Ally’s Succession Plan for Dealer Financial Services Business


Ally Financial announced its succession plan this week since Bill Muir, the president and current head of the dealer financial services business, has elected to retire by year-end.

The company tapped Jeffrey Brown, currently senior executive vice president of finance and corporate planning, to the role of president and chief executive officer of the dealer financial services business.  In this role, Brown will have oversight for the company's leading automotive finance, insurance and auto servicing operations.

Brown will continue to report to Ally CEO Michael Carpenter. 

Muir will depart following a career of more than 30 years with Ally and its former parent. But the company said Muir and Brown are committed to an orderly transition of responsibilities over the coming months. 

“Ally is fortunate to have a very strong management team that has helped to guide the company through a highly complex transformation over recent years,” Carpenter said.

“Bill has been instrumental in transitioning Ally’s dealer financial services business from its captive roots to a market-driven competitor that remains a leader in the industry,” Carpenter continued. “I want to thank him for his extraordinary leadership and his commitment to the business and Ally’s dealer customers.”

The company indicated Brown’s current financial responsibilities will be transferred to Ally chief financial officer Chris Halmy.  With this move, Halmy will have responsibility for all of Ally’s finance, treasury and capital markets activities.

Brown, known in Ally circles by his initials, “JB” was appointed senior executive vice president of finance and corporate planning in June 2011 and has played a leading role in strengthening Ally’s capital and liquidity profile, executing on the company's strategic transformation efforts and repaying the U.S. taxpayer's investment.

Brown joined Ally in March 2009 as corporate treasurer and, prior to this, he was the corporate treasurer for Bank of America. 

“JB is a proven leader and has been a critical force in helping to implement Ally’s strategic transformation,” Carpenter said. “He has worked closely with the dealer financial services team and, in his new role, is committed to advancing Ally’s leading dealer-centric business model.

“JB has a customer-focused mindset, and I am confident he will be a very effective leader for this business in the next chapter of Ally's evolution,” Carpenter went on to say.

Ally Financial Announces Renewal of $11.5 Billion in Credit Facilities

In other company news announced this week, Ally completed the renewal of $11.5 billion in credit facilities at both the parent company and at its banking subsidiary, Ally Bank, with a syndicate of 19 lenders.

Officials indicated the secured facilities can be used to fund retail, lease and dealer floor plan automotive assets in the U.S.

“Ally’s diversified funding strategy, including the renewal of these facilities, remains an important component in the continued growth of our leading U.S. auto finance franchise,” Ally corporate treasurer Bradley Brown said.

“With favorable interest from lenders, these facilities were renewed with improved terms, resulting in lower cost of funds, better funding efficiencies and further advancement of Ally’s liability management strategy,” Brown continued.

The $11.5 billion funding capacity is comprised of two facilities: an $8 billion facility which is available to the parent company, Ally Financial, and maturing in March 2016; and a second $3.5 billion facility available to Ally Bank which matures in June 2015.

Officials added the two credit lines renew existing Ally credit facilities.

Why Collateral’s Value Retention Even More Vital Today


The staff at Black Blook Lender Solutions envisions underwriting personnel at finance companies watching two computer screens when evaluating an application that arrives from a dealership in their network. One screen shows the applicant’s complete credit history. The other monitor shows the depreciation history and projections for the vehicle expected to be attached to that contract.

“If it’s not happening, it should be,” said Jared Kalfus, the vice president of data licensing at Black Book.

“Data is really becoming paramount and becoming more integrated into that decision-making process,” Kalfus continued. “If you look at it from different angles and benefits you can receive, the data should be analyzed from many different views. You can leverage that data to spot opportunities that might not have been so obvious and new opportunities that might have been easily identified.

“The analytics really help those lenders find new profit centers with vehicles they might not have historically looked at or shied away from,” he went on to say.

Black Book reached out to SubPrime Auto Finance News to continue the discussion generally being dubbed, “the new normal.” It’s a theme that dominated conversations earlier this year when the American Financial Services Association conducted its annual Vehicle Finance Conference. Recent data from J.D. Power and Experian Automotive indicates finance companies are booking more loans at 72 months — maybe even longer — and loan-to-value ratios are climbing.

Black Book editorial director Ricky Beggs believes these trends go back even further than when the calendar flipped to 2014.

“In the last two years during a lot of conversations, similar concerns that pop up are the length of these loans and their loan to value ratios that are out there,” Beggs said. “And because the vehicles are being collateralized a little bit higher, that puts even more questions out there. Then you add in the competition between the lenders. They’re getting pressed and pushed to make more loans to make more profit and get that loan on the books.”

