When I graduated college in 1985, I really had no clear idea of what I wanted to do so I interviewed for a number of different jobs in a number of different industries. The first offer that I received was from a young auto finance company, World Omni Financial Corp., a company started to help Southeast Toyota sell cars. You see, at that time, there weren’t a lot of funding sources for Toyotas so Mr. Moran solved that problem. The big boys at the time were GMAC and FMCC and that is where the bloodlines of the finance company came from. At that time, auto finance companies were largely decentralized with branches all over the place – the branches were responsible for loan originations, loan servicing, commercial lending and wholesale floorplan audits. To go to work at one of these companies, you had to have a college degree.
When I started with the company, I was given a 1-30 bin with collection assignments sticking out of it. Every day, we would receive a computer printout of everything that paid the prior day and I would purge my bucket. New accounts were then given to us and we filed them in our individual bins. We would call the accounts, write down the notes on the collection assignments and wait for the customers to come to the branch to pay us. In 1986, each of us received a dumb terminal on our desk. We were then able to pull an account up and look at it in electronic format. All work still had to be done on paper – “cards and crayons”.
My first promotion was to a field rep. I got a company car, a Toyota Corolla. On hot days, I would have to turn the AC off in order to get it to accelerate – 0-60 in about 25 seconds. As a field rep, I would go to dealerships and do floorplan audits until 5PM. I would take a stack of collection assignments and knock on doors until 8PM and then repossess cars after 9PM. We did everything ourselves. That’s when we got the word that if we were ever threatened by a customer, we could use a repossession agent – enter the world of outsourcing.
Repossessions were really the first use of third-party service providers when managing a portfolio. Shortly thereafter, the money transfer business found a foot-hold in auto and Western Union’s Quick Collect product was introduced. We no longer had to go to a Western Union Office to get payments – we were soon printing customer checks in the branches.
Mainframe and AS400 technology continued to evolve in the auto finance space and we got to the point where we could begin documenting accounts on the computer. In the late 80’s dialer technology began to hit the market. 4×8 and 8×5 systems were put in the branches – put 5 people on the phone and the system would dial 8 numbers for the group. Dialer technology was the next big leap in innovation in the loan servicing space. With the exception of repossession agents, up into and through the 90’s, process improvements were primarily derivatives of technology. Read More
In the early 2000’s, companies began to focus on providing solutions to specific process challenges. Companies like DealerTrakk, an application aggregator, came into being. This totally changed the way that business was done. The old way of receiving faxed applications and faxing approvals were dead. Companies that focused on processes such as application entry, optical imaging, letter generation and such continued to pop up. It only made sense for the auto finance companies to outsource these functions – it made them more efficient.
All focus was on the origination platform. Loan servicing was still loan servicing – we were all working off legacy systems that were over 10 years old. Although many organizations had centralized servicing functions, the operation centers had to do everything.
In the mid-2000’s software development began to take hold and companies began to develop specialty computer programs to address certain aspects of loan servicing – the biggest challenge – integrating the programs into legacy systems. By the late 2000s, software development was hot – companies had converted to PCs. Now, anyone that was smart could develop software that could more or less automate specific functions. However, the finance companies and servicing shops still had to know how to do everything. From collections, customer care, title management, bankruptcy, total loss, impounds and remarketing – we had to be experts – Jacks and Jills of everything. Operational center managers were extremely well rounded and experienced.
By the 2000’s, workforce demographics began to change. It was getting to be harder and harder to find a college grad that was willing to come in and start at the bottom and get their hands dirty. Servicing center work became production work and people were relegated to performing specific functions day in and day out. Overall experience levels of the employment base began to diminish with specialization.
As we pulled out of the recession of late 2000’s, companies were started to focus on performing specific functions that were being done in servicing centers. Companies were started that focused solely on bankruptcy servicing, insurance claim filing, insurance tracking, repo forwarding, remarketing, title management, end of lease and loan servicing. Companies were staking their well-being on providing specific services to finance companies. Finance companies no longer had to have well-rounded experienced teams because they can outsource the processes to companies that are experts in providing certain functions.
I will tell you that fifteen years ago, if someone ever approached me about outsourcing my customer service or collections to them, I would ignore them. I had all the same tools that they did and I had a very qualified staff. That has now changed. How can I say that I can do something better than someone that makes a living doing it when I do it only 10% of the time? I can play the guitar, the piano and most horns. I have never been good at playing any one of them because I never focused at being good at just one of them.
The thing that makes or breaks an auto finance company is the quality of originations. As the saying goes, ‘you can make a good loan bad but you can’t make a bad loan good’. In this day and age, companies need to focus on nailing down their origination strategies. It generally takes 3 generations of scorecard migrations for finance companies to really find their credit niche and begin recognizing optimization. The last thing that a finance company needs to do is try and focus on building an origination platform at the same time as a servicing platform. Loan servicing is process – much of it now a commodity. Without scale, technology, significant working capital and limitless resources, there is no way for a start-up or small finance company to be competitive if it tries to do everything. Throw compliance management into the equation and it makes the challenge that much more difficult.
Third party loan servicing is nothing new – it has been done on a broad scale for years in the mortgage space. However, due to the short life of an auto loan, portfolio size requirements and credit criteria, the third-party auto loan servicing space remains fractured. Most of the servicers that provide auto loan servicing are systems companies or receivable management companies that have auto as just one of many products they handle – thus creating its own set of challenges.
Although I have been in this industry for over 30 years, I continue to look for ways to utilize technology to make processes easier. With AI and Machine Learning, we are able to do what we do more efficiently and with much less risk. This old dog continues to learn new tricks.
