How Connected Cars Are Reshaping Automotive Captive Finance

Connected car technology is revolutionizing the automotive captive finance industry by transforming existing approaches to financing and insurance, driven by insights derived from telematics data.

In the United States, telematics data empowers insurance companies to offer discounts to drivers who follow safe driving practices, by adhering to speed limits or following responsible braking habits.  

Across Europe, this is taking shape with financial institutions partnering with automakers to use real-time connected car data to customize their financing terms. For example, drivers who exhibit consistent, safe driving behavior can look forward to receiving lower interest rates.

In some Southeast Asian countries, including Japan and South Korea, businesses leverage connected car data to improve fleet management. Corporate financing solutions are tailored after considering how a fleet has performed regarding fuel efficiency and prescribed vehicular maintenance requirements.

Expanding automotive finance options

As things stand, automotive captive financiers are aligned closest to Original Equipment Manufacturer (OEM) dealers and provide financial solutions best suited to this partnership. With the proliferation of connected car technology, financiers can be expected to offer a larger variety of customized offerings for other stakeholders in the automotive industry, including insurers and customers.

These offerings can be further bundled with other key services that car buyers can avail themselves of throughout their vehicle ownership lifecycle. This possibility promises several exciting personalization outcomes in what customers can expect from their automotive captive financiers, which are bound to help fuel customer retention and satisfaction.

Another example is using a vehicle, driver, and any existing loan/lease data to offer customers pre-approved financing for car upgrades based on their responsible driving habits and equity in their current vehicle. This seamless, data-driven approach creates a win-win for both financiers and customers, enriching the entire car ownership experience.

Improving customer experiences

Consider, for example, the role connected car data can play in helping improve customer service responsiveness by facilitating quicker decision-making. While on-vehicle diagnostics can enable proactive assessments and recommendations, over-the-air software repairs can help prevent cumbersome, time-intensive, and in-person visits to a dealership.

Similarly, data from connected cars can help promote personalized upgrades based on customers' driving patterns, whether to existing infotainment features or navigation apps. Also, this data and insights derived from it can be used to execute supplier optimization using vehicle-performance data to perform product enhancement, including for existing subscription services.

Combining two or more bundled packages from car finance, insurance, multi-year maintenance packages, and infotainment services can also attract consumers in the automotive finance market with its features of convenience and cost-effectiveness.

Adapting to software-defined vehicles

Breaking new ground with the help of connected car tech will be timely for automotive captive finance. A recent BCG study suggests that the automotive aftermarket is expected to face challenges due to a projected shift toward software-defined vehicles. This shift, which is expected to decrease aftermarket revenue by 2030, will also increase profits marginally.

While the average maintenance cost per vehicle in the US is expected to drop by about 8 percent by 2032, profits per vehicle are projected to grow by 13 percent annually due to high-margin services like advanced driver assistance and in-vehicle infotainment. These rich feature functions are typical of the personalized services connected car tech makes possible.

Further, a shift of about USD 4 billion in profits is projected within the value chain, favoring automotive OEMs and suppliers, who can directly connect with customers. This is again an area where automotive captive finance companies can leverage the insights that connected car technology can provide to personalize their offerings.

Leveraging scalable tech

As connected cars become more prevalent, it will be essential for all stakeholders in the automotive industry—including automotive captive financiers—to proactively develop the requisite technical capabilities and infrastructure to maintain a competitive edge.

This is why adopting scalable, flexible, and innovative technologies will significantly impact automotive captive financiers’ growth and competitiveness. Not only do they attract tech-savvy customers, but they also foster wider industry-level partnerships. By facilitating robust, data-driven decision-making, these scalable technologies empower companies to customize financial products and services for their clientele, leading to more effective risk management.  

Moreover, adopting these technologies will also lead to an enhanced customer experience, with features like proactive online applications and personalized advice boosting customer satisfaction and loyalty. These technologies will also assist compliance, ensuring adherence to regulations while minimizing financial risks.

Embedding agility

Another value scalable technologies will enable is facilitating agile product development, which will allow automotive captive financiers to provide their customers with quicker responses to market demands with the help of innovative financing options. This agility will be vital for automotive captive finance companies to maintain their competitive advantage and meet changing customer needs.

Looking ahead, some of the emerging trends in connected car tech that will significantly impact the automotive finance industry include the incorporation of drive recorders, advancements towards fully autonomous driving capabilities, enhanced safety features, remote maintenance capabilities, high-end navigation systems, and smartphone integrations. While industry leaders gear up technologically and operationally to deal with the unforeseeable future, mastering the analysis of diverse datasets will be crucial. The entire ecosystem will have to work closely to ensure that customers get the cost-effective, intuitive, personalized, and agile automotive financial solutions they want and seek.