Despite record numbers of new vehicles rolling over the curb as leased models, Black Book Lender Solutions discovered a large number of auto finance companies say they don’t leverage residual data for their portfolio. The findings arrived despite the majority of finance companies admitting that portfolio risk assessment and remarketing remains at the top of their portfolio strategy for a growing number of used vehicles.
The new data is from a recent Black Book online survey that asked more than 500 auto finance company executives questions about their portfolio strategies.
Black Book found through its survey that 64 percent of finance companies do not leverage residual data when evaluating their portfolio, yet most (39 percent) said remarketing, which relies heavily on collateral insight, is their largest strategy for dealing with the increased volume of lease returns.
The online survey, which took place during early September, also ironically revealed that 74 percent of finance companies believe residual data is either critical or valuable in key areas to their business.
Given forecasts of increased supply and accelerating vehicle depreciation, a majority of finance companies (52 percent) said they’ll be focused on tightening underwriting criteria as a way to better manage their portfolio risk in the future.
“Residual forecast and collateral data can play an instrumental role in managing risk and increasing profit potential for any lender portfolio,” said Anil Goyal, senior vice president of automotive valuation and analytics at Black Book, who also will be one of the experts at Used Car Week at the Red Rock Resort and Casino in Las Vegas Nov. 14-18.
“Not all vehicles depreciate alike, and residuals can help determine how certain vehicles will perform in a portfolio, particularly as lenders become more curious as to new strategies for off-lease supply,” Goyal continued.
How are auto finance companies utilizing residuals for their portfolios? (Some executives chose more than one):
• Portfolio risk assessment (49 percent)
• Remarketing strategies (42 percent)
• Mark-to-market analysis (39 percent)
• Used-loan originations (39 percent)
• New-loan originations (35 percent)
• Lease-return strategy (26 percent)
• New-lease originations (26 percent)
• Used-lease originations (19 percent)
Finance companies remain curious about the prospects of used leasing.
The survey revealed that 52 percent of finance companies believe used leasing is something worth exploring given current market conditions.
Black Book’s latest white paper, “How To Grow a Profitable Used Leasing Portfolio,” can help finance companies identify which vehicles make good used leasing candidates for their portfolio. It is available for download by clicking here.