Navigating the Evolving Automotive Finance Landscape: Trends Shaping the Industry's Future

The automotive industry is undergoing a transformative shift, driven by changing regulations, declining electric vehicle (EV) sales, and shifting consumer expectations. Andrew Williams, Senior Director for EMEA at FICO, highlights five key trends that are set to define the future of the motor finance sector, from connected car data and feature subscriptions to the rising demand for hyper-personalization.

Unlocking the Power of Connectivity and Personalization in Automotive Finance

Harnessing Connected Car Data and OTA Updates

Vehicles have been increasingly connected for years, generating vast amounts of data. However, the way this data is utilized and how connectivity is leveraged is evolving rapidly. Over-the-Air (OTA) updates are now enabling wireless software updates, eliminating the need for manual dealership visits. These updates can range from minor bug fixes to significant enhancements, such as upgrades for brakes, advanced driver assistance systems (ADAS), and even EV charging and mileage improvements. By reducing downtime and increasing convenience for drivers, OTA updates are driving efficiency for dealerships and garages.Connected cars also have the potential to revolutionize customer communications, an area where the industry has traditionally struggled. A connected vehicle can now recognize when it needs servicing and proactively recommend the best time and location for the service, enhancing the overall customer experience.

Embracing Hyper-Personalized Offers and Communications

The wealth of personal data gathered through vehicle connectivity is enabling motor finance providers to offer more flexible and competitive loan options. Sophisticated mathematical optimization algorithms can quickly identify the offers best suited to each individual customer, leading to higher booking rates and lower underwriting costs. Additionally, real-time data on mileage can be used to update contract terms, ensuring accurate reflections of the likely impact on residual value at the end of the contract.

Subscription-Based Vehicle Features: A Growing Trend

The popularity of subscription services is on the rise, and the automotive industry is no exception. While vehicle finance subscriptions may not have taken off yet, subscriptions for optional car features are gaining traction. Drivers are recognizing that they do not need or want all the advanced solutions available in their new cars and are seeking more flexibility in paying for only the features they use. These feature subscriptions can include performance enhancements, software upgrades to expand EV range, and even cold weather packages that unlock heated seats or battery upgrades. Manufacturers like Volvo are already seeing significant success with this subscription model.

Navigating the Challenges and Opportunities of EV Ownership

Electric vehicles hold both promise and uncertainty for the industry. While EV repairs can be more expensive than those for traditional internal combustion engine vehicles, they often require much less frequent servicing due to fewer moving parts and the elimination of oil changes and spark plug replacements. To address the potential high cost of repair, protection products that spread the cost of service, maintenance, and repair are becoming increasingly popular among EV drivers.

Embracing Agile Decisioning Systems for Continuous Risk Assessment

As customer demand for hyper-personalized solutions grows across various sectors, the automotive industry is transitioning from a single origination transaction to ongoing risk assessment. Lenders in the automotive sector will need to make almost continuous decisions about each borrower, driven by the rise of subscriptions and OTA updates. This shift requires more agile 'decisioning' systems and more continuous risk assessments, which in turn necessitates better access to the vast amount of data currently siloed by original equipment manufacturers (OEMs), dealers, finance providers, and other industry stakeholders.By breaking down these data silos and enabling organizations within the automotive industry to access the information they need, lenders can deliver the right solutions for customers at the right price and level of risk, without compromising profitability. Robust data analysis and comprehensive risk evaluation will be crucial for lenders to remain competitive in the evolving motor finance landscape.