Ally Auto Finance chairman Doug Timmerman said the lender is focused on leveraging data and analytics to make better and faster decisions.
In a Q&A from Wards, he talks about the need for speed, the loan segments that Ally plays in, the competition, and what good dealership salespeople do to help customers. (Editor’s note: The interview dates from before the coronavirus reached crisis level in the United States, which is why it is not mentioned in the Q&A.)
Here is a modified version.
Neighborhoods: When you talk about making better decisions, what would be an example? To make a loan or not?
Timmerman: Yes. Whether you say yes, no or maybe.
Neighborhoods: When you say better, does that include faster? Is there a sweet spot as to how quickly a loan is approved?
Timmerman: Faster is an essential part of it.
Neighborhoods: What is the best case out there?
Timmerman: Today, we do a lot of things instantly. Our automated approval rates are up 40% year over year. You talk about seconds to make a decision. (Timmerman, left)
Neighborhoods: what percentage of loan decisions are automated.
Timmerman: About 60% each for approvals and rejects.
Neighborhoods: Wasn’t there a time when automated decision-making was only for refusals?
Timmerman: Yes that is correct.
Neighborhoods: When did that change?
Timmerman: The most significant change has taken place in the past five years. It is gaining momentum.
Neighborhoods: Is it because of better technology?
Timmerman: That was a big part of it. Also exploit data and analysis. He was also strongly motivated by the dealership’s need to provide the best customer experience.
A quick decision not only helps our capture rates but also helps the reseller deliver a better customer experience. The consumer can move through the car buying experience more quickly.
Neighborhoods: How many auto loans do you make?
Timmerman: We review over a million requests per month. We received a total of 12.6 million requests last year, up 9%. We made $ 36.3 billion in consumer mounts last year.
We are willing to review all applications which is unique. A lot of lenders don’t. We don’t want a dealer to decide, “Is this a deal with Ally or not?” We are ready to examine them all. Sometimes dealers are surprised at what an agreement with Ally is and how competitive we are.
Neighborhoods: How competitive is the car loan these days?
Timmerman: You see more competition in the high-end segment, the very high-end segment of the company. We have seen more competition from a rate standpoint.
Players come in and out and compete for prizes. We are not very competitive in this segment. Our main position is the bell of the curve; the middle. It’s a bit tricky place to play.
Neighborhoods: Why is it complicated? It looks like it would be a nice place.
Timmerman: It’s tricky in the fact that it’s not about super-prime credit, right? So you have credit that is not always crisp or clear.
Neighborhoods: There’s this old lending industry that says if you want to avoid losses, don’t lend money.
Timmerman: This is the way to avoid all losses. We love (the middle) for a number of reasons. This corresponds well to the needs of our dealers. The returns are better. The performance of this segment exceeded our expectations.
Neighborhoods: This segment would be what credit score?
Timmerman: Call him from 620 to 680.
Neighborhoods: who is first?
Timmerman: Yes, and almost premium in the low end.
Neighborhoods: And the subprime? What is happening here?
Timmerman: We classify the next segment down as non-prime. This represents about 10 to 12% of our bookings. We have been consistent there. From an appetite for risk, there is no change for the future.
When we think of subprime mortgages – credit scores of 540 or less – we do little in this segment, about 1% of our book.
Neighborhoods: Lending, or really borrowing, has contingencies. No one takes out a car loan saying, “I’m not going to pay this off.
Timmerman: Maybe a few people do.
Neighborhoods: Disturbed people might. But most people intend to pay it back, which they eventually do.
Timmerman: Things happen. People can go through difficult times for whatever reason.
Neighborhoods: Many lenders have jumped in and out of subprime mortgages.
Timmerman: They have. When market conditions change, some lenders change positions.
I don’t see much today, but I’ve seen it throughout my career (which started with Ally in 1986) on several occasions. You have to know what you are doing. Things may seem easy. But if you don’t have the infrastructure and the experience to play in this segment, it’s very different. Just because you’re good at credit decisions in the super-prime segment doesn’t mean you’ll be good at the non-prime.
Neighborhoods: What’s the super-prime decision? It seems like a safe bet segment.
Timmerman: You still have to be smart about the terms and move forward. If you advance a lot, you must take this into account because the severity of the loss will be greater. If you have an asset of X and you lend a lot more than that, you owe the price.
Neighborhoods: Advancement of more than the value of the vehicle is for add-ons and F&I products?
Timmerman: It can also be negative equity. There are a lot of different positions you could be in.
Neighborhoods: There are these horror stories about aggressive dealer salespeople making customers buy more vehicles than they can afford, and they end up having trouble with payments. What role of referee does Ally play in such a situation?
Timmerman: It’s often different from that. It is less about the salesperson encouraging the customer to buy something too much, and more about not having a proper interview with the customer.
If you haven’t helped the customer think about how much they want or can spend, you haven’t done your job. Top salespeople do a good job interviewing the customer to understand what they’re looking for and what their budget might be, and then turn to good options.
If the customer walks into a Cadillac Escalade and says how much he loves it, you can say, “I’d be happy to show it to you, but it’s different than what you told me you wanted to spend.” and what you are looking for.
Good salespeople offer tremendous value. The vast majority of salespeople do a great job providing this service.