Focus on dealers, used business and refi will drive auto finance growth in 2019, TransUnion says

Automotive lenders will expand portfolios this year by enhancing the dealer experience, increasing auto loan refinancing and diving further into the used-vehicle business, TransUnion predicts.

Lenders will aim to approve deals faster and strategize to provide dealers with higher-quality leads and more attractive offers, said Brian Landau, automotive business leader at TransUnion.

"Lenders want to be top of mind with dealers," Landau said. "Dealers still drive a lot of applications and a lot of loans that are funded."

More investments in digital solutions and emerging companies in the fintech space also will help lenders work on dealer relationships this year, Landau said. To that end, prequalifying customers for vehicle financing online should increase.

Still, some growth opportunities for lenders don't involve dealers at all. Landau predicts auto loan refinancing will help banks in particular expand their portfolios in 2019. Through refinancing, lenders don't have to incorporate the dealer into the transaction, which means they don't need a field team to support those relationships as they target customers directly.

Refinancing also allows banks to avoid directly competing with captive finance companies and helps them gain additional business through serving customers hoping to get a better rate.

Another major growth engine for 2019 and subsequent years will be used-vehicle financing, Landau said.

Industry analysts believe the glut of off-lease and off-fleet vehicles from record sales in 2016 will peak this year, which means lenders hoping to capitalize on the returning wave will have to do so in the coming quarters. In particular, returning sedans will help satisfy the demand for small, affordable vehicles consumers are having a hard time finding on the new-vehicle side, and lenders would do well to involve themselves in those opportunities as they arise.

While credit unions have harnessed their strategies toward refinancing and used-vehicle originations, other lenders should aim to catch up this year, Landau said.

Meanwhile, after a subprime volume rebound in the third quarter of 2018, the number of loans originated in lower credit tiers also will continue to grow, Landau predicts, as underwriting standards incorporating machine learning and alternative data will expand the buy box for lenders.

Some machine learning models are becoming so advanced, Landau said, that they can anticipate credit jumps in consumers before they happen.

"Lenders are trying to use machine learning to identify consumers prime and above, even though right now they're at a 680" FICO score], Landau said. "They can find consumers that fit in their credit profile before they actually get there."