Auto Finance Success Mantras & Offshore BPO Levers

In the United States the Auto Finance Industry is dominated by Captive Financiers who were focused on (a) reasonable return on funds (b) increasing the sales of the parent OEM automobiles through discounting and by their presence at the point of sale - the dealer store. The independent auto finance company does not have some of these advantages and they need to be extra conscious in providing market leading investor return.

Of late, things have changed for the captive financiers. The American automobile OEMs are losing market share to the German, Korean and the Japanese auto makers. To retain their market share, some of the captive auto financiers of the American OEM have changed their strategy. They have now started financing the purchase of the cars of the competitors of their parent OEM.

In simple terms all Auto Finance Companies have three parts to their business - Origination, Servicing and Funding. The Key Success Mantras (KSM) for Origination and Servicing are fairly obvious.

KSM for Origination : Getting the right customer is the key. This would mean segmenting the applicants based on their credit history and creating appropriate pricing models for them. Robust credit evaluation systems and verification would be keys to success. Mortgagors and Insurers have been leveraging offshore BPO for credit evaluation, claim adjudication and verification for quite a while. Auto Financiers can leverage on this available pool of talented knowledge workers offshore.

KSM for Servicing : Operating Efficiently and Collecting Effectively are the keys to success. Offshore BPO can provide 5 - 6 Sigma Level accuracy in transactions, overnight release of titles for customers who have paid their dues and improve the responsiveness of the auto finance enterprise by turbo charging the back office operations. This enables the auto financier and its key management staff to focus on customer retention and customer delight.

Collecting effectively impacts profitability. Employing Offshore BPO can help the auto financier lower the (a) Reserves for Credit Losses (b) Provisioning for Credit Losses and (c) Charge Offs releasing precious funds for investment. Offshoring of the Post Charge Off Collections Inventory would also help in increasing the recoveries. These measures positively impact the balance sheets and income statements of auto finance companies.

For the auto finance industry challenged by increasing competition, increased customer expectations and investor scrutiny, Offshore BPO could hold the key to sustained competitive advantage.

Cheers

Paul Simon Arakkal