Funding in the fast lane: How Gen AI accelerates automotive finance

Seven ways the latest solutions in AI and machine learning revolutionize how auto dealers approach financing options

A customer walks into your car dealership. After a brief conversation about her preferences and budget, the sales representative helps her pick the right car model. Now it’s time to discuss financing options.

In the old days, this would have kicked off a drawn-out credit application process. Not anymore. Thanks to a newly installed, generative AI-powered system, she chats briefly with a virtual assistant on a tablet who asks questions in a conversational manner. It feels nothing like filling out a form.

The Gen AI system cross-references and verifies the information provided, instantly pre-approving the customer, and generates financing options based on her personal situation.

This sort of scenario isn’t far-fetched. It isn’t even that far into the future. We’re on the cusp of a big change.

On the road with Gen AI: Demystifying the latest innovation

Gen AI is a class of AI systems that can create new content based on patterns and information learned from existing training data. Though Gen AI has been a popular topic in the past year, few have a clear picture of all the ways it will impact their industries.

The potential use cases for automotive stretch from the earliest stages of product design and prototyping to the customer’s enjoyment of the vehicle, which could include personalized driving experiences and in-car entertainment.

But automotive leaders shouldn’t overlook a domain that’s critical for the market: captive finance companies, wholly owned subsidiaries that provide financial services such as insurance and loans that enable purchases from the parent company. These are heavily regulated organizations and stand to benefit from the quality control, risk management, compliance, and peace of mind Gen AI can facilitate.

Here are key areas where Gen AI can help automotive lending and portfolio management.

1. Credit applications.

When assessing a customer’s creditworthiness, companies traditionally looked at a credit agency’s score.

But organizations are expanding the data consumed to determine whether to approve a potential customer, including alternative financial data (like rental payment history, utility bills), employment information (job stability and history, income level), bank transactions (cash flow, savings), and social behavior.

Having additional evidence to confirm someone’s reliability helps secure approvals. Gen AI tools can easily gather these data from various sources for a more complete view of the customer, increasing approval rates while simultaneously reducing risk.

2. Customer support.

Automakers and car dealers can train Gen AI on their internal data in large language models (LLMs) to create intelligent agents that can support employees internally and assist customers through chatbots.

There’s a lot of volatility in the automotive industry, so it’s currently difficult for these kinds of bots to feature the latest information. If the annual percentage rates (APRs) on auto loans drop or a new insurance program hits the market, that poses a problem.

But Gen AI-powered solutions can account for this. The proprietary intelligence of the Gen AI agent can improve with ongoing training on additional datasets. Properly executed, the chatbot responses will be as accurate as the latest publicly available information.

3. Customer communications.

A Gen AI agent can quickly draft personalized messages for customers, whether to celebrate a milestone in their journey with the automobile, remind them of an upcoming responsibility (like returning a car at the end of a lease), or offer additional upgrades.  

To provide accurate and helpful information, the AI tool will need to be trained on internal knowledge pertaining to the customer as opposed to publicly available information.

4. Residual value.

Automobile manufacturers assess the residual value, similar to resale value, of a vehicle at the end of its lease term. It’s typically presented as a percentage of the manufacturer’s suggested retail price, after factoring in depreciation.

Before reaching out to the dealership, meticulous (or simply interested) customers can ballpark the value of their vehicles by consulting major valuation sources like Kelley Blue Book. You can plug in a few details about your vehicle – age, make, model, mileage, fuel efficiency, accident history, etc. – and get a rough estimate.

But the more information one has about a particular vehicle’s condition, the more accurate the estimate will be. Gen AI-based software can power solutions like “residual-value calculators” that go beyond the traditional metrics to assess all available vehicle information, including telemetric data, for a far-more precise estimate.

5. Fraud prevention.

Identifying potential fraud patterns can help mitigate losses. Gen AI tools can perform fast, thorough background checks that verify important documents, such as driver’s licenses, financial statements, and insurance papers.

Gen AI can also identify patterns associated with fraud attempts and set red flags (e.g., discrepancies, forgeries, suspicious behaviors) that will increase the likelihood of detection before a deal is closed.

Automotive News reports that Autobahn Forth Worth, a chain of car dealerships in Texas, helped police catch a suspect after two fraud attempts: one at its Land Rover dealership, the other at its BMW dealership.

According to the report, Autobahn’s insurance and ID verification system flagged the woman after she attempted to buy a used Cadillac Escalade with an approved loan in May 2024. The suspect left after a salesperson mentioned a problem with the insurance but attempted to buy a BMW M4 Competition one week later. The suspect was arrested and stands accused of trying to steal the vehicle using a synthetic identity, in exchange for $2,500 from a fraud syndicate.

Synthetic identities combine real information from various people to create a new fake identity and are just one of many forms of fraud that Gen AI can detect.

6. Compliance audits.

Many regulatory agencies monitor the automotive market for unethical behavior. Lawsuits are not uncommon in instances where companies skirt existing laws.

The cost for not complying with legal and regulatory policies for automotive companies is high. Administrative bodies can slap them with multimillion dollar fines, followed by a flurry of bad press. Similarly, vehicles that don’t conform to safety standards are a danger for everyone.

The oversights can be genuine errors. There are so many rules and regulations that these are almost bound to happen.

Fortunately, Gen AI tools trained on compliance protocols can aggregate and analyze all relevant information from various data sources regarding a company and its vehicles. Automated reporting can reduce the room for human error while real-time monitoring can flag potential violations for immediate remediation.

7. Mitigate delinquencies, avoid repossessions.

In Q1 2024, the percentage of motorists with auto loans that went into serious delinquency reportedly continued to rise across every age group.

The Federal Reserve Bank of New York data show that 7.9 percent of borrowers were a month or more late on their payments, and 2.8 percent were 90 days or more late, according to Automotive News.

Similar to its ability to detect fraud, Gen AI can analyze patterns to identify customer accounts at risk of defaulting on loan payments and proactively reach out with options for reducing the likelihood of default or repossession.

Of course, early in the process, company representatives can encourage responsible financial decisions: picking an affordable vehicle, taking a longer-term loan, setting up automatic payments, and so forth. But if customers show signs of potentially defaulting on a vehicle they already own, service representatives can point to professional financial help, refinancing options, and so forth.

This isn’t about reducing or eliminating someone’s obligation to fulfill the terms of a deal. It’s about helping people get through a difficult time and ultimately avoiding repossession or the cancellation of the contract.

Smooth road ahead: Embedding Gen AI into your business

Incorporating Gen AI into automotive finance is still very much a greenfield project. Despite having established financial tools and processes, companies mostly do not already have Gen AI infrastructure in place that needs to be updated or replaced.

To lay the foundation for innovation, automotive companies can team up with a business and technology transformation partner like Capgemini, as well as major players in the emerging AI and machine-learning market: OpenAI (ChatGPT), Meta (Llama 2), Google (Vertex AI), Microsoft (Copilot), and Amazon (SageMaker). Each of these technology firms offer LLMs that can be trained on data to perform Gen AI functions.

The Gen AI market is still new. As these tools continue to develop, the use cases in automotive finance will continue to deepen and multiply.

Please contact me if you would like to discuss how Gen AI can help your automotive business.