There is a storm swelling in the auto finance industry. With rising interest rates and tightening regulations, originators and lenders in this space are focused on protecting markets and existing revenue streams.
Yet in February, Westlake Financial Services – the largest privately-held automotive lender in the country with $6.2 billion of assets – issued its largest asset-backed securitization of $1 billion. It was welcome news to the industry and indicative of an opportunity ahead.
Asset-backed market share means quite a bit to Westlake and other near-prime and prime-credit lenders. Investors will continue to be attracted to securitizations from Westlake, thanks to a portfolio with a solid structure for electronic transaction and asset management, consistent and reliable eVaulting processes, and a compliant, auditable chain of custody and control.
Streamlined origination is not Westlake’s lone achievement. It has also ensured that its assets can remain in a transparent, fully digital environment during collateralization, securitization and sale into the secondary market. Aside from providing visibility, this will also greatly accelerate access to capital.
Trust Will Be A Guiding Light through the Storm
In light of the tightening industry and the recent regulatory climate, progress within the subprime space has certainly been called into question.
However, Westlake’s success underscores that the picture for near and subprime vehicle lending remains bright. Even though certain indicators in the sector may be troublesome, many industry leaders see no slowdown in the value of these loans when bundled for securitization or collateralization.
As a result, many investors will scrutinize every aspect of an asset pool. Every step an originator makes to simplify and accelerate due diligence will make offerings more attractive. Experienced investors will do everything in their power to ensure it meets acceptable levels of risk, but ultimately it will always come down to trust. Proactive steps taken by the originator upfront will set the tone and elevate levels of confidence.
Westlake’s investment in going digital and meeting the highest standards of executing and managing digital contracts makes an investor’s decision that much easier. With the rough waters ahead, expect even more originators to make the same move to digitize the process.
It seems like the auto industry is in the eye of a tempest. While you’ll be hard-pressed to halt this force of nature, you can prepare for it by locking down the hatches and stocking up for rough waters ahead.