Navigating the Margin Squeeze: EVs, Tariffs & Pricing — A Q&A with Earnix
In an industry where political events, macroeconomic swings and shifting consumer behavior can quickly change the rules of the game, keeping margins healthy in auto finance has never been more challenging, – says Joseph Shaw, a Global Head of Banking Solutions at Earnix, a global provider of AI-driven dynamic pricing analytics, product personalization, and digital decisioning solutions for consumer and auto lenders. Today, Joseph sat down with the Earnix Solutions Architect Will Ely to help unpack how rising funding costs, fluctuating vehicle prices, and supply constraints are altering consumer demand and lenders’ approaches to pricing and risk. Will also shared actionable insights and proven strategies for pricing and risk teams at banks and captives—covering how to respond to volatility, safeguard profitability, and stay competitive.
JOSEPH SHAW: Will, set the stage for us. What’s making margin management so hard in auto finance right now?
Will Ely: The ground keeps shifting. Politics, rates, supply chains, and consumer behavior all move together—and they directly hit the cost of funds, vehicle prices, demand, and affordability. That combo changes which vehicles shoppers want, what’s actually on the lot, and how lenders should price and manage risk.
JOSEPH SHAW: What are the biggest forces lenders should watch?
Will Ely: A few standouts:
- Tariffs: They’re rippling through OEMs, dealers, and consumers—tight supply and higher sticker prices mean fewer incentives and tougher financing math. New-auto loan rates are still elevated, roughly 36 bps below the 25-year high set in June 2024 (CBT News, May 2025). Cox Automotive has flagged a volatile summer 2025—when rates and prices rise, sales dip, and then incentives may come back to stimulate demand.
- EV adoption: It’s growing, but residuals and market penetration are still fuzzy. That uncertainty complicates pricing and risk for EV loans.
- Record-high consumer debt & ultra-long terms: Debt loads are up, and we’re seeing 96-month terms and growth in the 85+ months segment. Nearly 70% of used-vehicle loans now run 72 months or longer, with scores rising across terms (Experian, State of the Automotive Finance Market Q3 2024).
- Reduced CPO volume: Pandemic-era dynamics still distort used-car supply and values, which feeds straight into affordability and risk.
- Rate volatility & consumer behavior: Faster moves in rates and shopper sentiment require faster lender responses.
- Rising delinquencies: 30-day delinquent balances are up ~22 bps; 60-day up ~6 bps (Experian, Q3 2024). That’s more risk to manage.
All of it points to margin compression.
JOSEPH SHAW: So, what’s the smart response when uncertainty is the norm?
Will Ely: Get analytical and get agile. Advanced pricing analytics lets you understand customer price sensitivity, dealer behavior, and market conditions in near-real time—and then act. In calm periods you could get away with monthly price updates. Today, that pace is too slow.
JOSEPH SHAW: Where are lenders falling behind?
Will Ely: Many still rely on tools and processes that were “good enough” three years ago. Now, the same tools slow you down. If you can’t adjust quickly, you lose either volume, margin, or both.
JOSEPH SHAW: Break down “advanced pricing analytics.” What does it actually do?
Will Ely: Three big things:
- Customer price sensitivity. A super-prime shopper on a 48-month loan won’t react like a near-prime shopper eyeing 84 months with zero down. Modeling those differences tells you where to move price—and by how much.
- Dealer behavior & commission. What happens after your buy rate hits the desk? Markups, dial-downs, reserves—all affect conversion and profitability. Using historical dealer behavior, you can forecast (and influence) outcomes.
- Market reaction. If cost of funds or a competitor’s rates change, integrated analytics lets you see the portfolio-level impact for next week, next month, and next quarter—then reprice with intent.
JOSEPH SHAW: How do you “future-proof” pricing and credit decisions?
Will Ely:
- Forecasting & scenario simulation: Run “what-ifs” before the market does—new EV segments, older used vehicles, different term mixes—so you protect margin while finding growth.
- Price optimization: Ask and answer questions like, “If I raise super-prime by 5 bps and near-prime by 15 bps, what happens?” Or, “If Treasury adds 25 bps to my cost of funds, how do I defend profitability?”
- Understand your options: Find the efficient frontier—maximize net interest margin at constant volume, or hold margin steady and maximize volume, or choose the best trade-off in between.
- Granular pricing: You don’t price one consumer at a time, but you can model at that level and roll up to segments. That’s how you identify who deserves a small discount and who’s relatively inelastic.
- Live market testing: Don’t just forecast—prove it. Run Champion/Challenger tests with a slice of customers, a specific dealer network, a region, or a credit band.
JOSEPH SHAW: A lot of lenders worry about testing live. How do you reduce the risk?
Will Ely: Start controlled: carve out 10% of volume, set clear guardrails, and monitor daily. When the challenger wins, scale it. When it doesn’t, you learn fast and cheap.
JOSEPH SHAW: Do you have a practical example of “granular pricing” paying off?
Will Ely: One lender wanted better segmentation by credit score to boost approvals and margin. We found borrowers with 740–800 were priced like those at 700–740. Even a tiny score change around 700 (think 699 vs. 701) meant very different booking probabilities—but the pricing bands didn’t reflect it. We recommended finer segmentation aligned with risk. They implemented it and saw a meaningful lift in originations in short order.
JOSEPH SHAW: Is a 96-month term ever rational?
Will Ely: Sometimes—if the credit is super-prime, the vehicle retains value, and the data shows affordability and performance hold up. The point isn’t “long terms good or bad”; it’s “prove it with data.”
JOSEPH SHAW: If a lender does one thing this quarter, what should it be?
Will Ely: Dust off your analytics and make them operational. Build the loop: forecast → simulate → test → deploy → monitor. That loop is how you convert volatility into margin.
JOSEPH SHAW: Where does an AI-based pricing analytics and optimization platform like the one by Earnix fit into this?
Will Ely: We focus on speed to value. The playbook is: observe your current state, grab quick wins that move margin or volume, simulate changes, and validate with Champion/Challenger—then lock in a longer-term pricing strategy. In my decade implementing pricing analytics, the right questions plus the right platform deliver results fast.
JOSEPH SHAW: Final word for readers navigating squeezed margins?
Will Ely: Use data science to set prices with confidence, anticipate competitors, and adapt to market shifts. When you can quantify the trade-offs, you protect profitability without guesswork. And if you want help standing that up, Earnix is ready to partner.
About Earnix
Earnix is a global provider of AI-driven dynamic pricing analytics, product personalization, and digital decisioning solutions for financial services industry including consumer lending, auto finance, mortgages, and more. Our agile pricing analytics platform makes personalized offers a reality, shortening time to value and improving margins for lenders around the globe.
