Financing the future of mobility

Few consumer-facing businesses are as dependent on well-functioning and widely available financing as the automotive industry.1 Roughly $500 billion in new loans and leases are originated annually, and 86 percent of new car purchases and 55 percent of used ones rely on borrowed money, with banks, captives, and fleet financiers all playing important roles (figure 1).2 Collectively, the US auto finance industry held roughly $1 trillion in outstanding loans and leases in 2015, translating to nearly $111 billion in revenue.3

The well-established role of auto finance will be deeply challenged in the coming years as the extended global automotive industry evolves into a new mobility ecosystem. A series of converging social and technological forces, from advanced powertrains to shifting consumer preferences and the emergence of autonomous vehicles, will reshape the way people and goods move about in the coming years.  Most notably for auto financing, the rise of shared access to vehicles and drop in the number of consumer purchases could dramatically alter the number and size of loans—and who needs them.4Customers will increasingly be businesses in addition to individual consumers, and overall loan volume—and its associated revenue—could decline dramatically in the long run.5

To thrive in the emerging mobility ecosystem, auto finance companies will need to rethink their traditional value chain, from sales and origination to servicing and asset disposition. The scope of the required transformation will vary across lenders. Large diversified banks may have many of the needed capabilities already; their challenge will be imparting knowledge across business units and managing the rebalancing of volume between consumer and commercial auto lending. By contrast, captives focused primarily on dealer-driven loans to individuals will need to explore developing new business models to serve tomorrow’s larger pool of commercial borrowers.

A series of converging social and technological forces, from advanced powertrains to shifting consumer preferences and the emergence of autonomous vehicles, will reshape the way people and goods move about in the coming years.

For finance companies grappling with these changes, our hope is to share insights derived from our work on the future of mobility and to commence an ongoing dialogue around the evolution under way, its implications for incumbents and disrupters, and the sources of new value creation.6 In short, we seek to help key stakeholders explore “where to play” and “how to win” in the evolving mobility ecosystem. And we believe there are concrete steps auto financiers can taketoday to prepare for the future.

The future of mobility

The way people and goods move about is on the cusp of a fundamental transformation.7 Advances in powertrains and materials, increasing vehicle connectivity, shifting consumer preferences, and the emergence and adoption of self-driving vehicles will ultimately give rise to a new mobility ecosystem. The contours of that ecosystem are likely to be determined by two key factors: the degree to which mobility is personally owned or shared, and whether vehicles remain in human control or are fully autonomous. The combination of those factors yields four potential future states of mobility (figure 2).