US News: Telematics helps sub-prime vehicle financing industry stay afloat

US News:  Telematics helps sub-prime vehicle financing industry stay afloat

One of the markets that will come under increasing scrutiny is sub-prime vehicle finance. According to the National Independent Automobile Dealers Association (NIADA), US$75.8 billion in used car sales were financed through independent auto dealers in the US during 2006 as Grade C paper or lower – otherwise known as sub-prime. Securities linked to these debts are exactly the kind of assets now shunned by investors worldwide.

Fortunately, cars are unlike real estate in that they were never expected to appreciate in value. Therefore, providers of vehicle financing loans are less concerned about the underlying value of the mortgaged asset than about receiving down instalments and interest on time.

That could become a major problem when dealing with borrowers with poor credit, and even more so in times of economic recession.

One of the main challenges is to persuade the car owner to pay the vehicle financer before other debtors. This is where telematics technology comes into play.

The increasing used of cellular GPS tracking for monitoring mortgaged vehicles adds a new dimension to the term "remote asset management". Creditors are provided with the ability to track down or simply cut off the ignition for non-paying car owners. When faced with sanctions, delinquency rates among sub-prime borrowers have been seen to fall substantially.

In the long run, the new technology may also enable novel business models where car-owners pay by the mile instead of a fixed monthly fee.

Passtime and CalAmp are two US-based companies that provide telematics solutions to the vehicle financing industry. Founded in 1990, Passtime invented the first code-based starter-interrupt device in 1997.

Ten years on, the company works with 3,500 dealerships nationwide and has achieved an installed base of more than 500,000 units protecting assets worth US$1 billion. The latest generation of products features GSM and GPS to enable real-time tracking, geo-fencing and remote vehicle disable commands.

Passtime shipped approximately 100,000 GSM-based systems in 2007, and estimates that the market could reach up to two million units over the next five years out of a total addressable market of nine million vehicles annually.

CalAmp became a major player in vehicle finance telematics in March 2007 when it acquired the Aircept business from AirIQ.

Aircept specialises in GPS and cellular-based wireless asset tracking products and services to vehicle lenders that specialise in automobile financing for high credit risk individuals, and has an installed base of 150,000 units.

For CalAmp, the acquisition was part of a shift in focus from direct satellite broadcasting outdoors equipment to wireless data communication applications. In recent years, the company has become one of the largest providers of wireless M2M solutions in the US, active in the public safety, mobile resource management and industrial monitoring and control markets.

Author: Tobias Ryberg, Senior Analyst, Berg Insight

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