Outlook 2015: Lenders Talk Tech, Rising Rates, and Opportunities

While regulatory oversight was the hot topic in 2014, lenders are now focused on the need for speed in the coming year. Auto lenders are planning to allocate resources and funds to enhance and accelerate the decisioning process, provide customers the ability to self-service their loans through mobile technologies, and boost efficiency throughout the entire consumer lifecycle. Staying ahead of the competition also remains a priority, with some financiers looking to increased leasing activity to give them an edge come 2015. To start off the New Year, Auto Finance News spoke with seven executives from some of the nation’s largest lenders to gauge the pulse of the auto finance market.

Guerin Senter, president of Western Funding Inc.; Paul Wible, executive vice president and national finance group head at Bank of the West; and Marc Womack, head of U.S. product for TD Auto Finance, offered predictions for 2015. In addition, four Toyota Financial Services  executives weighed in: Chris Ballinger, senior vice president and chief financial officer; Ken Baruth, vice president and global chief risk officer; Mike Groff, president and chief executive; and Karen Ideno, vice president of product and marketing. Here are their predictions on several key topics.

Auto Finance News: What technology investments are you making in 2015?

GUERIN SENTER, Western Funding: We made a huge investment in Salesforce this year. The second thing we did this year was DealerCenter, so we can put a decision out now in 15 seconds for a deal, and it used to take a human 17 minutes. In 2015, we’re going to continue our large investment in Salesforce — it’s really cool, it’s really automated, it’s really slick, and it interfaces with our sales reps in the field. It’s a full-blown CRM in the office to manage deals and dealer submissions, so I definitely anticipate that we’ll expand our relationship both in dollars and usage.

PAUL WIBLE, Bank of the West: We talk about this a great deal, about where to invest in technology, and it’s always an interesting question because our borrowers have specific needs in terms of servicing their loans. Our dealers naturally have requirements for faster decision-making and complete communications using different portals, and finally our fulfillment teams have needs to enable all of those things. Specifically this year, I think we’re going to spend more money on credit decisioning and adding speed. We’ll also certainly invest in self-service options for our customers so they can get the answers to their questions using mobile devices or online devices.

MARC WOMACK, TD Auto Finance: We have a number of enhancements planned that will increase our ability to provide faster, more effective service throughout the customer lifecycle — account acquisition, servicing, loan payoff, etc. — and will improve the overall customer experience. For example, in 2015 we are making a significant investment in e-contracting, which will improve the application process through faster decisioning, more efficient contract submission, and increased speed of funding to the dealer.

AFN: What are you planning in response to changing consumer demand?

SENTER: Most importantly for the dealer, delivering a consistent price for the same type of borrower and car. That’s a little tougher because the market changes, the industry changes, the time of the year changes, the values of the vehicles at auction change, so you’re going to adjust your pricing accordingly. But being a consistent partner, I think that’s important.

WIBLE: Consumers are specifically asking for more information about their loan activity with us, available online and through our mobile platforms, and it’s something that we are planning on improving in 2015.

WOMACK: Customers are seeking to engage the bank in unique ways across a variety of channels — online, mobile, phone, email, etc.TDAF has made significant enhancements to our mobile and online platforms to provide more options for customers to access their accounts and for dealers to submit applications to us. We will continue to expand the breadth of product and service offerings, making it easier for customers to do business with TDAF.

AFN: What will be your biggest opportunity in 2015?

MIKE GROFF, Toyota Financial Services: As Toyota consolidates its headquarter operations and begins the move to Texas, TFS will be working closely with the distributor to determine how we can be an even better captive, and meet their needs more effectively. At the same time, this is really a great opportunity to review all our processes and identify ways to provide “Always Better Service” to our customers and dealer partners. For example, we’re excited about the strong e-contracting platform we’ve developed, and have plans to build on that success.

KEN BARUTH, TFS: One major area of opportunity is to further automate the [lease and loan] approval process while maintaining appropriate underwriting standards. By increasing the proportion of applications that are automatically reviewed, TFS will further reduce the overall origination turnaround time and improve customer satisfaction.

SENTER: Western Funding’s over-50-year history is a dealer reserve model, and so by that, we pay the dealer an initial advance and the borrower makes payments to us, then the dealer gets checks in the mail. We think that opportunity is going to widen further as dealers kind of reset back to longer term relationships, as opposed to simply the best advance on that single deal. We think that our proposition as a participation- based lender is going to have a stronger appeal to dealers next year, and we’re excited about that. That’s really what we do.

WIBLE: We’re one of the few banks in the U.S with a fully formed automobile leasing program that goes side by side with our retail financing programs. We think as interest rates move up — and we think they will in 2015 and beyond — our ability to offer consumers leases through our dealers is an important thing that we’re in a position to serve.

AFN: What will be your biggest challenge for 2015?

GROFF: As far as challenges in 2015, despite an improving economy, we expect rising interest rates to put pressure on household debt and squeeze industry margins. And we expect a potential softening of the used-car market, which may moderate from the cycle lows in credit losses and residual value costs. However, we believe we’ve positioned ourselves well to manage these challenges, and we remain optimistic about our ability to deliver strong results in 2015.

KAREN IDENO, TFS: One of the biggest challenges — but also one of the more exciting areas — will be ensuring we have systems, services, and options that meet rapidly growing customer expectations around blending the digital and off-line customer experience. This “connected customer experience” requires we provide multiple channels for our customers to interact with us, while ensuring we continue to provide those channels in a simple, transparent, and personal fashion.

SENTER: Staying focused with what we’re good at and recognizing that we have a big goal. Right now we’re going to end the year at just under $60 million in loans, and our goal next year is to end at $200 million and ensure that our credit quality stays intact. It’s easy to buy a bunch of loans that don’t perform, but that doesn’t really do anybody any good. So it’s to stay focused and not get caught up with fads that roll through the door — and there are plenty of them, if you look at some of the other bids in the market.

WIBLE: I think it’s an industry challenge that we all face: making sure that we’re running our auto finance business in the most compliant way that we can. There are high regulatory standards applied to this industry, and that’s a challenge because we all want to do the right thing there and failure can be difficult to overcome.

WOMACK: Our biggest challenge is to stay ahead of the competition so they do not take business from us.

AFN: What effect will rising rates have on the industry in 2015?

CHRIS BALLINGER, TFS: We expect rising interest rates to have an impact on the entire industry. With modest industry growth expected, incentives will likely still play a big role in the OEMs’ ability to maintain share. However, in a rising rate environment, APR and lease programs will cost more to maintain. And, as we’ve seen in previous cycles, captives and banks will need to balance marketshare goals, margins, and competitive positioning. SENTER: I’m actually looking forward to it, frankly. If rates go up a little, I think you’ll start to thin out a little of the competition and it will increase consolidation. And I think that’s actually very good for the market right now.

WIBLE: I think it depends on how fast they go up and how far they go. Interest rates today are so very, very low that it’s hard to know at what point affordability of cars is materially impacted by a small or modest change in interest rates, which is what economists are forecasting for 2015. I think that investor demand in the asset-backed securities market will be an interesting question for originators that are funding themselves through the capital markets, and how they’ll be able to respond.

WOMACK: Margins remain a headwind for all lenders. Future increases in rates will only intensify the competition among the major market participants. TDAF will continue to refine and enhance our market offering to deliver a stronger value proposition for our customers, both in terms of competitive rates and product offerings, but also in terms of improved service.