Upstart plans to accelerate growth of its fledgling auto lending business

Fintech Upstart, known for its partnerships with banks on consumer installment loans, plans to significantly increase its presence in the auto loan market this year.

The San Mateo, Calif.-based company plans to make $1.5 billion in auto loans in 2022, its CEO said Tuesday, after putting the “final essential pieces” in place to begin scaling the business.

“It can be difficult to sell software to a dealership that helps them sell more cars when they don’t have enough cars to sell,” said David Girouard, founder and CEO of Upstart.


Expanding Upstart’s presence in the auto loan market is “not a simple task,” Founder and CEO David Girouard warned during the company’s earnings call, noting that the company will need to expand its distribution channels and make further improvements to its models.

But Upstart is “confident that auto lending is a category we can grow in for years to come,” Girouard said. He told analysts there was “much less competition” in the auto refinance market than in the personal loan market, where Upstart works with banks and credit unions.

While Upstart’s auto refinance deals are ongoing, the company is also in the “testing stage” for auto purchase loans and expects them to expand rapidly later this year. Girouard said in an email.

The company’s expansion into auto loans comes as the pandemic-driven boom in the auto sector continues. Consumer demand for vehicles has surged, and a shortage of semiconductor chips has hampered manufacturers’ ability to manufacture new vehicles.

The result has been a dramatic increase in the value of new and used vehicles, with prices in the latter category jumping 40.5% last month from a year earlier, according to the latest Index report. consumer prices.

Nat Schindler, a Bank of America analyst, asked Upstart executives on Tuesday about the “absolutely absurd appreciation” of the auto market and whether the company is exposing itself to more risk if used car prices come back. to normal.

But Upstart’s chief financial officer, Sanjay Datta, said the company was not factoring in inflated car values ​​because it was modeling assumptions about the business.

“We’re in an anomalous situation, but we’re not fooling ourselves into thinking this is somehow the new normal, and we’re not pricing accordingly,” Datta said.

Last year, Upstart bought auto retail software company Prodigy, whose dealership platform has since been rebranded as Upstart Auto Retail. The rebranding process hasn’t caused any disruption, but ongoing supply chain issues are making it harder for Upstart to grow business with dealers, Girouard said.

“It can be difficult to sell software to a dealership that helps them sell more cars when they don’t have enough cars to sell,” Girouard said. But Upstart is growing “fairly quickly” and expects further acceleration as supply chain issues ease and dealer inventories return to normal, he said.

Currently, Upstart keeps the auto loans it makes on its balance sheet and earns interest income. But in the next quarter, it plans to switch to a model in which it sells those loans to banks and investors and collects commissions on the transactions.

In its fourth-quarter earnings report on Tuesday, the company, which first offered auto loans in the fall of 2020, did not report its auto loan volume for 2021.

Upstart is also expanding into other lending sectors. The company announced in November that it develop a small-dollar loan product that banks can offer customers at annual interest rates below 36%, which Upstart plans to roll out this year.

It also plans to expand into small business lending this year and hopes to start making mortgages in 2023.

A surge in Upstart’s revenue helped lift its net profit to $58.9 million in the fourth quarter from $1 million a year earlier. Its share price rose 33% to $145.29 on Wednesday afternoon.

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