David Snitkof, Head of Analytics at Ocrolus, which claims to be the leading document automation platform in financial services, powering the digital lending ecosystem, notes that just over a year ago, he had commented on the state of the automotive lending markets in the US.
He had discussed auto sales figures, loan originations, credit standards, and delinquency rates. He pointed out that the situation in mid-late 2020 could be “summed up as follows: amid higher delinquency rates, uncertainty around post-pandemic consumer financial health, and the growing insufficiency of traditional underwriting methods, auto lenders had tightened their criteria for new borrowers, and origination decreased.”
David wrote in a blog post that we now find ourselves in “different circumstances.” Although we still have pandemic-related uncertainty, the auto market is “currently dominated by the issues of supply-chain disruption, inflation, and high consumer demand.” He further noted that we can now explore data on the auto market and related loan performance and “consider what it implies for the current and future health of the American consumer.”
David added that it’s important to view automotive lending in the context of U.S. consumer debt “in general.” He also mentioned that Americans now “have $1.44 trillion in outstanding auto loans, out of a record $15.24 trillion outstanding across all debt types.”
He also noted that after a temporary tightening of standards in Q2 2020, the floodgates “quickly reopened.” In an environment of economic stimulus, inflation, and extremely low-cost capital, “consumer lending has continued to expand at a rapid pace,” he claims.
He also shared:
“The same dynamics affecting automotive lending can be seen in most issues affecting the American consumer. Higher prices, supply-chain issues, multiple government programs with uncertain futures, and a generational change in the relationship between people, firms, and the nature of work itself.”
He pointed out that this is “particularly true for lenders considering how to evaluate consumer creditworthiness and ability to repay.”
He continued:
“In a time of great volatility, forward-thinking lenders (especially those who are Ocrolus clients) are utilizing more diverse sources of information, including bank transactions, payroll data, and more in order to construct a fuller and more real-time picture of a borrower’s ability to pay.”
He concluded:
“As fewer Americans earn their incomes from traditional sources (i.e. the proverbial ‘9-5 job’) and shift to freelance work, the ‘gig economy, and other types of labor, the automotive lending industry as well as the lending industry at large, will need to ingest, synthesize, and analyze multiple sources of data to understand cash flow and a borrower’s capacity to service debt. This shift is likely to continue well beyond 2021.”
For the complete analysis, check here.
