Trends in Auto Loan Servicing No.4
Increased Loan Servicing
KEEP SCROLLING TO FIND OUT HOW
TRADE-INS REMAIN HOT COMMODITIES
While OEMs strive to ramp up production and delivery despite lingering supply-chain issues, franchise dealers and online retailers (think Carvana and Vroom) are enjoying strong used vehicle sales. Even with the recent dips in used vehicle prices, all major market segments saw seasonally adjusted prices that were higher year over year in February (the most recent Manheim Market Report data available at the time of this writing).1
With wholesale inventory levels still lower than “normal,” savvy dealers and retailers are aggressively targeting consumers with attractive trade-in offers. Today, you may even see some retailers running commercials that invite consumers to sell their car without even having to buy one. And digital tools like Kelley Blue Book® Instant Cash Offer make it easier than ever for consumers to understand the value of their current vehicle — and for dealers to facilitate and complete the transaction. In today’s market, consumers’ trades are also valued higher than in previous years, making it easier for some to relinquish a vehicle they feel they no longer need — or apply its value to reduce a new vehicle purchase price. How well is this working? My colleagues at Kelley Blue Book tell me they see approximately 35M unique shoppers each month.2
On the lender side of this coin, typically about half of all title releases we perform at Dealertrack on behalf of our lenders support dealer trade-ins. In the traditional workflow, setting the release in motion requires phone calls by the dealer to the lender for the correct payoff amount, followed by some back-office check juggling for the dealer to draft and mail the check, and then for the lender to cash and reconcile on their end. This process is not without its friction points — particularly if the check is drafted for the incorrect amount, or when it arrives late and falls short of the lender’s tolerance. In these cases, the lender is either back to square one with the dealer or writing off a short pay. Neither is something you want to do.
There’s a way to avoid this friction, but first let’s unpack the other driver of this loan servicing story…
MORE TRAFFIC BREEDS MORE ACCIDENTS. MORE TECHNOLOGY MAY TRANSLATE TO MORE TOTAL LOSS.
By the end of 2021, passenger vehicle activity returned to pre-pandemic levels. The current gas crisis may change things a bit, but forecasts indicate this will continue in 2022.3
Unfortunately, with the rise in traffic we can statistically anticipate a rise in accidents. There is data indicating that accidents resulting in total loss claims from insurance adjusters are trending upward. Since mid-March 2020, vehicles flagged as non-drivable/total loss have increased 4 percentage points year over year.4
Why? Think about how vehicle technology has evolved and where it’s heading. Not surprising, the more technology featured in a vehicle, the more costly it is to repair and/or replace. For example, the battery of an electric vehicle represents much of its value, and with driver assist technology located at the outer perimeters of vehicles, we can argue that what may have been a repairable “fender bender” 10 years ago could be deemed a total loss by today’s mathematics.
Our Dealertrack data shows about 25% of titles we manage for lenders are turned over to insurers due to total loss. That’s already a significant number before considering an anticipated rise in accidents. And here’s more to chew on: today it is not uncommon for new vehicle buyers to pay over MSRP. A recent post by LendingTree cites new vehicle prices up 12.2% YOY and used car/truck prices up a whopping 40.5%. In that same post they cite average car payments increasing YOY by double-digits — with monthly payments at $644 for new and $488 for used vehicles.5 And with some recent rate increases by the Federal Reserve, our Chief Economist Jonathan Smoke cautions that for consumers looking to get the lowest possible monthly payments, “the clock is ticking.”
On a tangential note, Smoke also predicts that prices may begin to decrease after spring, as new vehicle production is expected to ramp up. Of course, time will tell — but think about what this may mean long term when it comes to total loss risk mitigation. For vehicles that were bought when prices and amounts financed were inflated, once the market starts to “correct” itself, the already lengthy and complex payoff and title release process can get longer and even more complex when negative equity enters the equation. From insurers calling to learn what’s owed on the loan, through negotiating letters of guarantee, an average 45-90+ day process can drag on for months. Talk about friction!
Now, let me share how lenders can streamline loan servicing and remove much of this friction at the same time.
THE SOLUTION: EMPLOYING THE RIGHT DIGITAL TOOLS
Digitizing your entire payoff & title release process and the ways you transact with dealers and insurance providers will save your organization in more ways than one. The right solution will mitigate the number of payoff quote and title tracking calls into your support team. It will also enable dealers and insurers to obtain the exact payoff amount — aligned to the date they actually intend to pay it — on their own. Finally, it will result in receiving more accurate payoffs, more often — and relieve your teams from processing checks, writing off short-pays and reconciling payments, streamlining the workflow and shortening the timeline for all.
The solution that can do all that for you is Accelerated Title. And more than 100 lenders are already enjoying these benefits — improving their brand value with dealers, insurers, and consumers, as well as their own operational efficiency and expense.
This is the year I want to see all our lender partners staying ahead of the curve and prepared for anything that may increase loan service activity. And because we are already your title management service provider, getting up and running is simply a matter of setting your organization up for online payoff quotes and/or ACH payment transactions.
If you visited us at AFSA or NADA just last month, this will sound familiar: put the power of Cox Automotive to work for YOU.
- 1. https://www.coxautoinc.com/market-insights/feb-2022-muvvi/
- 2. https://b2b.kbb.com/resources/why-kbb/
- 3. https://www.globalfleet.com/en/fleet-strategy/north-america/analysis/state-traffic-along-us-roads-2020-2022?a=DBL10&t%5B0%5D=North%20America&curl=1
- 4. https://cccis.com/wp-content/uploads/2021/03/2021-Crash-Course-DIGITAL.pdf
- 5. https://www.lendingtree.com/auto/debt-statistics
“More trade-ins, more accidents and an anticipated rise in total loss all add up to more work for loan service areas. The time to prepare is now, and the good news is that Accelerated Title is easy to adopt. Let technology work harder and smarter for you — while your team can apply more time and attention to other work.”
– Robert Christini, Sr. Lender Solutions Expert at Cox Automotive Inc.
ACCELERATED TITLE HELPS LENDERS
- Reduce burden on internal operations by digitizing the payoff quotes and payment process
- Improve revenue by reducing the number of short-pays received/written off
- Automate payment processing, reconciliation and title release
- Shorten payoff and title release times:
- For trade-ins: go from industry avg. 12-18+ days to as fast as 4-6 days1
- For total loss: take the industry avg. 45-90+ day timeline from claim to salvage auction down to as fast as 30 days2
2Based on Cox Automotive salvage auction partners and IAA internal data analysis, 2021.
Trend No. 3
PAYOFF & TITLE RELEASE
WORKFLOW HOLDING YOU BACK?
Trend No. 2
Puts the Focus on Faster
Payoff & Title Release
Trend No. 1
More Total Loss Transactions.
Since we already service your titles, optimizing your payoff & title release process is quick and easy.