Amid certified pre-owned vehicle sales that are humming at a record pace, vendors that support the sector in various ways are coming together and could keep momentum going.
In what may help the segment — since most CPO sales require financing — Equifax and Black Book are joining forces to aid what happens in the F&I office, the finance company’s origination department and beyond.
On Tuesday, Equifax announced that its auto lending customers will now have the added benefit of direct access to Black Book vehicle value data and loan-to-value (LTV) model data.
By incorporating Black Book data with differentiated Equifax data, finance companies can better evaluate LTVs at origination, migration of LTVs, collateral risk and layered risk.
And if the Great Recession taught the industry anything, one of the most important lessons might have been to mitigate risk and find ways to run a leaner, more efficient operation.
“It’s all a reflection of the auto finance industry all coming together. Even though a lot of times we’re in competition with each other, we can also be partners with each other,” Equifax auto finance leader Lou Loquasto told Auto Remarketing.
“Going through what this industry went through has pulled us all together a little bit and makes us work closer together,” continued Loquasto, who is part of the large contingent of industry experts scheduled to be on hand for next month’s leading industry event — Used Car Week.
This relationship between Equifax and Black Book first germinated when the credit agency responded to client requests.
One finance company wanted to enhance its underwriting scorecard by embedding Black Book data in it. Another Equifax customer asked how Black Book’s LTV data could be incorporated into the credit agency’s lost-sales analysis tool.
“It started off as just a one-off customization on behalf of a couple of clients. We got together with the executive team at Black Book and said, 'Why don’t we institutionalize this process and make it more broadly available to all of the lenders?',” Loquasto said.
Now finance companies who might be adding CPO contracts into their portfolios can use Equifax and Black Book data to monitor evolving LTV ratios over time and better identify which vehicles present the most risk and growth potential. Both service providers believe this capability can enable finance companies to more effectively forecast where losses may be more likely to occur and adjust lending strategies as a proactive countermeasure.
Beyond gains in portfolio management, the solution also can enable finance companies to better manage their:
• Ongoing account management strategy (by more accurately targeting who to call, when to call and how often)
• Remarketing and recovery (determination of auto value to justify repossession)
• Pricing strategy (to determine which rate/term/LTVs are most appropriate for individual customer/collateral combinations)
• Competitiveness (by knowing what the competition is buying and by what credit segment)
“Through our relationship with Equifax, we are aligning two of the most trusted sources of data in the industry to provide essential insights for succeeding in today’s market," said Jared Kalfus, Black Book’s vice president of data licensing.
“Our solution streamlines pivotal analytic processes, allowing customers to work more efficiently and effectively,” added Kalfus, who also will be making multiple presentations during Used Car Week, which has a quickly approaching deadline for a $200 registration discount. That availability goes away on Friday for the series of industry leading conference that run from Nov. 10 through 14 at the Red Rock Casino, Resort and Spa in Las Vegas.
Loquasto emphasized that the data generated by both Equifax and Black Book blends together nicely to give finance companies a better view of what he noted as two of the important parts of lending — credit and collateral.
“One of the reasons why we specifically sought out this relationship with Black Book is losses are very low right now. But there is an idea of this whole loss severity and what is the used-car market going to look like in two years or three years and when do losses start to increase. Are we going to be getting less for our repos? Lenders are concerned about that,” Loquasto said.
“While it’s not an immediate, ‘I’m scared now that the market is going to fall apart,’ I think lenders are thinking a couple of years out and trying to prepare now by looking at different combined solutions with credit and collateral,” he continued.
And beyond looking at the long-term ramifications, Loquasto also pointed out the integration of Equifax and Black Book data also can explain to finance company managers why that CPO vehicle installment contract might have gone to another institution.
“We’re looking further down the funnel and looking at things like business intelligence tools. If you didn’t get that deal, it’s nice to know what lender got it and some of the characteristics of the loan, the rate and payment. Equifax certainly helps with that. Then you’re also going to want to know things like loan-to-value,” Loquasto said.
“Equifax might tell you that your competitor booked that deal at a higher rate than you were offering. But if you don’t bring in that collateral piece, you don’t realize that maybe you didn’t lose that deal because of rate or term. Maybe you lost that deal because of loan-to-value. That’s where bringing the two companies together gives you a full picture,” he went on to say.
And finance companies now can get that clarity — whether a contract is connected a CPO unit or a subprime borrower — because of what Equifax and Black Book are bring to the table.
“It’s all about aiding in the efficiencies and being responsive to the customer faster,” said Gary Hughes, general manager of automotive services for Equifax. “By partnering and coming together where normally we would be adversaries, we’re finding common ground that we can support our customers and ultimately consumers better and faster than if we try to build this out alone. I think it’s a trend that’s going to accelerate.
“Black Book is an excellent partner and we’re excited about this,” Hughes added.