Mobile Resource Management Driving Growth in the $200B Subprime Auto Finance Market

CDMA-enabled telematics solutions are delivering the business intelligence that both dealers and lenders need to monitor and manage their vehicle assets as efficiently and cost effectively as possible.

CDMA-enabled telematics solutions are delivering the business intelligence that both dealers and lenders need to monitor and manage their vehicle assets as efficiently and cost effectively as possible.

Thousands of vehicles are purchased every day, but not all of the customers making the purchase have a stellar credit rating. Lenders, of course, prefer to work with “prime” borrowers; people with excellent credit that are very likely to pay off their auto loans completely and on time. Because of this, many customers must turn to subprime auto loans, which allow them to purchase a vehicle with a lower credit rating. In turn, they likely pay a higher interest rate than a prime borrower would. This protects the lender by giving them more interest income on a loan because it carries some additional risk.

The subprime auto finance market is big business; recent industry analysis estimates it at around $200 billion. The market grew considerably during the recent recession; as an increasing number of potential buyers saw their credit scores impacted, lenders became more aggressive by offering lower-rate loans to attract buyers. It worked, and the auto industry saw sales rebound significantly.

An Industry in Motion

However, this large and growing market operates with a huge challenge: collateral that literally moves from place to place on a daily basis as drivers go about their day-to-day activities. While lenders have built in risk assessment into their interest rates, they still need ways to mitigate that risk as much as possible. Therefore, when a customer with a lower-than-average credit score drives a car off the lot, the dealer or lender must be able to cost-effectively monitor it to protect their collateral and mitigate risk related to potential late payments, defaults and possible repossession.

M2M-enabled mobile resource management is critical to helping subprime auto lenders keep a keen eye on their customers—and their assets. Through real-time, on-demand GPS vehicle tracking and location technology, dealers and lenders can access necessary business intelligence to quickly and cost-effectively track (and recover, if necessary) their assets.

Collateral management systems (CMSs), such as Spireon’s GoldStar GPS and LoanPlus CMS solutions, are a key part of such a strategy. Let’s take a quick look at how a CMS works: The automotive lending company works with its CMS partner to have a SIM-embedded GPS device installed in the car. After the consumer is informed, a device is connected to the vehicle battery source, and is certified to meet various environmental and physical requirements to make sure it can stand up to the elements and can sustain the service term required. The car is then sold to the consumer, who drives it off the lot. Immediately, the collateral monitoring can begin.

As part of the services offered, the lending company can send discreet automated reminder notices from the system about upcoming payment due dates, late notices and other communications.  This has been shown to drastically help customers stay on track with their payments and improve their long-term credit standing.

In the case of a late payment or vehicle impoundment, the lender can quickly access the information about the car, including location and movement, which can speed up the process of re-possession if required. Collections staff can even receive notifications when a vehicle has been stopped for a specific period of time. Lenders can also set up geographic boundaries, called geofences, and subsequently receive alerts whenever a vehicle enters or leaves those boundaries. This also helps repossession agents to recover assets more quickly.

The tracking system even has a side benefit that is beneficial to the borrower as well as the lender; the GPS technology can also be used to track and locate the vehicle if it is stolen, allowing a speedy recovery.

Measuring the Results

Traditionally, vehicle repossession is time consuming and therefore costly; imagine a repossession agent visiting a home address or place of work repeatedly until the vehicle is located. With a CMS, the lending company can locate a vehicle quickly and easily and direct a repossession agent to the specific address. A starter disabler—which allows collections teams to remotely disable a vehicle once it’s stopped—is another option available with the system. When combined with automatic billing notifications, it can act as a strong reminder for customers who are behind on their payments to stay on track. In many cases, these capabilities can actually change a user’s behavior, turning a potentially delinquent customer into one who embraces the responsibility of vehicle ownership and ultimately helps them repair their credit.

But do CMSs really work to improve the bottom line for subprime auto lenders? In recent research conducted by independent third paries, when subprime lenders implemented a strategy that included a CMS:

  • 84 percent reported a reduction in delinquencies
  • 78 percent were able to finance customers with lower credit ratings
  • 68 percent financed customers with smaller down payments
  • 77 percent show significant improvement of customer credit ratings

Embracing the Next Generation with CDMA

All of this intelligence, of course, relies on the support of state-of-the-art wireless network capabilities, and when it comes mobile resource management, CDMA technology is the clear winner. Using CDMA-based CMS solutions allow the automotive finance community to:

  • Locate vehicles quickly and easily; the prevalence of wireless providers using CDMA technologies provides strong network access and better coverage—even in remote and rural areas
  • Future -proof their systems. CDMA is already “the next generation” and can support optimal service well into the future.

The technology also helps lenders mitigate risk, while simultaneously expanding their ability to offer loans to a wider range of borrowers. When subprime auto lenders can keep a tighter handle on their assets, they’re in a better position to protect their investments, manage overall workflow, and experience maximum productivity and profitability.


Stefana Houldsworth joined Spireon in May 2012 as Director of Product Management, Automotive Solutions Group. Stefana has more than 10 years of product management experience across a spectrum of industries including financial services and retail.