LAWRENCEVILLE, Ga.—A new report reveals that a large number of auto lenders don’t leverage residual data for their portfolio, despite the majority admitting that portfolio risk assessment and remarketing remains at the top of their portfolio strategy for the growing number of used vehicles.
The study also shows that lenders plan to tighten underwriting guidelines on used vehicles.
The data is from a recent online survey from Black Book Lender Solutions, which asked more than 500 auto lender executives questions about their portfolio strategies.
Black Book found that 64% of lenders do not leverage residual data when evaluating their portfolio, yet most (39%) 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 2016, also “ironically” revealed that 74% of lenders believe residual data is either critical or valuable in key areas to their business, Black Book said.
Given forecasts of increased supply and accelerating vehicle depreciation, most lenders (52%) 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. “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.”
How are auto lenders utilizing residuals for their portfolios (some lenders chose more than one)?
- Portfolio risk assessment (49%)
- Remarketing strategies (42%)
- Mark-to-market analysis (39%)
- Used loan originations (39%)
- New loan originations (35%)
- Lease return strategy (26%)
- New lease originations (26%)
- Used lease originations (19%)
The survey also shows that lenders remain curious about the prospects of used leasing, with 52% of lenders believing used leasing is something worth exploring given current market conditions.
Black Book’s latest white paper, “How To Grow A Profitable Used Leasing Portfolio,” helps lenders identify which vehicles make good used leasing candidates for their portfolio, and is available here.