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December 14th 2021

The Key Consumer Segment Auto Lenders Are Missing

The auto market for both new and used vehicles continues to grow, yet auto lenders seem to be missing out on the opportunity to tap into a key market segment: newcomers to the U.S.

Despite the economic ramifications posed by COVID-19, the auto industry has shown significant resilience. Mid-year reports from Cox Automotive highlight a significant decrease of 40% in the number of high-mileage vehicles available from one year prior. Meanwhile, automobile manufacturing in the U.S. is expected to increase by 12.3% this year

When it comes to financing car purchases, Americans take out roughly $56 billion across 2.3 million new auto loans each month - the average monthly car payment now sits at $563 for new vehicles. We are seeing record-setting auto loan amounts extend over longer periods of time with Americans borrowing an average of $34,635 for new cars and $21,438 for used cars.

This represents a strong market opportunity for auto lenders, yet one segment remains untapped: immigrants to the U.S.

Important U.S. Immigration Metrics

Based on key findings published by Pew Research Center, more than 40 million people currently living in the U.S. were born elsewhere - a number that accounts for about one-fifth of the world’s immigrants. The U.S. has more immigrants than any other country and has a diverse population of migrants, with nearly every country in the world represented.

The U.S. welcomes over 1 million immigrants each year. As of 2018, China held the title for top country of origin for new immigrants coming to the U.S., accounting for 149,000 people per year. India followed with 129,000, and Mexico and the Philippines represented 120,000 and 46,000, respectively. 

What does this mean for auto lenders? Immigrants to the U.S. represent nearly 14% of the total population. Many are just getting started building lives in a new country, including finding housing and buying cars. From a business standpoint, that means newcomers to the U.S. present a lucrative consumer segment - and one that auto lenders often overlook. 

Why a Focus on Immigrant Auto Lending Makes Business Sense

When we look at today's economic realities—including unemployment and financial volatility from the ongoing pandemic - it raises the question: Why aren’t auto lenders more focused on immigrants?​​ We’ll start by exploring where the auto lending industry is today, where it’s headed in the near term, the obstacles the immigrant segment poses, and why these factors have created the perfect storm for a new market opportunity. 

Overview of the Auto Lending Industry

A lot is happening in the market. Repossessions are expected to rise in the final quarter of this year; the CFPB is more involved in the industry; new vehicle sales are stalling as consumers have increased sticker shock; the semiconductor chip shortage has reduced the supply of new cars on dealer lots. Many in the greater auto industry, lenders included, are looking for ways to fortify against these uncertainties. 

The potential for disruption in auto finance will impact both captive and non-captive auto lenders, though Deloitte points to three areas of focus to defend and expand market share:

  • Direct sales model: As consumers are shifting focus to online sales channels, there is an opportunity to create the same optimized experience and level of service they receive from other industries (i.e. ecommerce).  

  • Customer centricity: Customer experience (CX) sits at the heart of differentiation and competitive advantage. Consumers should be at the front and center of every strategy.  

  • Flexible products and services: Disruption will lead to a call for more flexible lending products and services, including more flexible leasing contracts and new models like subscription-based options. 

These factors are converging to form the perfect storm of opportunity for lenders that are interested in tapping into the immigrant consumer segment. First, however, there are some challenges to address. 

Obstacles to Serving U.S. Immigrants

One of the biggest obstacles to obtaining auto financing for newcomers to the U.S. is the lack of credit history. Many immigrants have established credit histories in their countries of origin; however, most banks and lenders lack the technology and modeling necessary to translate those histories into reports and scores that align with the way the U.S. tracks credit. 

As a result, many lenders steer clear of immigrant segments, missing out on a substantial market opportunity. Lenders are further constricted by outdated technology that makes it difficult for immigrants to apply or be approved for auto loans. 

Yet the need for cars among immigrants is clear. Immigrants are increasingly drawn to suburbs over urban areas where they rely on cars to do everything from buying groceries to dropping kids off at school, and going to work. Even in some urban areas, driving is a necessity. Consider California, where nearly 80% of the workforce must drive to get to work. It’s part of the reason the state passed a law in 2015 that allowed undocumented residents to apply for licenses. 

In considering the realities outlined above, it is clear that a gap exists when it comes to auto lenders serving newcomers to the U.S. Complexity around underwriting and even connecting to this customer base poses challenges; however, technologies are emerging that aim to provide the necessary credit foundation to immigrants and connect them to available lenders. 

The Missed Opportunity for Auto Lenders

The long and short of it is that the immigrant population is falling through the cracks when it comes to owning an automobile. Auto lenders should be paying attention because this is an opportunity to repair those cracks and bolster business in the process. 

Taking advantage of this opportunity requires lenders to approach the automotive industry as a market leader and take proactive action. A focus on serving the immigrant community in the U.S. is forward-thinking and requires a future-focused strategy that considers today’s reality. 

A current reality is that lack of a credit score is no longer a hindrance to lending to the immigrant population. Nova Credit has developed a proprietary way to bridge the gap between international credit histories and a credit score that fits within the U.S. model. 

Nova Credit can also offer ways to streamline operations and underwrite through partnerships that remove the bulk of the heavy lifting for lenders. Nova Credit partners with auto lenders to handle everything from the application to the document collection process and the actual underwriting. We offer our expertise in working with immigrants and translating international credit data to lenders for a risk assessment.

Our mission is to enable the migration of people who bring new perspectives, economic potential, creativity, and innovation to communities. For Nova Credit, we are here to dream up a world beyond borders and to inspire and facilitate the flow of human diversity.

To that end, we are working with auto lenders to help immigrants to the U.S. realize their dreams and to help lenders tap into millions of new potential customers. 

Partnering with Nova Credit to Streamline Operations

Nova Credit offers a unique opportunity for forward-thinking auto lenders to establish their presence as industry leaders. Our proprietary technology enables us to work with immigrants to translate their international credit histories into a credit report aligned with the U.S. credit model. 

In this way, partnering with Nova Credit not only streamlines operations and simplifies underwriting, but it also unlocks a deep pool of potential borrowers who can begin to establish credit in the U.S. Partnering with Nova Credit means you are featured as the auto lender of choice to our pool of customers, each of whom has opted in to create and improve their credit score in the U.S. 

Auto lenders who take advantage of this business opportunity can retain a competitive advantage over other dealerships by offering special financing for immigrants.

Westlake Financial Partners with Nova Credit

Nova Credit is pleased to announce its recent partnership with Westlake Financial - a technology-based finance company that specializes in the acquisition and servicing of prime to subprime automotive retail installment contracts - to provide the company with access to Nova Credit’s global credit data. As a market leader focused on growth and diversification of business models, Westlake Financial saw the opportunity to partner with Nova Credit in order to serve the immigrant population. 

In addition to gaining access to our existing user base of millions of newcomers to the U.S., Westlake financial will take advantage of our proprietary technology that translates and transfers critical international credit information. The partnership will ultimately streamline auto lending operations and underwriting, helping to further carve out Westlake as a leader in the space. 

Contact us today for more information about how you can partner with us to expand your borrower base and serve underrepresented populations.

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