So how do finance companies navigate this ‘new normal’ that doesn’t appear to be going away any time soon? Black Book insisted its Collateral Insight Engine can be a tool to leverage. Product manager Brett Collett ran through some examples with SubPrime Auto Finance News this week to give finance companies some hard figures to consider.

Collett explained a finance company might sustain a $500 loss if a $25,000 loan with a 60-month term and a 4-percent APR ends up in a recovery situation after two years. That loss can balloon up to $3,500 if the term originated was at 84 months but went into recovery at the same junction.

Collett insisted that risk can be mitigated if finance companies can get a better grasp on the collateral value retention projections before even delving into terms that long; again that “new normal” financing companies are encountering.

“That’s a huge spread and risk that those lenders are taking with this pricing competition, and that’s assuming a 15-percent depreciation rate,” Collett said. “But as we all know each vehicle depreciates differently. Understanding the past trends and future projections will determine which side of the fence you might land. Are you going to be in a better position because you’ve got better collateral that you can put longer terms on? Or are you going to be in a worse position because you took riskier collateral with those longer terms?

“Lenders all have proprietary credit models but they rely on a lot of the same data,” he continued. “Having collateral inside that mix can mean the difference between a profitable decision in this ultra-competitive environment versus non-profitable decisions.”

According to Black Book data, used vehicles from the model years 2008 through 2012 depreciated by 1.1 percent overall in February, showing stronger seasonal retention compared to the 1.9 percent rate decline in January.

Beggs indicated average pre-recession depreciation is historically between 1 percent and 2 percent monthly, and Black Book expects overall 2014 depreciation of 13.5 percent.

Beggs also emphasized this time of year is when finance companies should pay extra attention to vehicle depreciation trends. He offered an example of what’s been happening recently with entry-level models, both compacts and midsize cars.

“Overall those are not segments that we feel like are going to be very strong segments retention wise for the overall year,” Beggs said. Some of the reasons are the volume of those vehicles in the marketplace, more players in those segments because of (Corporate Average Fuel Economy) requirements, and the level of gas prices we have right now and what are expected for the rest of the year being stable in relation to what we saw in 2008 and 2009.

“But if you look at the last three weeks, those segments have actually done the best in retention or lack of depreciation,” he continued. “That’s being driven primarily because of this time of the year, the tax season market. These are the lowest priced average cars out there so they fit well in that buy-here, pay-here and subprime market that gets a lot of attention in tax season.

“The fact that you’ve got a difference right now in what these segments should be overall for the year becomes important to see and that’s what Collateral Insight Engine looks at from the big picture,” Beggs went on to say.

Beggs closed with one final point about why finance companies need to monitor vehicle deprecation.

“If you look at dealer side, they have a good grasp of the cars based on their experience of what they’re buying and selling,” Beggs said. “When you look at it from the lender side, they don’t know the car itself but they know lending. They need to be able to depend on analytics to complement their lending experience to determine what is the good risk.”

Here is the complete breakdown of Black Book recorded February value changes of used vehicles for model years 2008 through 2012:

 Bodystyle  3/1/13  2/1/14   Sequential Change  3/1/14  Annual Change
 All Vehicles  $21,051  $18,342   -1.1%  $18,137    -13.8%
 Domestic Car  $14,389   $12,316   -0.6%  $12,244  -14.9%
 Domestic Truck  $19,233  $17,000   -0.9%  $16,845  -12.4%
 Import Car  $22,633  $19,403  -1.1%  $19,191  -15.2%
 Import Truck  $23,423   $20,759  -1.5%  $20,452   -12.7%
 Minivan Cargo  $10,955  $9,386  -3.4%  $9,068  -17.2%
 Full-size CUV  $25,240  $21,544  -2.0%  $21,105  -16.4%
 Midsize CUV  $21,663  $18,815  -2.0%   $18,446    -14.8%
 Compact CUV    $15,220  $12,981  -1.5%  $12,784   -16.0%
 Midsize Pickup  $18,304  $16,889  -1.5%  $16,638  -9.1%
 Midsize SUV    $20,546  $18,005  -1.3%  $17,765  -13.5%
 Entry Level Car  $8,881  $7,399  -1.3%   $7,303  -17.8%
 Prestige Luxury Car   $41,472  $34,796  -1.3%  $34,351  -17.2%
 Luxury SUV  $38,775  $34,437  -1.2%  $34,028   -12.2%
 Premium Sporty Car  $53,286  $46,797  -1.2%  $46,248  -13.2%
 Near Luxury Car  $21,007   $18,189  -1.2%  $17,979   -14.4%
 Compact Pickup  $16,224  $15,215  -1.1%  $15,047   -7.3%
 Upper Midsize Car  $12,918  $11,023   -1.1%  $10,902  -15.6%
 Luxury Level Car   $23,982  $20,658   -1.0%  $20,445  -14.7%
 Sporty Car  $21,957  $18,879   -0.9%  $18,710  -14.8%
 Compact Car   $10,752   $9,130  -0.9%  $9,051  -15.8%
 Compact SUV  $17,023  $15,963   -0.8%  $15,828  -7.0%
 Minivan Passenger   $14,772  $12,745  -0.8%  $12,638   -14.4%
 Full-size Pickup  $24,702   $23,165  -0.7%  $23,010  -6.9%
 Full-size Cargo Van  $14,116   $12,384  -0.5%  $12,327  -12.7%
 Entry Midsize Car  $12,788  $10,611  -0.5%  $10,563  -17.4%
 Full-size SUV  $22,998   $20,430   -0.4%  $20,342  -11.6%
 Full-size Car  $15,265   $12,887  -0.4%  $12,841   -15.9%
 Full-size Pass. Vans  $14,711   $12,804   -0.2%  $12,774   -13.2%


