DALLAS — With competition heating up and the lending spigot starting to loosen, risk management becomes an even more critical issue for auto finance executives. The question that lenders are grappling with these days is how to strike a balance — how do you successfully grow your portfolio while ensuring that prudent lending decisions are being made?
That was one of the main topics lenders discussed yesterday at the Auto Finance Risk Summit.
One strategy that lenders mentioned for mitigating risk is to grow, but in a controlled way. That is, targeting specific areas and regions for growth, then concentrating efforts there. Another tactic is to provide elevated service, which helps to un-commoditize a lender’s products and bolster dealer relationships. A third idea is to slowly peel back some risk-management protocols, tightly monitoring the results and tweaking the effort as needed.
Today’s lineup of sessions will address the latest risk threats, fraud management, legislative and compliance issues, liquidity, and scorecard development, among other topics.
How many people at the FDIC have been engaged in any conversation regarding the impact on credit scores when a credit card issuer reduces the credit limit to a cardholder. Immediately, the credit line utilization % increases and the credit score goes down. It is a big part of the credit score. It is still the same customer who has done nothing to deserve it.
On the other hand, car finance is “collateral lending”. Anything financed beyond a look at the collateral (and the direct risk of relying on the collateral) is unsecured lending. Does GMAC have any data that they can provide to help the FDIC to understand the ‘unsecured part of the risk’ on every car loan? The government is not being heavy handed when they know that GMAC top level risk management was not adequate to keep them out of trouble (even if much of it was mortgages).
It would be more interesting to see what GMAC presented to the FDIC that would allow the FDIC to be more responsive. If they are proud of what they can do with good underwriting results, let GMAC convince readers of this blog that they know what they are doing with the same info presented to FDIC. Otherwise, with their size, they could contaminate the underwriting for everyone if they are allowed to make bad short term decisions.
You missed my point or perhaps I did not state it well. I am all for dealers providing financing and getting a “small part” of the interest participation. It is the best way to assure a sale. But, it is hard to know how many people are being gouged at present because zero percent financing basically inbeds the interest cost into the car price and subvention (if still in place) also disguises the true cost of credit.
As reported on this web site a few weeks ago, the finacial IQ of Americans has decreased from “failing” down to “failing minus” over the decade. Lenders are in the best position to be assertive and provide support to auto buyers to make sure they do not fall to abusive practices. Another column today discusses the big dealer groups and how they are pressuring the lenders. Here is where the rubber meets the road. Great auto finance executives can lead the way. Mediocre ones roll over. Your software possibly could help them do that. Let’s hope they are paying attention.
Your right Frank I apparently did misunderstand.
Our software will allow only what the lenders will accept so dealers must stay in their guide lines. Of course that still leaves the field wide open to what one lender will accept and another will not. Of course that is true anyway.
Have a great day
Bill
Hi Sean
It’s been awhile and yes I am still going at it, as I see you are.
Will call you but I have company this week so will call next t-w or t.
Good to hear from you,
Bill