4 Things to Know About Protecting Your Auto Portfolio in 2023

The automotive finance industry is facing significant challenges in 2023, and it's essential to be prepared and proactive in protecting your auto portfolio. As the industry landscape evolves, here are four crucial factors to consider:

1. Uninsured Collateral: A Perfect Storm Looms

The reduced affordability of vehicles, coupled with high interest rates and insurance premiums, has led to a surge in delinquencies. Borrowers are canceling insurance policies at alarming rates, leaving lenders with a growing risk of uninsured collateral. This means that in the event of an accident or total loss, the collateral may be valued at less than the outstanding loan balance, leading to potential losses for finance companies and dealerships. To weather this storm, it's vital to implement enhanced risk measures, such as securing recovery resources and adopting a robust risk management insurance program.

2. Dropping loan volume and an Increased Risk Profile

Loan demand, which saw a boost during the pandemic, is now shrinking due to soaring interest rates. This decrease in loan volume is concerning, especially when combined with the fact that loan balances have increased by 38% since 2021. Many of these loans are tied to overvalued and possibly uninsured vehicles, resulting in higher risk profiles for lenders. In anticipation of a surge in loan demand, it's crucial to be proactive and adequately prepared with risk management measures.

3. The End of Inflated Vehicle Values is Near

Vehicle values have been inflated for some time now, leading to higher insurance claims. However, this trend is not sustainable, and we can expect vehicle values to come down in the near future. This shift poses a challenge for lenders as it may lead to increased losses in the event of accidents or total losses. To mitigate losses and protect both credit unions and borrowers, consider implementing Collateral Protection Insurance (CPI). A CPI certificate benefits borrowers by maintaining their loan in good standing and provides actual cash value (ACV) in case of an accident, minimizing losses for all parties involved.

4. Repossessions are on the Rise, but Resources are Scarce

The recovery sector took a hit during the pandemic, resulting in a 30% decrease in the number of available repo companies. With rising delinquencies, securing collateral becomes even more critical, but the limited resources make it challenging to retrieve assets effectively. To address this issue, consider aggregating volume with other credit unions to gain preferential treatment from remaining repo agents. Utilizing the services of CPI providers like Verifacto can also help by providing aggregated volume and fairly compensating repo agents for compliant and effective recovery.

Looking Ahead: A Focus on Risk Management

As the industry adapts to new challenges, it's crucial to remain vigilant and focused on bolstering risk management measures while still caring for your members. Collateral Protection Insurance (CPI) emerges as a key solution that protects lenders' collateral while also serving the interests of borrowers. With CPI, recovery rates can improve significantly, reaching up to 65%, compared to a mere 27% success rate without CPI.

As we navigate the uncertainties of 2023, investing in comprehensive risk management strategies, including CPI, can help protect your auto portfolio, minimize losses, and ensure the long-term success of your finance company or BHPH car dealership.

Stay informed, stay prepared, and let's tackle the challenges together!

About Verifacto: Verifacto Inc. is a leading provider of comprehensive risk management solutions for the automotive finance industry. With cutting-edge technology and innovative services,Verifacto Inc. helps finance companies and dealerships not only find the most effective Collateral Protection Insurance (CPI) program but also efficiently manage and run it. Utilizing Verifacto's software and services, you can streamline your CPI program, ensuring that it aligns with your specific needs and goals. Our services also include full integration with the DMS/LMS, automating the placement and removal of CPI from the system, making the process seamless and hassle-free for your business. Connect with us today to learn more about how Verifacto can support your business in these challenging times.