The auto lending expert: consumer financing is broken in the U.S.

Welcome to another episode of the Car Dealership Guy Podcast.

Today’s guest is Amitay Kalmar, the co-founder and CEO of Lendbuzz and former investment banker. Amitay has spent years at leading technology companies and has tons of experience successfully completing IPOs, debt financing, and M&A transactions.

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(00:00) - Intro

(01:50) - Amitay’s journey into auto

(04:06) - What did you see that was broken in auto lending?

(08:37) - What’s the current state of auto lending?

(12:12) - What are you trying to solve with Lendbuzz?

(14:36) - How do you create a profitable business model?

(18:47) - How big is your target market?

(20:53) - What trends are you seeing in loan performance right now?

(24:21) - What’s driving the growth in captives?

(26:12) - The state of digital retailing concerning lending integration?

(31:38) - Do you have any aspirations to branch into other areas of the industry?

(33:24) - What’s exciting to you these days?

1. How Amitay found himself in the auto lending biz.

Amitay’s background started in computer science and mathematics, allowing him to lead several research and development teams. Sixteen years ago, Amitay earned his MBA in Boston and joined Deutsche Bank to work in corporate finance. After serving as vice president for Deutsche Bank’s Technology Investment Banking practice, Amitay decided he wanted to do something more entrepreneurial. Around 2013–2015, fintech companies were surging in popularity and innovating quickly. Amitay was to uncover the inefficiencies and hurdles in consumer finance, and it wasn’t long before he also lept into auto lending.

2.  The problem with auto lending in the U.S.

When first exposed to auto lending, Amitay realized that in the U.S., everything is based on a consumer’s credit history and credit score. If a consumer doesn’t have those things, they are essentially cut out of the system, which doesn’t make sense to Amitay. When he moved to Boston, he had no credit history and could not get a credit card, auto loan, or mortgage. That problem was the first thing Amitay sought to address. From an outside perspective, once Amitay started to dig in, he found that autos were the products driven the most by lending.

3. The current state of auto lending.

Over the past 5 years, auto lending has been anything but ‘normal.’ Yet, Amitay notes that 2024 is the first year things have begun to somewhat balance out, even with overall elevated interest rates. In 2023, Amitay says this was a significant pullback in lending, specifically banks and credit unions. Non-prime specialty lenders also pulled back their lending in a meaningful way. Amitay explains that this is largely because of a rise in delinquencies. “Some went out of business, some remain in the business but are originating probably 50% lower than they originated in 2021 and 2022,” says Amitay. On the other hand, captives are taking a bigger share of the pie. 

4. What is Lendbuzz?

Lendbuzz is an AI-based auto financing platform that focuses on using alternative data to provide better access to consumer credit, specifically when it comes to auto finance for underserved populations. There are about 45 – 50 million people living in the U.S. without a FICO score. So, initially, Lendbuzz set up its lending models based on consumers with no or very little credit file for FICO. Historically, these consumers were defaulted to deep dub-prime lenders and getting loans at state max rates. “If we can build credit models that qualify the ones likely to perform better, that’s a significant opportunity,” says Amitay. The two main segments of that market Lenbuzz serves are the no FICO consumer and the near-prime consumer (580–720 FICO score). The process is 100% tech-enabled, and Amitay explains that it often helps consumers get better rates and fewer dealership fees. 

5. How Lendbuzz can offer lower rates.

Auto lending has been around for decades, and while there are deeply entrenched players in the space, the market is so large ($750 billion in annual originations) that certain sub-segments need more financing options. From a regulatory perspective, the framework around the banks, especially after 2008–2009, precluded them from lending to non-FICO car buyers. So, how does Lendbuzz pull this off when banks typically can’t? Instead of primarily focusing on FICO, Lendbuzz takes a closer look at the consumer’s cash flow, including income, account balances, and spending patterns, to build a more robust financial profile. Since the amount of data for each consumer is large, Lendbuzz leverages AI and machine learning algorithms to optimize the process. By qualifying buyers for reliable cars with affordable payments, the company can reduce defaults caused by unexpected repair costs, for example, and keep people in the car buying cycle.

6. By the numbers. 

About 40 % of total consumers in the U.S. fall into the bucket of consumers that Lendbuzz serves really well. For the past five years, the organization has grown over 100% CAGR (basically doubling the business every year). The company originates $1.5 billion in loans annually with plans to expand further. Seven out of the 10 largest Toyota dealerships nationwide work with Lendbuzz. These dealerships do anywhere from 800 to 1,500 cars per month. “Probably three out of the five largest nationwide groups are working with us. We're both at the very large franchise dealerships as well as the independents,” says Amitay.

7. Where the lending market is headed.

During 2021 and 2022, when cars were selling at extremely elevated prices, and credit quality was high, lending was incredibly strong. But what comes up must come down. Delinquencies have shot up significantly to about 16%. “We're either at the peak of delinquencies or very close to the peak, just based on historical data. If that continues to go up, that would be a very concerning trend. But I think we've hit the peak. And now we're seeing normalization,” explained Aimtay. Why? Lenders are being more cautious with taking credit risk, including Lendbuzz. Credit performance is also likely to improve, meaning lenders will probably loosen credit access in 2024 and then into 2025. When it comes to interest rates, Amitay thinks they’ll stay higher for longer than most think, but anything could happen. 

8. Digital retailing and the lending process.

When it comes to digital retailing, a lot of the lending process is still paper-based and antiquated. Much of the software used today was developed in the 1990s and hasn’t caught up to what consumers expect today. Some lenders are doing a better job than others, but Amitay says, overall the industry is behind. At the dealership level, there is a lot of room for improvement in terms of removing paper from the process. Only 12% of contracts today are eContracts. Lendbuzz has removed all paper from its 100% digital, mobile-enable process. All the steps provided are on the consumer’s phone, saving a ton of time. What’s more – over 70 % of Lendbuzz loans are funded same day. So, there is really no need to wait on the mail for five days to get funded.

9. Where AI fits into the equation.

Amitay thinks that all industries will eventually see a big shift to AI, especially auto lending and the dealership’s business development department. “All your BD department that's been interacting with a consumer, that's going to start shifting toward AI-driven agents that are really able to serve many consumers at a much lower cost than a BD department at a much better service level,” predicts Amitay. “I don't think that we're going to have completely people out of the process, but they're going to be assisted by AI tools that are just going to make their work much more efficient, much more productive, and getting a better product for the consumer.”

10. What gets Amitay excited about the industry?

The industry’s acceleration towards AI and digital retailing. He believes that 90% of the sale will happen when a car buyer is home. While a human touch still provides an advantage in the sales process, many things can be done more efficiently in a digital environment. These tools can cut down on purchase times and qualify buyers for financing faster. “It would be fun to start seeing virtual AI agents starting to really interact with consumers. I've been playing a lot with all types of solutions there. But once you're really going to see that roll out, that's going to have a big impact on how our industry both sells cars as well as finance consumers. So there's a lot to be excited about in the next five years,” says Amitay.