In addition to AI, Westlake will leverage Pagaya's relationships with asset managers and other partners to finance the loans, which helps it avoid weighing down its own balance sheet. Pagaya has similar relationships with auto lenders including Ally Financial Inc., Flagship Credit Acceptance and Foursight Capital.
"They are becoming more and more open and happy with these partnerships that don't utilize their balance sheets," Pagaya co-founder and Chief Executive Officer Gal Krubiner said in an interview.
A handful of lenders — Capital One Financial Corp. and Citizens Financial Group among them — have moved away from parts of the auto-lending industry in recent months, citing credit concerns and the challenging environment created by still-elevated car prices, high consumer demand and constricted inventory.
"That gap is an advantage for the investors," Krubiner said. While many consumers are still looking for auto loans, fewer lenders are willing to provide them, he said.
Pagaya's artificial-intelligence model uses more data points in assessing whether a consumer is creditworthy than the handful typically used by traditional auto lenders, Krubiner said. That means it can find more consumers who would have previously been denied a loan, perhaps because of a single black mark on their credit, according to the CEO.
Around 14,000 franchise auto dealers will have access to the technology.
"Pagaya's AI technology and two-sided lending network allows us to unlock new opportunities for our team and facilitate seamless transactions, ultimately helping our dealers sell more and our customers get approved faster," Don Hankey, chairman and CEO of Westlake parent Hankey Group, said in a statement announcing the partnership.
Large auto lenders such as Westlake sell bonds backed by car loans to investors as a way to fund themselves. David Goff, Westlake's vice president of marketing, said in an interview that the partnership with Pagaya won't reduce the firm's presence in the asset-backed securities market, but will complement it and help the firm expand.
Westlake's partnership with Pagaya hasn't previously been disclosed. The two tested the waters with a pilot program in 2021 that wasn't made public.