Business Impact of Auto Finance Offshore BPO

In the United States it is estimated that 80+ percentage of people drive to work. The structure of the cities and suburbs, the highway system and the legendary American love affair with the automobile being the reasons. In 2005, total automobile sales in the United States amounted to 17 Million cars. The Cupid that enables the American love affair with the automobile is the Auto Finance Industry.

The Auto Finance Process Value Chain can be broadly divided into (i) Auto Loan Origination (ii) Auto Loan Servicing and (iii) Loss Mitigation.

Auto Loan Origination would include (a) Application Capture (b) Credit Adjudication & Processing and (c) Funding.

The Auto Loan Origination Process is automated (to a large extent) with (a) scanning solutions available at the point of sale which scans the applications and the supporting documents (b) online access to customer credit history through http://www.myfico.com/ and (c) workflow solutions that enable the credit adjudication and processing steps. Competitive pressure to capture the impulsive car buyers have ensured that these steps are completed within one hour. Therefore, I believe the greatest value that Auto Financiers will get from Offshore BPO is in the Auto Loan Servicing and Loss Mitigation processes. Let us take a closer look.

Auto Loan Servicing would include (a) Loan Accounting (b) Customer Service and (c) Title Management. Auto Financiers are under pressure to (a) stretch each dollar to the maximum - maximize what they can achieve with their budgets (b) increase their competitive advantage by offering outstanding customer service (c) ensuring that payments received from customers are accounted for accurately and (d) claims from the collateral (the car) is minimized.

Let us get more specific. Offshore BPO can help in : (a) Lowering the cost of servicing by moving the operations offshore (b) Minimizing risk of outstandings through offshore operations activating direct pay accounts as against check payments (c) Increasing customer satisfaction by resolving address change requests in quick time (d) Lowering risk of claims by ensuring insurance cover is enabled continuously on all collateral (e) Ensuring the payments received are accounted for in the books and (f) Once payment is made in full, ensuring immediate release of title. The last in the list above has significant impact on the satisfaction of customer who have paid their dues. The average American owns a car for about 5 years. This means that one customer could buy eight cars during his working career! Auto Finance Companies would certainly want to keep these customers for life by providing outstanding customer service!

Loss Mitigation would include (a) Collection Management (b) Inventory Management and (c) Recoveries Management. Unlike a house a car is a depreciating asset and therefore speed is of essence in loss mitigation.

Offshore BPO providers can be engaged to (i) Initiate and Follow through on the re-posession of cars once a decision has been taken to re-posess (ii) Ensuring the movement of the cars to the nearest auction site (iii) Ensuring the quick inspection and valuation of the car in time before the car gets auctioned (iv) Ensuring inventories of reposessed cars are liquidated on time (v) Recovery is made on the residual amount (Total outstanding - Auction Value = Residual Value) and (vi) in the event of the customer filing for bankruptcy completion of the documentation to ensure the brightest chance of collecting the residual amount anytime in the future.

Loss Mitigation has Bottom Line Impact and was discussed in detail in my earlier posting: http://artofoffshoring.blogspot.com/2006/11/balance-sheet-impact-of-offshore-post.html

Thus far, we have discussed the processes that Auto Finance Companies can offshore for the benefit of their Investors, Employees (higher value added work possible) and Customers.

Estimated at $ 715 Billion by CNW Marketing Research, the auto finance industry is made up of (a) Captive Auto Financiers like Fort Motor Credit (b) Independent Auto Financiers like Americredit (c) Large Banks like Well Fargo and (c) Small Regional Banks.

As is well known, the captive auto financiers dominate the auto loan origination space on account of their (i) access to the buyers at the point of sale (ii) ability to increase the affordability and therefore the sales of the car of the respective OEM through financing and (iii) influence over the dealers through their funding of floor plans and capital financing requirements.

The Offshore BPO option is very attractive to the Independent Auto Financiers, Large Banks and Regional Banks since they can focus on origination and competing with the Captives to gain crucial market share. They can also focus on Customer Retention by offering world class turn around times for resolving customer requests and title releases. They can leverage on the economies of scale of the Offshore BPO player to lower their operational costs.

For Captives, the economies of scale exist - much more than other categories. The challenge for them is to be agile and nimble like their smaller competitors. Offshore BPO can provide them the opportunity to be agile and nimble and profitable.

Auto Finance BPO may not have received the attention that Mortgage BPO has. The opportunity for unlocking value for both Auto Finance Company and Offshore BPO Service Provider is no less.

Cheers

Paul Simon Arakkal