Captives Lead Charge in Rising Used LTVs


Experian Automotive’s most recent data showed how much more risk captive lenders are taking in regard to loan-to-value (LTV) levels when booking contracts for used models.

Experian indicated LTVs for captives that financed used vehicles in Q4 jumped by 306 basis points to an average of 128.6 percent. That year-over-year increase was far more than what Experian noticed for credit unions (up 136 basis points to 135.8 percent) and finance companies (up 115 basis points to 152.4 percent).

Overall, analysts found that LTVs for used-vehicle financing rose 113 points to 133.8 percent.

On the new-car side, Experian determined credit unions pushed their LTVs up the most during the fourth quarter, increasing them by 212 basis points to 115.3 percent. That basis-point amount recorded by credit unions nearly quadrupled the market average, which moved up 56 basis points year-over-year to 110.4 percent.

Looking at the LTV data by consumer credit category, Experian’s data showed the overall aggression in the market to make deals with buyers with damaged credit histories and more negative equity.

For deep subprime — consumers who Experian said have credit scores below 550 — LTVs soared the most year-over-year for both new- and used-vehicle financing. For new, the increase came in at 301 basis points to 126.0 percent, and for used, the jump registered at 220 basis points to 149.2 percent.

The other credit categories outside of prime posted similar increases during the fourth quarter according to Experian, including:

—Subprime new: up 234 basis points to 125.5 percent

—Subprime used: up 164 basis points to 142.3 percent

—Non-prime new: 143 basis points to 122.2 percent

—Non-prime used: up 110 basis points to 136.8 percent

The LTV data dissected by Experian conveyed a similar trend shared in the most recent dealer survey conducted by KeyBanc Capital Markets.

KeyBanc reported that financing availability remains strong as majority of the dealer respondents — 56 percent to be exact — indicated banks and finance companies were becoming more aggressive in January and the remaining 44 percent indicated no change from a year earlier.

The survey results also showed financing for subprime borrowers continued on a positive trend as 60 percent of the dealer respondents indicated favorable conditions remained unchanged and the remaining 40 percent indicated subprime financing continued to loosen in the month of January.

Top 10 New & Used Models for Below-Prime Buyers

IRVINE, Calif. - 

More than a dozen trends arose when examined its full-year financing data to find out the Top 10 new- and used-vehicle choices for its below-prime vehicle buyers in 2013.

On the new-model side, discovered the list of most purchased vehicles diverges completely from the overall Top 10 selling vehicles in the U.S.

The site indicated that Kia, a brand known for affordable, fuel-efficient vehicles, dominated its below-prime new-vehicle list, offering the automaker what analysts contend is “an important opportunity to develop loyalty among this customer base as it moves upstream.” mentioned Chevrolet performed well in both new and used below-prime categories.

Overall, the site pointed out below-prime buyers continue to purchase new compacts, used trucks and affordable vehicles that may not have a flashy pedigree, but offer great value.

“The Top 10 Lists offer a snapshot of the vehicle preferences of consumers credited with helping drive U.S. auto sales growth,” chief executive officer Jim Landy said.

“The automaker brands that show up on these lists should take note: today's below-prime car buyer — who is already re-building credit with a car purchase — could be your brand-loyal prime customer of tomorrow,” Landy continued.

The Top 10 New Vehicles Purchased by Below-Prime Buyers

1. Dodge Avenger and Kia Optima (Tied)

2. Kia Forte

3. Ford Focus

4. