Automotive fi nanceOctober 2014

3 | Automotive fi nance

1Automotive fi nance |

Growing the portfolio while managing risksAs the industry has recovered, new risks threaten continued success and profi tability, such as collateral values, defaults, interest rates and compliance. Increased competition spawned by low interest rates, new competition and loosening credit standards has compressed margins in non-prime and prime segments. Companies that are able to manage risk effectively and seize growth opportunities will create a competitive advantage. In order to win in the marketplace and obtain higher margins, fi rms will need to provide differentiated services, identify and cater to different customer segments, and deepen customer relationships while increasing retention rates through cross-selling products and services.

Strengthening risk management and complianceIn addition to business risk, regulatory scrutiny is moving from credit card and mortgage markets to the auto fi nance market. The Consumer Finance Protection Bureau (CFPB) has been active in 2013, particularly in the areas of indirect lending. In response to this increased scrutiny, auto lenders need to develop formal compliance programs and prepare for regulatory examinations. For many lenders, this represents not only a change in organization design and functions, but also a shift in culture and mindset that requires prompt action. Lenders must be aware of vendor oversight as well as regulators’ stance on buy rates, proxy analysis and disparate impact.

Modernizing core systems and data for operational improvementsLenders are investing in IT infrastructure after avoiding major investments during the downturn. New systems need to be more integrated and fl exible in order to compete effectively in an increasingly competitive environment. Firms are investing in modernizing legacy applications to emerging technologies in order to gain effi ciencies and reduce costs. In addition, lenders are leveraging data analytics to drive insights and make better decisions about acquiring and retaining the best customers.

Auto fi nance industry executives want to make smart investments in their enterprise IT that will drive operational improvements and better service quality, as well as support continued growth. We see an increased focus on integrated core system packages and on investments in systems that take advantage of the newest technology, including business process workfl ow, data management and enterprise content management.

• Core system modernization and transformation: Companies are investing in systems that take advantage of the newest technology to improve operational throughput and minimize non-interest expenses.

• Data architecture and management: Lenders are investing to gain a competitive edge in their decision-making about offering various products and services to different customers. In addition, with increased regulatory oversight, regulators will be requiring more information from lenders, and having a robust data management infrastructure will be key to regulatory response and reporting.

• Enterprise Content Management (ECM): Digitization of enterprise content provides a competitive advantage in auto fi nancing — companies are able to leverage ECM to recognize the entire life cycle of content, improve data quality and security, and effectively manage and distribute the growing content.

The auto fi nance market has been in recovery since 2008. Record low interest rates, access to credit and new market entrants have contributed to a comeback in vehicle demand. The result has been robust originations and outstanding loan balances hitting a record high in 2013. Amid the increased growth, there has been increased pressure in the industry both from competition and from increased regulatory oversight. Lenders continue to look for growth while navigating how to remain compliant and reduce cost and risk. In this environment, lenders are shifting their focus to:

1. Growing the portfolio while managing risks

2. Strengthening risk management and compliance

3. Modernizing their core systems and data for operational improvements.

Growing in a changing environment

2 | Automotive fi nance

EY takes an “account-centric” approach to client challenges to intimately understand specifi c business issues. We deliver services through one or more of our four service lines: Advisory, Assurance, Tax and Transaction Advisory. The EY team brings multidisciplinary experience to auto fi nance clients. We are uniquely positioned to assist bank-owned and captive auto fi nance companies by bringing not only auto fi nance domain experience, but a multidisciplinary team across competencies and practices to deliver comprehensive industry insights and service.

Advisory

Our Advisory practice works with large enterprises and government institutions to help them protect their businesses, improve performance and enable change. Our Advisory professionals have deep competencies in risk, fi nance, supply chain, customer and information technology and are divided into two sub-service lines to best serve clients: Performance Improvement and Risk.

Assurance

Our network of Assurance practices at EY member fi rms around the world has more than 70,000 professionals providing audit and accounting services to clients. Our services provide a clear perspective to audit committees and stakeholders that our clients’ accounts comply with required audit standards. Assurance services are divided into four sub-service lines: External Audit, Financial Accounting Advisory Services (FAAS), Climate Change and Sustainability Services (CCaSS) and Fraud Investigation & Dispute Services (FIDS).

Tax

Our Tax professionals help clients assess, improve and monitor their tax-related processes, controls and risk management. They focus on understanding and managing tax compliance and reporting requirements and help clients maintain effective relationships with tax authorities. Six sub-service lines cover a range of potential challenges: Business Tax Services, Global Compliance and Reporting, Human Capital, Indirect Tax, International Tax Services and Transaction Tax.

Transactions

EY’s Transaction Advisory Services works with a wide range of clients around the globe, preparing them to make educated decisions regarding strategic capital management and transactions. Three sub-service lines, Transaction Support, Capital Transformation and Transaction Tax, all work toward helping clients manage their capital agendas. Strategic planning on how to raise, invest, preserve and optimize capital helps clients gain competitive advantage.

Cross-teaming to better serve clients

3Automotive fi nance |

Through proven experience, the Auto Finance team has assisted top lenders overcome regulatory and operational challenges by improving internal capabilities and increasing the effi ciency of our clients’ processes.

Technology

• Testing for a large originations and servicing core replacement project

• Established CoE for testing for a top 10 captive lender

• Helped guide vendor selection projects for several top 10 lenders

• Helped design servicing technology future state architecture for master data management

• Provided data conversion for a large servicing replacement project

Operations

• Provided document operations technology and process redesign

• Developed a business case and roadmap for a captive fi nance company entering a new geography

Risk and compliance

• Assessed current state regulatory compliance program and organization compared to CFPB expectations

• Provided a process and control analysis and review of the global operations of a top 5 lender

The EY Advisory Services team brings multidisciplinary experience to auto fi nance clients. We are uniquely positioned to assist bank owned and captive auto fi nance companies by bringing not only auto fi nance domain experience, but a multidisciplinary team across competencies and practices to deliver comprehensive industry insights and service.

The US auto fi nance domain

• Our team is part of a network of globally integrated auto fi nance industry advisors.

• Our team has held leadership roles in the fi nancial services industry, including consumer and commercial banks and leading global consultancies focused on the spectrum of consumer banking products and services.

• Our team has worked in operations and technology divisions of the majority of the top 20 auto lenders.

• Our team has in-depth experience with process design, software platform selections, and target operating model design and implementation projects.

• Our team has reviewed operations of many of the top 10 servicers within the past two to three years.

• Our team has extensive business and technical knowledge of the functions, capabilities and integration challenges with the major auto fi nance origination and servicing-related platforms.

• We have successfully executed large business transformation projects, including customer relationship management and workfl ow and document management effi ciency.

• We bring key enablers in business requirements, architecture and operating models, and business process fl ows.

• Our team has knowledge of core vendor systems and has conducted numerous vendor selection projects for auto fi nance companies.

Serving our clients Our track record

4 | Automotive fi nance

Contact usOur Auto Finance team supports our clients from core locations across the country. Please contact one of our leaders if you would like more information about our services or would like to schedule time with our team.

Robert Reveal Pegean James Clayton Baker

Principal Principal Principal

+1 469 831 0966 +1 702 413 7534 +1 214 969 0665

robert.reveal@ey.com pegean.james@ey.com clayton.baker@ey.com

Abhishek Narula

Senior Manager

+1 313 628 8331

abhishek.narula@ey.com

EY | Assurance | Tax | Transactions | Advisory

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