U.S. new-vehicle sales are on track to fall in 2019, and to stay fiscally strong during a potential economic slowdown, lenders should keep a close eye on customers.
Auto originations rose at most major U.S. auto lenders in the second quarter and the economy remains strong, but clear skies won't last forever. Some economists see slower growth or even a recession occurring in 2020.
Lenders are more prepared than ever for an economic slowdown, thanks to lessons learned during the Great Recession. Still, preparation for a possible downturn remains important, according to an executive at one of the top auto lenders in the U.S. Preparedness starts with customers' financial health.
Jenn LaClair, CFO of Ally Financial Inc., told Automotive News that the lender goes on the offensive in times of economic expansion and switches to defense when changes in the economy impact customers' finances.
Defense for a lender, particularly in the auto industry, means focusing on servicing and collections, though the main goal is keeping customers on the road.
Partnering with customers to make sure they can afford payments helps "make sure they're in their cars, and we're getting paid," LaClair said. "Continuing to be focused on that is really the best defense in light of an economic crisis."
While lenders should consider investing in servicing and collections departments while times are good, ensuring customers can afford payments through a period of financial uncertainty is the best way to avoid defaults and losses during a slowdown.
Maintaining regular communication with dealers about the types of financing deals and loans likely to weather an economic storm will also help the long-term health of auto loan portfolios.