With the rise of autonomous vehicles, loan volumes, as well as underwriting procedures, are posed to undergo a significant change.
A Deloitte study explored the possible impact of self-driving vehicles on auto finance, and found that $500 billion in new loans and leases are originated annually, with 86% of new car purchases and 55% of used ones relying on borrowed money from either banks, captives, or fleet financiers. The study anticipates that overall loan volumes will decline with the rise of self-driving cars, as customers “transform” from individual car owners into businesses themselves (by sharing their cars with others, for example).
As part of a larger discussion on what’s taking place within mobility and auto finance (view Part I here), co-author of the study, Cameron Krueger, spoke with Mobility Finance about artificial intelligence and underwriting, the move from consumer credit to commercial credit, and the rise of fleet management.
Underwriting itself will not go away, Krueger said, but the methodology behind it will. If self-driving cars are completely and constantly connected, a lender’s knowledge of that vehicle will become more comprehensive; a lender could know exactly where, when, and how a car has been driven since it first rolled off the assembly line, according to the report.
“The tools used for underwriting…like artificial intelligence – there’s so much interest, research, and testing for credit decisions [right now],” Krueger said, adding that as autonomous vehicles reach peak connectivity, there will be more innovative ways of determining credit worthiness beyond standard data from credit bureaus and banks. “Social media too will certainly impact the traditional lending cycle,” he said.
But, more importantly, with the rise of shared mobility, the demand for consumer credit for vehicles will decline, giving way to commercial credit. If the total auto lending market is about $1 trillion right now, according to the report, then the switch to commercial could put a significant portion of auto financiers’ $110 billion in annual revenue at risk.
Currently, driver-providers for rideshares like Uber and Lyft are individual contractors using their own vehicles, so if they seek auto financing, it will be considered consumer credit, even if they are using the vehicle for a rideshare service. But that will change as OEMs and rideshares become fleet managers, Krueger said:
Commercial is fleet…So, the shift will be with the traditional fleets and how you think about fleet operators and fleet monitors in the market because those are not subject to consumer credit laws, reporting, etc. It’s all commercial.
Today, commercial underwriting comprises about 5% of the shared mobility market, Krueger said, but it is set to grow to as much as 60% of all vehicles on the road in the future.
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