Despite 74% of lenders believing residual data is either critical or valuable in key areas to their business, 64% of lenders do not leverage the data when evaluating portfolios, according to new survey conducted by Black Book.
The company surveyed more than 500 auto lender executives about their portfolio strategies in early September and released the findings earlier this week.
The study also shows that a plurality of lenders surveyed (39%) said remarketing is their most used strategy for dealing with the increased volume of lease returns. Black Book says remarketing relies heavily on collateral insight, which can be gained through the use of more residual data.
“Residual forecast and collateral data can play an instrumental role in managing risk and increasing profit potential for any lender portfolio,” Anil Goyal, senior vice president of automotive valuation and analytics at Black Book, said in the release. “Not all vehicles depreciate alike, and residuals can help determine how certain vehicles will perform in a portfolio, particularly as lenders become more curious as to new strategies for off-lease supply.”
Anil Goyal, senior vice president of automotive valuation and analytics at Black Book, told Auto Finance News ongoing measurement of residuals has not been a critical component to risk management for lenders in recent years due to consistently high values, which might explain the discrepancy between the use and the want for this data.
“As the risk increases in a market that is seeing sales plateau, as well as more subprime lending, there is a greater need for projecting losses better in both loan and lease portfolios,” Goyal said. “Some lenders are looking more at residuals use, but they haven’t caught up to improve their processes in a whole lifecycle analysis scenario.”
The study also lists the most frequent strategies used to assess residuals, many of which were selected more than once by the executives.
- Portfolio risk assessment (49%)
- Remarketing strategies (42%)
- Mark-to-market analysis (39%)
- Used loan originations (39%)
- New loan originations (35%)
- Lease return strategy (26%)
- New lease originations (26%)
- Used lease originations (19%)
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