As we near the mid-way point of the 2024 year, there are many fascinating characteristics of today’s auto industry. Some of these are defined by the broader macro economy, and yet others are a result of organizational evolutions continuing to take place from ongoing lessons learned during the pandemic.
Many industry observers continue to believe the economy this year will see moderate growth but will not experience a recession. High interest rates and declining inflation will likely continue, limiting consumer spending. Job and income growth may slow down. The labor market, which significantly contributes to vehicle sales in the U.S. market, is expected to remain largely unchanged.
More specific to automotive, new vehicle sales in the U.S. increased 5.1% during the first quarter, despite the persistently high interest rates continuing to place pressure on buyers. Industry analyst firms reported U.S. sales reaching 3.8 million vehicles in the first quarter compared with 3.5 million a year ago, for an annual rate of 15.4 million in sales expected the remainder of this year.
Automotive organizations clearly understand the pressures today’s economy has placed on them. Because of this, they’re making investments in digital transformation strategies that foster increased business efficiencies. Let’s take a look at the progression of these digital evolutions across the auto industry based on what the data is revealing.
Strongest eContracting quarterly adoption rate on record
The first quarter marked a significant milestone, with record-breaking rates of auto professionals embracing digital workflows for transaction documentation. This adoption reflects a pivotal realization among industry leaders, the increased need to harness digital technologies to enhance speed, efficiency, and accuracy in their operations. As we navigate an increasingly dynamic marketplace, leveraging digital contract solutions enables organizations to streamline processes and elevate customer experiences.
During this first quarter of moderate growth in sales, auto retailers and their lender partners continued to seek opportunities to adopt digitized contracting and documentation workflows to increase back-office efficiency, and documentation compliance and accuracy during transactions.
This digital adoption for eContracting increased 32% during the first quarter compared with the fourth quarter of 2023. This can be attributed to growth from the seasonal tax-buying period, where more individuals leveraged tax returns to shop for vehicles. This jump also represented the best quarter on record since digital adoption rates started to get tracked. The year-over-year growth increased 37%, and the four-year trend continues to show digital adoption growth of 138% dating back to the first quarter of 20201.
Securitization Markets Digital Adoption Continues Growth
Data from the first quarter also showed that the digitization adoption rate for securitization markets has accelerated since the previous quarter. The digital auto loan volume in securitization markets increased 70% compared with the fourth quarter of 2023, while also expanding 14% compared with the same time last year. Similar to eContracting, this quarterly jump is the largest on record since being tracked, and the four-year trend has increased 53%1.
According to media reports, new originations rose across all asset classes, although some more than others. Auto loan-backed securitizations had produced $45 billion in issuance by late March, which easily beat the $31 billion in new securitizations for Q1 2023, and represented a 44.9% increase. Experts are bullish on auto securitizations because of their user-friendly bond structures, and they have shorter durations. Because of this continued increase in securitization, lenders are adopting additional digitization strategies for their document workflows.
The journey from paper-based workflows to digital processes is a critical component of digital transformation for many organizations within the automotive landscape today. While the challenges are still substantial for many, the benefits far outweigh the hurdles. By adopting strategic approaches, engaging employees, integrating with artificial intelligence (AI) and automation best practices, and committing to continuous improvement, organizations can navigate the complexities of digital transformation successfully.
Embracing digital workflows not only enhances efficiency and cost-effectiveness but also positions companies to thrive in a competitive, rapidly evolving digital landscape. As the world continues to move towards a more digital future, those who seize the opportunity to transform will lead the way in innovation, sustainability, and customer satisfaction.
