Coronavirus (COVID-19) and the Auto Finance Industry: Impact and Solutions

Practically overnight, the spreading coronavirus has sunk the previously flourishing economy into new lows. Unfortunately, the auto lending industry is no exception. As consumer confidence comes to a halt, and layoffs are imminent, many would-be car buyers are postponing their purchase of a new vehicle. The economic uncertainty is simply too great to risk taking on a major expense now. In light of this, J.D. Power now forecasts that March sales will drop up to 41% from a year ago. The analytics firm had previously predicted U.S. car sales to reach 16.8 million this year, but has since revised its forecast to between 14 million to 16 million. Meanwhile, Morgan Stanley predicts “demand shock” to shoot auto sales down in the U.S. by 9% in 2020. Despite the inevitable slow down in sales, auto lenders will have to accommodate an increase in servicing activity such as extensions and refinancing. And they’ll need the right digital tools to expedite the process remotely, when people are locked in their homes.

The new normal: servicing and collections, not originations

The coronavirus outbreak dealt a fast and powerful blow to the economy; just a few weeks into the pandemic, 20% of Americans have either lost their jobs or lost hours. Even at the peak of the Great Recession, only 9.9% of Americans found themselves jobless. The stock market reflects this plunging consumer confidence –– it declined by 20% in a mere 21 days, marking the fastest bear market in history, even faster than 1929. Anticipating borrower hardship, many captives are proactively reaching out to customers to help them weather these tumultuous times. Ford’s credit unit is allowing customers who purchase a new vehicle to postpone their first payment by 90 days. Nissan is reportedly planning on launching a similar program. Hyundai will also be deferring payments for 90 days for certain new cars, and give up to six months of payment relief for customers suffering from layoffs. Many of these companies are also planning to provide payment relief to existing borrowers affected by the virus, such as deferred lease payments and extensions. In a worst-case scenario, the industry could see an influx of repossessions, though relief efforts are aimed at minimizing that occurrence. The data backs up the necessity of these desperate measures. A Lightico survey conducted in March 2020 found that 56% of consumers are concerned about their ability to pay back loans in the coming months. This percentage is likely to rise if the coronavirus crisis spirals out of control with no signs of letting up soon. In any case, it looks like auto lenders will be busy in the weeks and months to come –– even if it’s not in the way they were hoping.

Borrowers are stuck at home but need servicing

Not only will auto financiers need to navigate borrowers requesting to change the terms of their loans –– they will also need to effectively manage the process remotely. Lenders who previously relied on face-to-face interaction to handle these cases will have to make a dramatic shift. Meanwhile, lenders who bounced borrowers through multiple touchpoints like phone conversations, email, and fax machines to handle servicing issues will now have to change that strategy. During normal times, 62% of customers who abandon an auto loan process cite excessive touch points or a poor digital experience as the reason. Accustomed to effortless digital services in all other aspects of their lives, from streaming movies to ordering from Amazon, they expect the same from their auto lenders. In the coronavirus era, this frustration with broken digital journeys and physical paperwork is drastically compounded by the fact that people are simply afraid to leave their homes and go to a lender’s or dealer’s physical location. Submitting documents and forms in person is no longer just a frustrating inconvenience; for many, it’s an impossibility. Meanwhile, lenders cannot even expect borrowers to have a desktop or laptop at home to apply for loan relief. According to Pew Research, one-in-four lower-income American adults only have internet access through their smartphone. Considering this is the population that will most urgently require lender servicing, lenders need to quickly change the way they facilitate hardship issues. If nothing changes, borrowers may find themselves having to choose between endangering themselves and others by leaving their homes, or forgoing much-needed servicing. This is especially the case for older or immunocompromised populations.

The solution: Fully remote servicing

Auto lenders who are committed to preserving business continuity during these rocky economic times would be wise to shift to a digital lending platform. Lightico provides one such solution for auto finance, allowing lending agents to send customers a text message link to their mobile phone, enabling borrower form-filling, document submission, ID uploading, ID verification, and eSignatures. The entire servicing process can be completed via mobile without ever stepping foot in a physical location or opening an email. Agents are empowered to guide customers through the whole process by phone in real time, eliminating mistakes and confusion which is more likely during these stressful times. We don’t yet know how long the coronavirus will be around, and for how long its impact will be felt in the auto lending industry and beyond. Providing consumers with an effective platform for remote transactions ensures that whether they are taking out a new loan, or seeking to modify an existing one, service can continue safely and easily.