The auto and equipment finance market is growing worldwide. Most current lenders are doubling down on their commitments, while other companies are excited to explore the opportunities. Whichever you are, there are three different approaches you could take—you could build a new business from scratch, buy an existing business or partner with a finance business to provide finance offerings to your customers.
But before we dive into those options, lets explore the types of opportunities I’m seeing.
It’s a time of global growth
In the United States, opportunities for auto and equipment financiers are expanding. The US administration says it’s building a national network of 500,000 electric vehicle (EV) charging stations. Plus, as fuel prices rise, people are looking for a more economical alternative for their transport needs. That means increasing loans and leases on EVs.
Similarly, European businesses want to speed up their move to sustainable fleets of vehicles and industrial equipment. For finance companies, it’s a chance to support businesses with lending and leasing options. Late last year, for example, the European Investment Bank and DLL (a global asset finance company for equipment and technology) signed new lending agreements. These terms will let them finance green and circular economy initiatives in Benelux (Belgium, the Netherlands and Luxembourg).
At the same time, demand for new products and services is rebounding. And the trend of businesses and consumers embracing digital services, which accelerated during COVID, is continuing at a fast pace.
Existing auto and equipment finance companies: How will you capture this growth?
If you already have an auto and equipment finance business, you might be wondering what more you can do to take advantage of this growth. My suggestion is to start by considering where you want to be in the ecosystem.
Questions to ask yourself include:
- Do you have white-label offerings that would be attractive to new entrants?
- Can you offer embedded finance options?
- Are there other ways you could partner with companies to build entirely new offerings?
- Are you monitoring the latest trends to ensure you can maintain market share?
- What are the pros and cons of being an early adopter? Is there a first-mover advantage available to you?
New and adjacent markets are opening up—and more players are joining the game
In an article in Automotive News, John Huetter reports that AutoNation, Penske Automotive and Asbury Automotive are investigating the potential of forming their own captive finance companies. That’s big news for auto retailers thinking about how they will remain competitive. But it’s also important for auto finance companies wondering how to compete with these new entrants.
Other companies are also making moves into the auto finance space. Cerberus Capital Management acquired Westpac’s auto loans division in mid 2021. With its local arm, Angle Finance, it has already stood up a new business—Auto Angle Finance. And automaker Stellantis acquired F1 Holdings Group to grow a full-service captive finance arm.
On the equipment finance side, Toronto-Dominion Bank (TD) in Canada acquired Wells Fargo’s Canadian Direct Equipment Finance business last year. Darren Cooke, president of TD Equipment Finance, Canadian Business Banking, TD Bank Group, says “businesses are looking to their bankers to help keep their fleets current, deliver new construction equipment to job sites, and support manufacturing businesses with timely customized financing and leasing solutions that help drive their competitiveness.”
As well as new markets, there are opportunities in adjacent markets. Insurance is an obvious one, although it’s heavily regulated. Still, if you have the right expertise in place, adding insurance to your services could help you improve the customer experience. And boost brand loyalty and profitability. On the other hand, insurers might consider adding auto or equipment finance to their portfolio of offerings—something to watch for.
Three ways to capture growth: Build, buy or partner
The fact is the market is changing, with competition from existing as well as new auto and equipment finance market players. Current players are doubling down to capture growth opportunities and new entrants are regularly joining the specialized finance market. Depending on the capabilities you already have inhouse and whether you want to own the “paper,” there are three options you can choose from for growth:
- Build or buy your own captive finance company. This means you'll need to stand up a new business. Think about the people, processes, infrastructure, governance, operations, regulatory requirements and security you’ll need to put in place.
- Work with a partner to outsource the operations—whether that’s through a white-label offering or via embedded finance from an existing finance provider. If you decide to take this path, you'll need to find the right partner. Things to consider include their ESG maturity (remember that ESG reporting will soon be required as part of operational reporting in North America) and willingness to collaborate on a shared goal.
If you’re imagining your next move, remember our Specialty Finance Center of Excellence is a hub of auto and equipment finance experts with years of experience serving bank-owned and manufacturers’ captive finance and rental organizations. Reach out to me directly if you want to discuss how to capture this global growth by entering a new market.
Tell me, which approach would you take?