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Predictive Analytics: the new fuel for the Auto Finance industry
Despite years of record volumes and profits, the auto financing industry faces significant business challenges: unsustainable risk management practices in subprime segments and historic volumes of off-lease vehicles hitting the market over the coming few years.
To address these challenges, independent and captive lenders must meet both consumer and dealer needs at competitive price points, while covering their own risk exposure and complying with lending regulations. The winners will prevail, one transaction at a time, by underwriting the right loans, at the right price, through each dealership.
Better predictive analytics, not only mitigates the threats on the horizon but provides a sustainable, long-term competitive advantage. Leveraging insights from better analytics enables Earnix clients to:
- Understand dealer and consumer response patterns to different offers
- Establish optimal prices to meet profitability and volume targets across all channels and geographies
- Reduce credit risk through greater pricing granularity
- Manage regulatory requirements and fair lending practices
Auto lending optimization
The Earnix approach to auto lending optimization is based on integrating profitability, dealership efficiency and customer behavior models into a comprehensive analytical framework. This framework enables lenders to understand and manage the tradeoffs across critical KPIs such as origination volumes, market share, margins, loss rates and ROA/ROE.
Moreover, the predictive analytics platform allows auto lending executives to improve all aspects of the pricing process: competitive strategy, dealer incentive programs, credit risk management, compliance and regulatory reporting, and, of course, operational performance.
Auto leasing optimization
Auto leasing has been a valuable financing alternative for decades, offering numerous benefits to both buyers and sellers. However, a surge of off-lease vehicles coming due over the next few years will not only adversely impact the used car market but threatens to wash away years of leasing profitability.
The Earnix solution collects and analyzes data from the leasing company as well as integrates third party data sources. The data feeds an analytic residual-value forecasting workbench and a decision engine that identifies the right strategy for asset disposal. Specifically, the Earnix solution targets improvements in:
- Residual forecasting by integrating a broader range of third party vehicle pricing sources
- Defining the right channel and terms of sale to increase lease sales
- Timing of remarketing to ensure highest vehicle ROI across the auction process
- Forecasting and reporting on lease vehicle inventory