Four growing trends, driven by technology and millennial usage and behavior, are depressing vehicle ownership, and, consequently, auto financing. Uber and Lyft have greatly disrupted traditional for-hire urban transportation services (aka cabs). Zipcar offers an affordable alternative to car ownership for urban dwellers: Unlock a nearby Zipcar with your smartphone and Zipcard and go. Car-sharing subscriptions give frequent users greater convenience and variety of vehicles. Autonomous vehicles promise even greater efficiency, safety, and less congestion. In their infancy, they’re the subject of intrigue and interest, but numerous technical, regulatory, and cultural concerns delay widespread adoption.
Auto Finance and Ridesharing
Each of these trends is likely to lessen the need for private car ownership and consequently increase competition for auto financing opportunities. With respect to auto finance, rideshare is making the biggest immediate impact. How much? Auto Finance News has numerous articles covering the impact of rideshare from multiple perspectives—manufacturers, dealers, leasing, lenders, mobile technology, and insurance. Generational attitudes and economic factors are propelling the growth of ridesharing.
Millennial Attitudes
Several studies and newspaper articles have noted millennial attitudes toward vehicle ownership. It’s not difficult to understand the reasons they’re not keen on assuming debt, especially when many are already carrying substantial student loans. Those reasons include:
- Urban congestion: There’s no enjoyment in adding another vehicle to the problem and sitting in traffic;
- Mass transit and rideshare: Offer economically-attractive alternatives in urban environments.
- Cost of ownership: Purchase, financing, licensing and fees, insurance, maintenance, fuel, and parking can add up to thousands of dollars annually.
Not to say that all millennials are adverse to purchasing vehicles; there’s ample evidence that millennials are making new vehicle purchases. Attitudes may change, but the rideshare effect is noticeable.
Gig Economy
The economic downturn of the recent past played a role in birthing the gig economy. Thousands of unemployed people with vehicles saw Uber and Lyft as an opportunity to fill the financial gap. Semi-retired people and those looking to make some extra spending money were also drawn to the part-time be-your-own-boss opportunity. There was no shortage of skills or employees to launch the rideshare service and no shortage of customers with a smartphone willing to order a ride.
Rideshare appeals to urban millennials as an alternative to vehicle ownership. However, elderly citizens, persons temporarily without a vehicle, and even residents of towns with limited or no taxi service benefit as well. With the exception of rideshare drivers, the service lessens the need for car ownership and auto financing.
Auto Financing: Rideshare is the First Wave, Prepare for More Changes
Ridesharing is the leading trend reducing the need for traditional car ownership. Other trends—car sharing, car subscriptions, and autonomous vehicles—will change the meaning of ownership. It’s difficult to predict the long-term impact with certainty. How should lenders prepare?
Use the Latest Technology to Improve Your Ability to Compete
With potentially fewer lending opportunities, lenders need to use every method possible to book loans that match their credit policies. Just as technology helps drive the trends we mentioned above, technology also helps lenders. Modern loan origination solutions offer applications via mobile devices, auto structuring for prompt responses to applications, and analytics to improve process efficiency and portfolio performance. Together, these features help lenders capture applications and make well-informed lending decisions quickly.
- Mobile applications: Millennials (and millions of other consumers) have become accustomed to transactions via mobile devices. Providing auto loan applications via mobile devices is essential—even preferred—for doing business.
- Auto structuring: A timely response to loan applications greatly increases your probability of capturing the loan. Auto structuring lets you review a loan application, automatically apply a set of decision rules to match application attributes to credit policies, and respond with a loan offer—including stipulations for conditional approval, if needed. All of this is accomplished in seconds, without the need for underwriter intervention.
- Analytics: Analytics help you continuously increase lending efficiency. Analytics can also assess portfolio performance for insight into application sources, borrower attributes, and risk factors that determine portfolio profitability and performance.
A modern loan origination solution offers many other features to help you remain competitive and profitable. Mobile, auto structuring, and analytics are essential capabilities for any lender facing these disruptive trends in auto finance: Rideshare, car share, subscriptions, and autonomous vehicles.
Getting Started
defi SOLUTIONS loan origination and analytics software experts welcome the opportunity to discuss how you can efficiently and effectively compete in a changing auto finance market. Take the first step in benefitting from the latest technology solutions by contacting our team today or registering for a demo of defi LOS.
