Auto Loans in the United States
The US auto finance and leasing market is well diversified. Consumers and commercial buyers can choose from a large number of captives, banks and independent finance organizations.
After going through a tough credit market, high unemployment rates and dwindling consumer spending, the industry is entering a recovery period. The credit market and general economy are beginning to improve, and the release of pent-up demand during the recession is set to drive growth. In the midst of these changes, operators will employ tighter lending standards, diminishing the risk of losses.
This industry includes businesses that provide sales financing or leasing. Sales financing establishments are primarily engaged in lending money for the purpose of providing collateralized goods through a contractual installment sales agreement. Industry participants generate revenue through the interest and fees that are included in the installment payments from borrowers.
Although the top 20 lenders account for 75 percent of the market for new car finance, market fragmentation is high and competition is fierce. While captives are very successful in the market for new car financing with a market share of 36 percent, they only provide 6 percent of used car financing, which is dominated by banks (36 percent). Overall, banks dominate the market with a market share of 40 percent, while captives have lost some ground in the last year in automotive loan market share.
According to 2012 Auto Finance Big Wheels data report, the most successful auto financier in the US is Ally Financial, with US$73.2 billion of loans and leases outstanding. The finance arms of Toyota, Ford, Honda, BMW and Nissan are the biggest captives in the US market, ranking in the top 10. Among the banks, Chase, Wachovia (Wells), Bank of America and Capital One rank the highest.
These financing entities receive their license through the Federal Reserve Bank and are bound to its rules. In most states, a consumer credit regulatory agency requires finance companies to apply for a business license at a state level. These licenses have to be renewed periodically.
Only a limited percentage of new cars are purchased outright with cash
Finance and leasing products are well established in the US. Most consumers have access to credit and are familiar with traditional financing options. Car loans are the most popular purchasing method, accounting for almost 99 percent of car sales. But with lenders increasingly promoting leasing, this form of financing has gained momentum since 2010, especially in the luxury car segment.
For some captives, the proportion of leasing contracts even exceeds the proportion of finance agreements. Despite this recent development, the overall penetration of leasing is only around 11 percent, which is one of the reasons why banks do not usually provide leasing contracts.
It is a different picture in the corporate sector, where companies are still indecisive towards vehicle finance and leasing. Sixty-two percent of company car sales are made outright in cash. Finance and leasing contracts for company cars are almost equal, at 21 percent and 17 percent respectively. The company car business seems to be saturated. Significant growth is not expected over the next few years and the overall Compound Annual Growth Rate (CAGR) between 2012 and 2015 is expected to be lower than 1 percent.
Opportunities for Auto Loan providers to partner with Payment21®
Payment21® is now offering its state of the art technology solution, Check 21 DD service, to help auto loan providers in the United States to streamline their loan disbursal and collection processes. Check 21 DD stands for our solution to process Demand Draft. The Payment21®-system is unique in terms of remotely created payment orders (RCPOs), also known as Demand Draft.
Payement21’s Web-based imaging service allows merchants to process Demand Draft in the Cloud. Our proprietary system captures eCheck transactions through an API or via batch-upload. The first step of the procedure supports printing of paper checks. Subsequently, the system scans the items in the Cloud and turns these direct debit payments into so-called X9.37-files referred to as Image Cash Letter (ICL). Our Check 21-technology then goes ahead and securely transmits the ICL to the designated account, and as a result the transactions get deposited to the bank account of the merchant. Funds clear instantly and are available same day.
To benefit from Check 21 DD, merchants require a bank account with a financial institution providing Check 21 services with digital lockbox processing. Get started by contacting your bank with regards to accepting Image Cash Letter (ICL), and forward their ICL-specs, so we can begin working on your integration process.
Source: KPMG (Global automotive finance and leasing), IBISWorld