How Lenders Are Preparing for an Autonomous Future

In the past year, mobility has become a crucial innovation driver of the automotive industry, and auto finance — as a result — will experience an overhaul as the industry continues to be disrupted. One of the most notable transformations will stem from autonomous cars, which are increasingly signaling a subscription carshare future.

Grayson Brulte, president of Brulte & Co. called this financing model “Netflix for cars.”

“Today, when you buy, lease, or finance a car, it’s going to one family or one individual,” Brulte told Mobility Finance. “In the future, that same vehicle can go to four to 10 different families. The use rate will be higher,” and consumers will be subscribing to a brand.

To that end, manufacturers and captives are already preparing for an autonomous future with subscription models like General Motors Co.’s monthly carshare program Maven, and Cadillac’s $1,500-per-month Book by Cadillac program. Brulte spoke with Mobility Finance about ways auto financiers should prepare for disruption and the role of trust in autonomous cars.

Following are edited excerpts from the interview:

Mobility Buzz: Will financial institutions still have a role as autonomous vehicles come to market?

Grayson Brulte: The question is: Do the OEMs want to keep the liability of the cars on their balance sheets, or do they want to sell them to a third-party financier, and have them control the liability, and then they get interest payments? At the end of the day, their model is going to have to evolve tremendously. Getting a loan on an autonomous car will be rare.

MB: How are or should lenders prepare for an autonomous future?

GB: JPMorgan Chase, for example, has a very large car loan portfolio. They are underwriting the leases and loans to buy the vehicle, and the vehicle is basically an asset to guarantee it. That model is going away, and Chase knows it. What is interesting is that Chase is one of the largest owners of physical cobalt in the world. They started buying up and storing physical cobalt, which is the secret ingredient to make electric vehicles travel long distances. JPMorgan Chase is preparing for an electric autonomous future.

Chase is also planning for a future where it no longer underwrites car loans. You are seeing that with JPMorgan increasing its credit card business. If you look at it from a bank’s perspective: Banks make money when individuals don’t pay their credit card bill; that’s bread and butter winning for the banks. JPMorgan is upping their credit card offerings — and part of it is in competition with American Express, but part is preparing for the future when we no longer have the traditional auto finance business. If you have cobalt, you are edging yourself for the auto business as well. Then you can artificially control the market and increase the prices because you control the demand for cobalt.

MB: How important is trust in the deployment of autonomous cars?

GB: Trust is going to drive the entire ship. Where the OEMs and every single company — besides a handful — are making the biggest mistake I believe is that they are not building consumer trust. Consumers will have to get comfortable with the autonomous vehicle, they will have to trust the brand and trust the technology. What we need to do is have autonomous vehicle demo days. You have to invite the public to ask any question they want. Is it safe? Can I put my children in this? How do I get to work? Ask every single question under the sun, and go for a ride. As an autonomous vehicle manufacturer, you have to answer every question honestly, because if you don’t you just lost that trust.

MB: Will the lack of trust cause some OEMs and suppliers to go out of business?

GB: There will be massive consolidation. There are too many companies fighting for same piece of the pie. Not every single company that is building an autonomous vehicle is going to win. Most will lose. We will probably end up with three to five autonomous vehicle manufacturers at the end of the day. You will see massive consolidation; you will see companies going out of business. Everyone is trying to figure out their little niche, but the ones at the end of the day that will win is who the customers trust the most. And today, I believe by far the leader is Google’s Waymo. Google is a verb and it’s so in our culture and our society of being a great service; it’s trustworthy and reliable. Very few of manufacturers have those elements.

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