Carzapp, Santander Will Change Auto Lending

As a reader of “Non-Prime Times,” the bi-monthly publication of the National Automotive Finance Association, I can honestly say that this is an industry with a name problem. Characterizing a portfolio of loans as sub-prime casts a shadow on the both the lender and the borrower.

The industry has a seedy reputation for providing last-resort loans for car buyers with bad credit. It didn’t help that leading sub-prime auto lender Santander Consumer USA was forced to negotiate a $9.35M settlement with the U.S. Justice Department over accusations that it illegally seized cars from members of the military, according to a NYTimes report: “The deal involves one of the largest sums ever collected by the United States for the illegal repossession of cars.”

But with the current increase in new car sales has come an increase in non-prime lending for vehicle purchases. The industry is booming according to press reports and sources.

As unfortunate as the sub-prime moniker is and as nasty as the interest rates are, if you absolutely, positively need a car for your work, it’s often the only place to turn. And for some of these borrowers, the last resort is so-called Buy Here Pay Here financing enhanced by a tracking device capable of disabling or immobilizing the vehicle.

This introduction of telematics has hurt the industry’s reputation while helping it, financially. If you can disable or immobilize a car when a payment is due, you have a powerful means for mitigating tardy payments and financial losses.

As fate would have it, it is mostly smaller companies that offer telematics solutions to buttress their sub-prime lending activities. But that may be about to change with the emergence of Santander and its partnership in Germany with Carzapp.

Originally founded as a peer-to-peer carsharing company like GetAround or RelayRides, Carzapp has shifted its strategy and relaunched as a white label carsharing enabler with its ZappKit access unit. The installed bit of hardware enables smartphone-based access to the vehicle.

Launched in partnership with 20 dealers in Germany in “Tier 2” markets, Santander and Carzapp are opening a door into carsharing for dealers. (Santander carsharing video: https://tinyurl.com/pn6vyya) The move highlights the weakness of current peer-to-peer carsharing models such as SpotCar, a failed storefront carsharing service in Berlin and Uber, now outlawed in Germany.

By shifting to a white label strategy focused on dealers and fleets, Carzapp has immediately tapped into strong sources of interest and demand. Carzapp’s rapidly growing client base includes StarCar, ZF’s Openmatics, eMio, Entega, EnBW and T-Systems.

But Santander’s lending relationship with 30,000 dealers in Europe and 14,000 dealers in the U.S. creates intriguing new opportunities. After all, if you are the lender and you have a wireless connection with the financed vehicle and the customer, maybe your interest rates can be a little less onerous.

It is clear that Carzapp and Santander will change auto lending. It won’t happen right away, and it’s not something either Carzapp or Santander are acknowledging, but the writing is on the wall.

It was inevitable that telematics-based vehicle financing would emerge from the shadows. The value proposition is indisputable. And with all the talk of usage-based insurance, discounted insurance based on tracking devices such as Progressive’s Snapshot, the opportunity was impossible to miss.

With its partnership with Carzapp, Santander is in position to enable its dealer partners to offer creative rental and lease programs as well as new car financing options. Dealers can now effectively become fleet operators, if they so choose, while also exploring carsharing options.

Will Santander have to keep its nose clean in the U.S.? Yes. The only label worse than sub-prime lender is “predatory lender.” And if Santander and other non-prime lenders are going to track the vehicle and the customer with all of the data sharing implicit in that proposition, shouldn’t that justify a lower interest rate – to say nothing of lower insurance costs? Yes.

As the auto industry seeks to maintain the current upward trajectory of new vehicle sales, the demand for creative financing will grow. Santander and Carzapp are in perfect position to capitalize. Pun intended.