The first quarter of 2025 has delivered new insights into the ongoing digital transformation within the auto finance sector. The Q1 Auto Finance Digital Transformation Index data reveals a continued upward trajectory in the adoption of digital processes, particularly in eContracting and securitization markets. Following are several key trends observed in the first quarter along with the implications for subprime auto lenders and dealer partners.
Auto Sales Activity During Q1
The current state of automotive sales activity has been rising as of late, but the future activity remains uncertain based on unsteady economic conditions. According to Cox Automotive(1), retail vehicle sales have surged toward the end of the first quarter due to consumers’ increased purchasing ahead of anticipated economic fluctuations, while average auto loan rates have decreased in March and April. The supply of new and used vehicles has declined compared to 2024, contributing to higher prices for both retail and wholesale used vehicles. Consumer spending showed strong growth at the end of 2024 but actually weakened in March 2025, with consumer sentiment declining steadily. Tax refund season, a usual key barometer of sales activity in Q1, saw an increase in both the number and average amount of refunds compared to the previous year, helping to drive additional sales toward the end of the first quarter.
Continued Growth in eContracting Adoption
The data from Q1 2025 highlights a sustained increase in the adoption of eContracting workflows. Over the past four years, the industry has seen a remarkable 104% growth in the adoption of digitized contracting and documentation processes. This trend underscores the industry’s recognition of the efficiency gains and operational improvements that digital workflows can offer. Despite the modest quarterly growth of 1% and a year-over-year increase of 2% dating back to Q1 of last year, the overall trajectory remains positive2.
For subprime lenders and dealer partners, this trend signifies a continued shift toward more streamlined operations. The adoption of eContracting reduces the reliance on paper-based processes, thereby minimizing errors, speeding up transaction times, and enhancing customer satisfaction. As the industry continues to embrace these digital solutions in alignment with consumer-facing digital tools, subprime lenders and dealers who invest in these technologies will likely see improved back-office efficiency and a competitive edge in the market.
Securitization Markets Show Positive Trends
The securitization markets have also demonstrated notable digital adoption trends. The first quarter of 2025 saw a 13% increase in digital adoption compared to the previous quarter. Although there was a 50% year-over-year decrease, the four-year trend remains positive with a 24% growth rate. These data points indicate that while there may be fluctuations in quarterly data, the long-term movement toward digital securitization processes is robust2.
For subprime lenders, the digitization of securitization processes offers several advantages. Digital documentation enhances transparency, reduces processing times, and improves the accuracy of transactions. These improvements can lead to better risk management and more efficient capital allocation. Dealer partners, on the other hand, benefit from smoother transactions and improved relationships with lenders, as digital processes facilitate quicker approvals and funding.
Seasonal Trends and Market Dynamics
The first quarter of 2025 also reflected normal seasonal trends in the auto ABS (Asset-Backed Securities) market, with month-over-month improvements in losses, recoveries, and delinquencies. Prime auto loan losses and 60-plus-day delinquencies declined for the second consecutive month, while recoveries improved3. These trends suggest a stabilizing market environment, which is crucial for both lenders and dealers.
For subprime lenders, the decline in delinquencies and losses indicates a potential healthier loan portfolio, which can translate into lower risk and higher profitability. Dealer partners can thus benefit from a more stable market in this scenario, as improved recoveries and lower delinquencies can lead to better financing options for customers. This stability can drive sales and enhance customer trust in the financing process.
The continued growth in eContracting and securitization markets underscores the industry’s commitment to modernizing operations. For auto lenders and dealer partners, these trends offer significant opportunities to enhance efficiency, improve risk management, and gain a competitive edge. By investing in digital solutions and adapting to market dynamics, lenders and dealers can drive success in an increasingly digitized industry.
About The Author: Matt Babcock, Digital Lending Product Strategy for Wolters Kluwer. For more information visit www.wolterskluwer.com.
1: https://www.coxautoinc.com/market-insights/cox-automotive-auto-market-report-april-15-2025/
2: Wolters Kluwer Q1 Auto Finance Digital Transformation Index; April 2025
