Auto lenders embrace AI to balance risk and reward

[caption id="attachment_58341019" align="aligncenter" width="1024"] Panel of auto finance executives at Auto Finance Summit East 2024 (Photo/Jeremy Harris Stills + Motion) [/caption] Whether increasing deal efficiency or automating credit decisions and assessing risk, AI and machine learning are core to how auto lenders innovate today and plan for the future. Advances in technology, however, often come with risk. From fraud to potential financial losses, auto finance industry players are working through the risks to find the rewards AI and machine learning offer. . And an eagerness to embrace digital innovation has prevailed despite the risks at hand. Gaining efficiency through automation, improving customer experience with AI and implementing best practices for credit decision-making were predominant themes during Auto Finance Summit East 2024 in Nashville, Tenn., earlier this month. 1. . Optimizing efficiency through automation Auto lenders are employing AI and machine learning to improve overall efficiency across their operations. Bank of America has integrated technology to help streamline application, approval and refinancing processes, Tim Owens, head of consumer vehicle lending, said during a panel discussion at the summit. The Charlotte, N. .C.-based bank also uses machine learning to sort incoming phone calls and emails, which saves time by directing consumers to the right employee, Owens said. Bank of America’s investment in technology supports the company’s goal of one day offering a 100% digital experience for its clients, he said. [caption id="attachment_58341009" align="aligncenter" width="1024"] Tim Owens, head of consumer vehicle lending at Bank of America joined by Andrew Stuart, president and chief executive of TD Auto Finance at AFS East 2024 (Photo/Jeremy Harris Stills + Motion) [/caption] Similarly, TD Auto Finance is leaning on technology to curate data and analytics for decision-making, President and Chief Executive Andrew Stuart said at the summit. Tapping into technology despite its potential risks will allow the bank to re-imagine its approach to pricing, deal structuring, interactions with dealers and funding, Stuart said. “From an auto-specific point of view, [TD Bank] is certainly looking at ways to streamline the process for our customers, and make better decisions using data and analytics,” he said. At GM Financial, technology is also core to boosting revenue and operational efficiency, as evidenced by the lender’s AI investment. The captive is eager to implement technology to increase revenue, improve the customer experience and support efficiency across its processes, Chitra Herle , chief information officer, said at the summit. By incorporating AI and machine learning, GM Financial is looking to expedite its go-to-market strategy with new products, provide a seamless customer experience across its digital channels and assist customer service representatives (CSRs) and analysts by providing the key tools and technology to fuel efficiency in their day-to-day tasks, Herle said. For example, the lender uses a cloud-native, fleet-financing product “that was built in less than nine months from inception to implementation, leveraging and partnering very closely with our Microsoft partners,” Herle said. “This [product] is tied not only to our revenue generation objective, but also to the efficiency perspective,” she said. “We have implemented and leveraged a lot of cloud-native services, which accelerated the development of this product.” In another attempt to work smarter, not harder, the financier has adopted generative AI to summarize phone calls shared between CSRs and customers, Herle said. “This enables our CSRs to be focused and engaged with our customers while not having to be distracted by taking notes and toggling between multiple applications,” she said. “It gives the ability for [CSRs] to revise the notes and enter edits as needed after the call.” Additionally, GM Financial uses AI and machine learning to make task and document management, call notes and summarization more efficient, Herle said. Technology "opens the time and opportunity for our resources to be more creative." -- Chitra Herle, GM Financial “[Technology] is an enabler, and an efficiency play,” she said. “It opens the time and opportunity for our resources to be more creative while we think about the future and come up with more elegant, efficient solutions to serve our customers.” 2. . Improving accuracy, CX with AI Integrating advanced technology helps some companies navigate away from outdated systems and processes. Innovations in machine learning, AI and e-contracting have allowed Consumer Portfolio Services (CPS), for example, to save time reading and preparing contracts, Teri Robinson , executive vice president of sales and originations, said. “When I started, we were pulling credit apps off the fax machine,” Robinson said. “You had to have this massive credit department because you couldn’t look at the income and the credit report; we were marking it up by pen.” With decisioning now 99% automated , Irvine, Calif.-based CPS could shrink its credit department Robinson said. . CPS has 45 credit buyers who answer calls and help dealers structure finance packages. “[The technology] is consistent, it makes no errors and it protects your portfolio,” she said. 3. . Automating credit decisions: Automating credit decisions involves generative AI and machine learning that use vast amounts of information and data to predict risk, according to Experian . . Auto lenders say automated decisioning not only helps efficiency, but also leads to more loan approvals and a lower risk of defaults. At Hyundai Capital America (HCA), President and CEO Marcelo Brutti dedicates 30% to 40% of his time to technological innovations, such as leveraging AI to automate credit decisions , he said at the summit. Hyundai Capital’s credit application approval rates fall in the "low to mid-80s," with prime-credit borrower decisions reaching the "high 80s" through automation, Brutti said. . He has set a target of improving the rate to 90%, prompting the risk team to intensify research efforts to meet this goal. “The only way we’re going to get there is through innovation — and most likely some form of AI." -- Marcelo Brutti, HCA Despite HCA’s focus on innovation, the technology has not led to a net gain on investment, Brutti said. . Innovation is not about return on investment but “more about customer service,” which yields benefits for consumers, dealerships, automakers and HCA’s employees, he said. Technological innovation doesn’t just apply to companies looking to improve older systems and operations. . Auto retailer and lender Carvana has been digital ly - oriented from its outset but sees benefits in continuously investing in AI and technology improvements, Vice President of Finance Matt Dundas said at the summit. “Our whole transaction process takes place online; 100% of our credit decisions, as far as pricing, down payments and so forth, are automated,” he said. As Carvana remains digitally focused, advancements in technology offer new avenues to improve the financier’s risk management strategies, Dundas said. Carvana focuses on using technology with more sophistication compared to other lenders who aren’t fully automated yet, he said. “There's a never-ending stream of projects on the credit side to be more intelligent with how we assess credit risk on the customer side as well as the vehicle side,” Dundas said. Other financiers, including subprime lender FinBe , have found a more delicate balance between full and partial automation. The company, which targets subprime with a special emphasis on consumers without a Social Security number, sits at about 70% automated decisioning, CEO Scot Seagrave said at the summit. Certain tasks such as open bankruptcies still require the company to pull relevant information or documents beforehand, which requires a human element, he said. But pricing decisions on loan applications are already fully automated, Seagrave said. “We don't allow any human being to mess with pricing,” he said. “No override.” As the automotive industry navigates its digital shift, lenders will continue to encounter uncertainties and opportunities in the wake of advancing technology. "We do have a road map, and we're trying to balance what we're doing over a period of years because you have to kind of chip away at it,” TD’s Stuart said at the summit. “There's so much happening, so quickly, that you can't do everything all at once.” — Additional reporting by Amanda Harris The Big Wheels Rankings are now available as a component of the relaunched Big Wheels Data Service, which includes an array of datasets on underwriting, volume, pricing and capital. . The rankings tabulate the Top 100 auto lenders and lessors by originations and outstandings. . See BigWheelsData for details.

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