Year-over-year growth coincides with strong finish to auto sales in 2024
Adoption of digitized contracting and documentation workflows by auto retailers and their lending partners that foster back-office efficiencies saw a noticeable jump, according to analysis by Wolters Kluwer Compliance Solutions from its Q4 Auto Finance Digital Transformation Index. While Q4 adoption compared to Q3 was down slightly (-2%), the year-over-year trend comparing 2024 Q4 with 2023 Q4 was up 32%. Further, the four-year trend continues to show digital adoption growth of 106% dating from Q4 2020.
The Index tracks the rate at which auto dealers, service providers and lenders are seeing growth in the evolution from paper-based finance back-office processes to digital.
"The robust adoption of digital documentation processes over the last four years underscores the unwavering commitment of auto lenders and their dealer partners to modernize their operations,” said Matt Babcock, Digital Lending Product Strategy for Wolters Kluwer. “This rise in digital adoption compared to last year not only aligns with the strong finish we observed in auto sales toward the end of 2024 but also reflects the industry's growing recognition of the critical role digital assets play in enhancing efficiency and customer experience. The continued emphasis on converting paper-based documentation to digital formats signals a mature understanding of the long-term benefits of digital transformation in the auto finance sector."
According to industry reports, the U.S. new-car and light-truck market reached 16 million vehicles in 2024, up 2.5% from 15.6 million in 2023, and the highest level since 2019. Fourth-quarter sales jumped 7.1% to finish the year on a strong note.
Digital adoption trends in securitization markets
With the value in the deep subprime sector down noticeably toward the end of the year, the Wolters Kluwer Q4 Index reflected an 18% decrease in the digitization adoption rate for securitization markets compared with Q3. The year-over-year rate of adoption was also down 15%; however, it is also noteworthy that full-year 2023 to full-year 2024 securitization transactions increased 10.4%. Furthermore, over the last four years, digital adoption for securitizations is up 55%, signaling a continued increase in adoptions on a macro level.
U.S. auto loan ABS performance was mixed in the latter part of 2024 according to S&P Global. While annualized losses improved for both prime and subprime sectors month-over-month, prime losses rose significantly year-over-year. Looking ahead, continued economic growth, falling interest rates, and inflation approaching central banks' target levels should support most asset-backed securities, according to Moody’s.
