A new auto finance ecosystem is on the horizon, with the structure and timing dependent on the shift to car sharing and autonomous driving, according to a study published this month by Deloitte Consulting.
One potential outcome for dealerships is that they, not consumers, would own vehicles, which they would offer to customers on a subscriptionlike basis.
“We don’t think it’s necessarily [in] the next five years, but it’s certainly in the next 15 or 20,” said Tiffany Johnston, a principal in Deloitte’s financial services practice and co-author of the study, “Financing the Future of Mobility.” The timing depends on how quickly automotive technology advances, she told Automotive News, adding, “The financing piece will follow the auto piece.”
If car-sharing continues to rise and the number and size of vehicle loans decline, auto lenders’ business could be transformed, according to the study. Customers, now individuals for the most part, could become businesses, and auto-loan volume could fall in the long term, the study found.
Deloitte Consulting predicts that 35 percent of the overall auto finance market will become business-to-business in the next 10 to 15 years. That’s a significant move from today’s 95 percent business-to-consumer lending market.
In markets where there’s demand, lenders will continue to make traditional loans and leases to consumers. In other markets, though, business-to-business commercial lending will take precedence. That could mean tighter profit margins and lower residual values.
As a result of lower margins, some dealers may convert stores into mobility management providers to establish a place in the new market, with fleet operators and ride-sharing and rental-car companies as their competitors.
This can be a positive change, the study said, because “it could open up a sizable new frontier for auto finance companies.”
The “degree to which mobility is personally owned or shared” and “whether vehicles [remain in] human control or are fully autonomous” will produce what Deloitte calls four possible “future states of mobility.”
State 1 would involve an incremental change. Vehicles would still be personally owned and driver-driven. They would not be autonomous but they would have more driver-assist technologies. In this case, auto lenders would see minimal impact to their business models, the study said.
State 2 would see the growth of the sharing model, including taxis, limos, rental cars, ride-sharing and car-sharing. For shared, driver-driven vehicles, many auto finance elements are already in place, with fleet lenders now financing taxis, limos and rental cars.
State 3 would find autonomous vehicles safe and available, but many customers still preferring to own vehicles. Because dealers would continue to sell or lease vehicles to consumers in this scenario, much traditional financing would remain unchanged, the study said. Individual loan size could even increase if two-car families downsize to one autonomous car.
When customers begin to purchase autonomous vehicles, dealerships likely would adopt a “highly tailored showroom experience,” the study said. Auto lenders should offer a loan origination process aligned with that experience, with “near-instantaneous mobile loan generation” and digitally authenticated loan approvals, the study said.
State 4 would be the blend of the sharing and autonomous vehicle trends. In this case, the financing model would be business to business with a focus on fleet owners. “We don’t think it’s individuals who own those cars,” Johnston said.
State 4 foresees banks and automakers’ captive lenders financing vehicles that dealerships would keep ownership of while they offer them to consumers on a subscription basis, Johnston said. Dealerships could also offer autonomous vehicles that would drive to customers’ locations when ordered and take them to their destinations, Johnston said.
Auto lenders have launched some financing programs to help consumers participate in State 2, the sharing model. One such program is Ford Credit Link, a lease-sharing pilot, Johnston said.
But “once autonomous takes hold, a lot of the market going into future state 2 now shifts up quickly into future state 4,” she said. Autonomous car-sharing would be less expensive because there wouldn’t be a driver to pay.
Fully autonomous vehicles may be a distant vision, but the sharing model will grow even if autonomous vehicles never hit the market or regulations delay its arrival, Johnston said.
The future states will likely coexist, she added, so lenders should prepare to serve a range of customers or to specialize their business for a smaller market. “We don’t think it will be all or nothing against any of these states,” Johnston said. “We think they will all exist together.”