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Pandemic Effects on Auto Lending: Portfolio Protection Is More Important Than Ever

COVID-19 has altered borrowing patterns in the automotive industry. State National Executive Vice President Trace Ledbetter discusses what financial institutions can do to proactively protect their portfolio and borrowers.

Experian is a global leader in consumer and business credit reporting services, with decades of experience gathering, analyzing, and processing financial data for consumer and business use. One of the firm’s regular outputs is the “State of the Auto Finance Market,” an automotive industry finance market report released quarterly. In the second quarter of 2020, this report included the impacts of COVID-19 on the auto purchase and lending marketplace for the first time.

The insights shared within this report are interesting, to say the least, and shine a light on why a strong, reliable portfolio protection program will be more important than ever for automotive lenders in the months and years to come.

Coronavirus and Cars: Ups and Downs in 2020 So Far

The COVID-19 pandemic has had wide ripples of impact across the globe and has touched every industry and all aspects of the American economy. As the U.S. and other world economies return slowly to something resembling normalcy, there has been improvement in unemployment and consumer confidence; however, many challenges still remain and will continue to affect consumer behavior years into the future.

As a leading economic indicator, the automotive industry is one reflection of those changes and challenges. Unsurprisingly, in the late first quarter and early second quarter of 2020, the auto industry saw a dramatic decline in sales. Though sales have rebounded significantly in the third quarter, the overall industry is expected to be down year-over-year by 5%. Consumer buying patterns have also shifted, with new vehicle sales down 10.6%, while used vehicles are experiencing a surge in sales.

Higher Balances, Longer Loan Terms: Record high new loan amounts drive increased payments

Automotive loan patterns have changed as well. The average new vehicle loan amount is currently $36,072, which is roughly $4,000 higher than last year, and the average payment on these loans is about $20 higher per month. Used vehicle trends are the same, but to a lesser degree — the average used vehicle loan amount is currently $20,916, roughly $800 higher than last year, and the average payment on these loans is about $5 higher per month.

These changes become even more interesting when looking at the loan term and borrower credit composition. Over the past year, the average new vehicle loan term has increased to 71.54 months, while used vehicles averaged a term of 65.3 months. Nonprime, subprime, and deep subprime borrowers comprised 32.44% of total new vehicle borrowers and 51.27% of total used vehicle borrowers.

All of these changes to automotive borrowing patterns mean that auto lenders will have to be diligent about managing their organizational risk. An important part of that vigilance will include having strong, reliable programs in place to protect their businesses against uninsured borrowers as well as auto loan delinquencies and charge-offs.

At State National we focus our full attention on creating the best of these programs, and as a company we invest our time and resources in continual upgrades and enhancements. This enables us to offer robust, unique portfolio protection solutions that provides financial institutions what they value most in a partner.

In fact, we tried counting the many features and benefits that lead smart financial institutions to choose State National for insurance tracking and collateral protection insurance — and made it to 101 reasons before we stopped counting!

  1. The most advanced technology and ease of use
  2. The most detailed and comprehensive insurance tracking
  3. Faster and more efficient claims payment processes
  4. The most robust, easy-to-access program management and reporting
  5. Greater transparency and immediate visibility to borrower interactions
  6. Proactive, non-disruptive borrower notifications for minimal borrower friction
  7. Unparalleled service with responsive communication and prompt resolution

To see the rest of the 101 advantages you should expect from your institution’s portfolio protection partner, download “Portfolio Protection Program Essentials: The Ultimate Checklist” today.

At State National we focus our full attention creating the best of these programs, and as a company we invest our time and resources in continual upgrades and enhancements. This enables us to offer robust, unique portfolio protection solutions that provides financial institutions what they value most in a partner.

Trace Ledbetter
Trace Ledbetter
Trace Ledbetter is executive vice president at State National Companies, Bedford, Texas, where he directs and oversees delivery of all services and products for lender services, including customer relationship management, underwriting and claims.

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Innovative Research From Renowned “Think and Do” Tank Drives Real-World Results for Credit Unions With service as a core value, State National not only puts maximum effort into providing the best portfolio protection anywhere, but we also actively look for ways to help move the industry needle and be a part of a larger mission. This includes actively seeking to expose our clients to opportunities with leading organizations that explore innovative, growth-oriented ideas. What Matters to You Matters to Us The renowned research firm Filene is a credit union and consumer finance think tank headquartered in Madison, Wisconsin. As an Inner Circle member and research sponsor, we provide support for their mission to connect credit unions with insights and innovations to change people’s lives. Their research ventures connect credit unions with the most impactful technology and drive forward-thinking business decisions. Through investing in organizations like Filene, State National further supports the credit union mission and helps our partners benefit from the latest insights into solutions to their industry's unique challenges. This partnership also gives us access to original research to better focus future advancements and technology innovations on collateral protection insurance (CPI) program improvements for our credit union partners. Keep Good Company At the start of 2020, State National joined forces with Filene by sponsoring their Center of Excellence for Emerging Technology, working with their industry experts to explore the future of digital financial services. This year, we are proud to also provide support for Filene’s new CoE, the Center of Excellence for Innovation & Incubation, which helps credit unions explore solutions to assist them in remaining adaptive and nimble as member and community needs continue to shift. Filene’s Centers of Excellence are identified based on the needs shared by hundreds of credit unions and created to empower them with the data they need to make decisions that will best serve their missions now and in the future. Filene's Center of Excellence of Innovation & Incubation — A Milestone Worth Celebrating All of Filene's Centers of Excellence are doing life-changing work to help credit unions — and their members — thrive. As a sponsor of the Center of Excellence for Innovation & Incubation and the Center of Excellence for Emerging Technology, we could not be prouder to support the amazing work Filene is doing to help credit unions succeed and to advance the credit union mission. We look forward to seeing these dedicated scholars and credit union advocates as they move into their second year of investigating ways to create, implement, and measure innovation in credit unions, identifying opportunities for credit unions to differentiate with innovation, and building a playbook of effective and consumer-friendly social innovation approaches for the future of all financial services! Check Out These Guest Posts From Filene Experts: Relationship Banking in a Digital Age Credit Union Digital Transformation in the Age of COVID – 19

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