business models/Innovation
As automotive financiers look to be more competitive, new business models and innovation will become a necessity. Companies can begin to offer in-vehicle services, such as entertainment, information services, and message campaigns.
This move will also give rise to partnerships with companies that offer these services on other platforms. Partnerships with entertainment and telecommunications companies will be most noteworthy.
6. Electric Vehicle Requests
Sales of electric cars grew by 43% in 2020. More people are adopting electric vehicles. Reduced costs, lower emissions among other factors, are responsible for influencing their buying decisions. Automotive financing companies can expect customers to request financing for these vehicles going forward.
The automotive industry took a big hit during the thick of the pandemic, as did most other industries. Three(3) standout effects of this hit were,
- A major standstill of the industry,
- OEMs shifting to direct sales, and
- Process digitization due to social distancing rules.
At a time, the demand for vehicle financing in general reduced and requests for refinancing increased__as people struggled to make payments. Additionally, OEM’s looked to make direct sales in order to remain competitive.
Partnering with the OEMs became increasingly welcome, to provide more effective and efficient services for customers.
In more recent times, demand for vehicle financing has gone up and the industry is experiencing a rejuvenation. Entities looking to stay competitive will need to keep an eye on the trends to come. Digitization, data services, and MaaS financing will play major roles in the new industry landscape.