Wolters Kluwer Auto Finance Digital Transformation Index Shows Long-Term Adoption Rate Growth Despite Sluggish Third Quarter

Lethargic third-quarter auto sales weighed down quarterly adoption rate growth

Adoption of digitized contracting and documentation workflows by auto retailers and their lending partners that foster back-office efficiencies continues its upward trend, according to analysis by Wolters Kluwer Compliance Solutions from its Q3 Auto Finance Digital Transformation Index. While Q3 adoption compared to Q2 was mostly unchanged at less than .5% due to the decreased sales activity, the year-over-year trend comparing Q3 2024 with Q3 2023 was up 28%. Further, the four-year trend continues to show digital adoption growth of 131% dating from Q3 2020.

The Index tracks the rate at which auto dealers, service providers and lenders are seeing growth in the evolution from paper-based finance back-office processes to digital.

"Despite facing headwinds in the sales environment, the auto finance industry has demonstrated remarkable resilience and adaptability,” said Tim Yalich, Head of Auto Strategy for Wolters Kluwer. “While consumer demand softened due to economic pressures, we've leveraged this period to accelerate our digital transformation initiatives for auto brands. By implementing advanced workflow automation and data analytics in back-office operations, we've uncovered significant efficiency gains across the entire value chain.”

Yalich explains that these digital solutions have not only helped the industry weather the current storm but have also positioned Wolters Kluwer partners to emerge stronger and more agile when market conditions improve.

“Our commitment to innovation and operational excellence remains unwavering, ensuring we can continue to deliver value to our customers and stakeholders even in challenging times," Yalich says.

The third quarter of 2024 presented a challenging sales environment for auto dealers and lenders, with overall industry sales declining by approximately 2%. Affordability issues continued to plague consumers, with average vehicle prices remaining significantly higher than pre-pandemic levels, despite a slight 1.7% decrease from the previous year. High interest rates further dampened demand, as benefits from Federal Reserve rate cuts had not yet materialized in the auto loan market.

Digital adoption trends in securitization markets

Wolters Kluwer’s Q3 Index also shows that the digitization adoption rate for securitization markets continued to accelerate, with digital auto loan volume in securitization markets decreasing 10% compared with Q2 2024. However, this decrease was lighter than the 41% decrease reported last quarter. Over the last four years, digital adoption for securitizations is up 73%, slightly higher than the four-year trend recorded last quarter (70%).

Q3 2024 presented a mixed environment for securitized market activity in automotive and asset-backed securities (ABS). While overall ABS issuance remained robust, the automotive sector faced some challenges. Auto loan and lease ABS issuance slowed compared to previous quarters, reflecting the broader difficulties in vehicle sales. The market also saw growing demand for electric vehicle ABS, reflecting the industry's shift toward electrification. Despite headwinds, auto ABS delinquency rates remained largely stable, benefiting from high vehicle values supporting recoveries. Overall, while facing some pressures, the auto ABS market demonstrated resilience in Q3 2024.

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