Adoption of digitized contracting and documentation workflows by auto retailers and lenders continues its upward trend, according to the Q3 Auto Finance Digital Transformation Index from Wolters Kluwer Compliance Solutions.
While mostly unchanged at less than a half percent due to decreased sales activity, the year-over-year trend was up 28 percent for the third quarter a year ago. Further, the four-year trend continues to show digital adoption growth of 131 percent dating from Q3 2020, according to Wolters Kluwer officials.
The index tracks the rate at which auto dealers, service providers and lenders are seeing growth in the evolution to digital finance back-office processes from paper-based procedures.
Battling Headwinds
The third quarter of 2024 presented a challenging sales environment for auto dealers and lenders, with overall industry sales declining by approximately two percent. Affordability issues continued to deter consumers as the average vehicle price remains significantly higher than pre-pandemic levels. High interest rates further dampened demand, as benefits from Federal Reserve rate cuts had not yet materialized in the auto loan market.
Tim Yalich, head of auto strategy for Wolters Kluwer, commented that despite facing headwinds in the sales environment, the auto finance industry continues to demonstrate remarkable resilience and adaptability.
“While consumer demand softened due to economic pressures, we’ve leveraged this period to accelerate our digital transformation initiatives for auto brands,” said Yalich. “By implementing advanced workflow automation and data analytics in back-office operations, we’ve uncovered significant efficiency gains across the entire value chain.”
Index Details
Wolters Kluwer’s Index reported the digitization adoption rate for securitization markets continued to accelerate, with digital auto loan volume in securitization markets decreasing 10 percent compared with Q2 2024. However, this decrease was lighter than the 41 percent decrease reported last quarter.
Over the last four years, digital adoption for securitizations is up 73 percent, slightly higher than the four-year trend recorded last quarter (70 percent).
For the time period tracked, a mixed environment for securitized market activity in automotive and asset-backed securities (ABS) was observed. Overall ABS issuance remained robust, but the automotive sector faced some challenges. Auto loan and lease ABS issuance slowed compared to previous quarters. The market saw growing demand for electric vehicle ABS, reflecting the industry’s shift toward electrification.
Continued Digital Transformation
Despite these challenges, auto ABS delinquency rates remained largely stable, benefiting from high vehicle values supporting recoveries.
In summation, Yalich opined digital solutions have not only helped the industry weather the current storm but have positioned Wolters Kluwer partners to emerge stronger and more agile when market conditions improve.
“Our commitment to innovation and operational excellence remains unwavering, ensuring we can continue to deliver value to our customers and stakeholders even in challenging times,” Yalich stated.
