Auto manufactures have been harnessing tech innovations to transform the industry landscape into a connected, ridesharing, driverless, and smartphone-dominated industry. In that same vein, what does this mean for auto finance?
“There is an incredible amount of acceleration in the [auto finance] space, and this is when you see legacy companies partner with new companies,” Tery Spataro, director of innovation at CCG Catalyst Consulting Group, told Auto Finance News. “The trend has been happening big time in other industries, and is happening in auto finance, too.”
In fact, some companies have already tapped into the “disrupter space” through partnerships, or through launching their own new platforms. Companies like Uber and Beepi — which partnered with Ally Financial Inc. in December 2015 have recognized the changing and diverse nature of today’s marketplace, Casey Harmon, senior vice president of corporate development at Westlake Financial Services, told AFN.
“There is an incredible amount of acceleration in the space, and this is when you see legacy companies partner with new companies,” Tery Spataro, director of innovation at CCG Catalyst Consulting Group
“[Those companies] are leaders in disrupting the space, and we look to provide products and services to be able to partner with some of them,” he said. “There are still plenty of people that look to go to a dealership, but we find that the younger age group, they want to find a different model.” For Westlake, offering that model also meant partnering with Uber. “We have an Uber program that offers very competitive rates across the spectrum, from prime to subprime,” Harmon said. “I don’t know how our partnership with Uber is going to develop or change, but we love working with them.”
Westlake and BAMA Leasing — which offers leases to Uber drivers in Boston and San Francisco — were the two preferred financing options offered to prospective drivers through the rideshare company until last summer, when Uber launched its own leasing pilot. “In response to feedback we got from drivers, we created an innovative and unique flexible lease product — called Xchange Leasing — and it has grown very quickly,” Andrew Chapin, Uber’s head of vehicle solutions, told AFN. Drivers who participate in Xchange Leasing for at least 30 days “will be able to return the car with only a two-week notice and limited additional costs,” according to the company’s website. Those terms differ from traditional finance offerings, the company said.
In the meantime, Westlake President Ian Anderson, together with other Westlake execs, co-founded their own “disrupter” platform, Car Harmony, in November 2015. Through the new platform customers choose a car online, have it delivered, test drive, and keep it for a three-day trial, within a 30-mile limit. Car Harmony offers financing through a “special partnership” with Westlake, according to its website.
“The idea came about because we noticed that other players were disrupting the space, with startups like Beepi, Shift, and Carvana. We figured that Westlake has the vehicle inventory, the technology, and financing capabilities necessary in order to go to another level and do something a little different,” Anderson told AFN. As for its connection with Uber, Westlake volume has dropped to less than 100 deals per month from 200 deals previously, Anderson said. Uber did not confirm the deal volume with Westlake, but the company told AFN that the response volume to the Xchange Lease product has been larger than to any other finance option offered at Uber.
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The story is slightly different for captives, where manufacturers take the lead. For example, General Motors recently announced a $500 million investment in ride-hailing company Lyft, but it is too soon to discuss General Motors Financial Co.’s involvement in the partnership, a spokeswoman for the captive told AFN. However, in late January, GM President Dan Ammann touched upon a possible future collaboration between Lyft and GMF while on CNBC’s Squawk Alley, saying that GM has “a real advantage obviously, in our ability to supply vehicles, our ability to finance them efficiently through the GM Financial platform.”
GM also recently announced the launch of its new rideshare and personal mobility brand, dubbed Maven. “Maven’s mission is to give customers access to highly personalized, on-demand mobility services,” according to a company press release. The Maven team is comprised of more than 40 employees, formerly of rideshare and tech companies like Google, Zipcar, and Sidecar. Maven customers can rent cars at $6 per hour rate, using the app to search, reserve, and unlock the vehicle.
Whether it’s a partnership or the launch of a standalone platform, legacy lenders are in search of those kind of transformations, CCG’s Spataro said. “It’s all about opportunity when a legacy company partners with a new company,” she said, referring to GM’s partnership with Lyft. “The most innovative part of Lyft is its app, so it’s not an innovation as much as a transformation,” she explained.
While the auto finance industry is figuring out ways to respond, the upshot from Uber is that the nearing change in the field is twofold:
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First, the auto finance companies will review the structure of products offered to meet the growing need of rideshare population. Then, as consumers continue to generate income from ridesharing gigs, lenders will amend the underwriting standards to reflect that added income, and, as a result, the added creditworthiness of a consumer.