Uncertainty prevails among dealers regarding AI's impact on credit risk and auto loans, according to JD Power.
In the ever-evolving world of automotive finance, the role of artificial intelligence (AI) is becoming increasingly significant. However, a recent study by J.D. Power reveals a growing sense of discomfort among dealer finance teams regarding AI's involvement in determining auto loans.
According to J.D. Power's 2024 U.S. Dealer Financing Satisfaction Study, 55% of surveyed dealers expressed unease with AI in auto loan determinations, marking an increase from 50% in the previous year. Patrick Roosenberg, senior director of automotive finance intelligence at J.D. Power, echoed these concerns, stating that dealer finance teams are worried about the potential impact of AI on their ability to find creative solutions, forge key relationships with lenders, and effectively close deals.
Dealers are not only concerned about the loss of human interaction but also about the limited creativity and fear of redundancy that AI might bring. Moreover, there are concerns about fairness and accuracy in credit decisions, with reports suggesting that AI lending decision models may bake discrimination into them.
On the other hand, a recent academic study by Michael Gröning, Marcus Opp, and Fabian Störrle indicates that AI models could indeed increase profits from dealer auto loans by 34%. Several credit risk organizations are already using or planning to use generative AI in their work by October 2024, according to McKinsey research.
The concerns raised by dealers are not unfounded. An academic study noted that profits were primarily derived from charging high-risk customers more. Furthermore, a December eLend Solutions poll reported that many auto dealers and finance teams said that AI decision-making led to customers receiving inaccurate price quotes online.
However, Roosenberg emphasizes that new technology frequently disrupts existing working conditions. He suggests that lenders should leverage past experiences and lessons learned in previous technological transformations, such as the introduction of digital and modern retailing technologies. By doing so, they can better navigate the challenges posed by AI and potentially reap its benefits.
J.D. Power's study surveyed 4,472 auto dealer finance employees in early 2024. Despite the concerns, Roosenberg maintains that dealers may indeed be able to leverage the benefits of AI in auto loans, provided they learn how to adapt and leverage the technology to their advantage.
In conclusion, while AI in auto loans is a promising development, it is essential for all stakeholders to address the concerns raised by dealers and ensure fairness and accuracy in credit decisions. By doing so, we can pave the way for a more inclusive and efficient automotive finance landscape.
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