Automotive Finance Market (By Provider Type: Banks, OEMs, Other Financial Institutions; By Finance Type: Direct, Indirect; By Purpose Type: Loan, Leasing, Others; By Vehicle Type: Commercial Vehicles, Passenger Vehicles) - Global Industry Analysis, Market Size, Opportunities and Forecast 2020 - 2027

The global automotive finance market is expected to grow at a CAGR of around 6.6% from 2020 to 2027 and expected to reach a market value of around US$ 350.5 Bn by 2027.

International automakers, which have been rushing into the rapidly expanding automobile market in recent years, are experimenting with novel strategies to increase market share and sales. Many companies are now establishing finance subsidiaries to provide loans to consumers, institutional buyers, and even dealers. As in many other markets, the majority of vehicles sold globally - two-wheelers, passenger cars, and commercial vehicles - are purchased with automobile loans by consumers.

Market Drivers

"Digitalization" creates cut-throat competition to traditional financing application process

Historically, auto financing it entails scouting a car at a dealer, getting a first quote, comparing it to quotes from other dealers and websites, and then returning to the dealer to negotiate again. After the price has been agreed upon, financing must be arranged. This lengthy process is used in more than 90% of auto finance transactions. With 85% of new cars and 50% of used cars currently purchased with financing that equates to a large number of vehicles. Innovative digital startups are reshaping the difficult car shopping and financing process for customers into a quick and easy experience. Digital startups have already begun to make their mark across the value chain, seizing the opportunity. Many are setting their sights on the financing space, bolstered by some US$17 Bn from investors. The introduction of digital tools such as platforms, application programming interfaces, and authentication technologies may soon render that process obsolete. Aggregator platforms are developing direct-to-consumer channels that will allow buyers to shop for loans online and get approved before visiting a dealership.

Big calls for Artificial intelligence (AI) in automotive finance market growth

It can predict when a customer is likely to enter the car buying cycle by incorporating AI. A company can predict when a customer will look for a new car by utilizing external databases such as credit bureaus, social media, and online searches, as well as internal data such as customer risk score, payment histories, and loan to value. A lender can increase their pipeline by 5% to 10% by utilizing AI. An intelligent predictive analysis program incorporates risk-based pricing, allowing each individual to receive a tailored offer. Furthermore, by analyzing customer contact points and preferred mode of contact, lenders can reach out to customers with personalized offers via an omnichannel strategy that includes email, text messages, and online portals. For example, a major European automaker has adopted a “clicks and mortar” strategy. The company is heavily investing in digitally enabling its dealer network in order to move the sales process online. Customers can complete 80% of the purchasing process online with the new system. In addition, the average number of dealer visits per purchase has decreased from 7 to 1. Contracts can be automatically validated for information completeness using computation linguistics and robotics. Key fields, such as dealer invoices, APR validation, and insurance information, can be pre-populated. These processes reduce manual intervention by up to 70% during the validation and booking stages.

COVID-19 impact on automotive finance market

The threat of supply shortages was the industry's primary concern during the pandemic. The virus first appeared in other countries, where factories producing parts and equipment were forced to close. According to Federal Reserve Bank of Dallas statistics, lower borrowing rates have provided additional incentives-the average auto loan interest rate in June 2020 was 4.9%, 1.2 percentage points lower than prior-year levels for new vehicles. Interest rates on used vehicles averaged 9.2%, a half-percentage point decrease. At the same time, the average length of a loan for new and used vehicles increased by one month to 67 months. Automakers have attempted to meet rising demand by ramping up production, which had been disrupted in the spring, leaving inventories low. However, both new and used vehicle inventories remain low. Prices for new and used vehicles are rising as demand outstrips supply. The average loan-to-value ratio increased by 4 percentage points for new vehicles while falling by 1 percentage point for used vehicles. Despite lower average interest rates and longer average loan terms, auto loan borrowers, particularly those who bought a new vehicle, are paying more each month.

Market Segmentation

The global automotive finance market is segmented based on provider type, finance type, purpose type, and vehicle type. By provider type, the market is segmented as banks, OEMs, and other financial institutions. By finance type, the market is classified into direct and indirect. By purpose type, the market is segregated as loan, leasing, and others. Further, vehicle type is bifurcated into commercial vehicles and passenger vehicles.  

In terms of provider type, the banks segment is expected to lead the global automotive finance market. Banks and credit unions that offer auto loans typically do not present a high-pressure environment and may provide more competitive rates and/or terms. Furthermore, car dealerships frequently arrange financing on the spot through a variety of licensed lenders, banks, and credit unions. These factors contribute to the expansion of the global automotive finance market. NBFCs had the largest market share in the vehicle finance industry at first. Private and public banks, as well as OEM-owned captive vehicle financiers, later emerged as key players. Banks held 56% of the market share in India in FY19, with NBFCs accounting for the remainder. Both of these categories specialize in lending to various types of customers. According to Niti Aayog data, banks dominate the four-wheeler passenger vehicle market in general.

According to vehicle type, the passenger vehicle segment leads the global market with a sizable market share. The availability of auto finance or consumer credit is one of the most important factors influencing the purchase of passenger cars. Two-wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-size cars. Two-wheelers and passenger cars accounted for 81% and 13% of over 24.97 million vehicles sold in FY18, respectively. Two-wheelers made up 69.7% of the exported vehicles, followed by passenger vehicles at 18.5%, three-wheelers at 9.4% and commercial vehicles at 2.4% as per the data released by the Indian Brand Equity Foundation (IBEF).

Regional Landscape

Europe dominates the automotive finance market; Asia Pacific emerge as the fastest growing regional market

Because of the presence of major OEMs, Europe is the largest market for automotive finance. Furthermore, the integration of advanced technologies such as electric vehicles, connected cars, and autonomous vehicles promotes the growth of the global automotive finance market.

In contrast, Asia Pacific will have the fastest growing CAGR in the automotive finance market in the coming years. Rising penetration of car rental and sharing services in this region supports the APAC market's growth.

Competitive Landscape

The prominent players of the global automotive finance market involve Ally Financial, The Bank of America Corporation, Capital One Financial Corporation, Daimler Financial Services, Ford Motor Credit Company LLC, General Motors Financial Company, Inc., Hitachi Capital (PLC), and among others

Market Segmentation

Market By Provider Type

Banks
OEMs
Other Financial Institutions

Market By Finance Type

Direct
Indirect

Market By Purpose Type

Loan
Leasing
Others

Market By Vehicle Type

Commercial Vehicles
Passenger Vehicles

Market By Geography

North America
•    U.S.
•    Canada

Europe
•    U.K.
•    Germany
•    France
•    Spain
•    Rest of Europe

Asia-Pacific
•    China
•    Japan
•    India
•    Australia
•    South Korea
•    Rest of Asia-Pacific

Latin America
•    Brazil 
•    Mexico
•    Rest of Latin America

Middle East & Africa
•    GCC
•    South Africa
•    Rest of Middle East & Africa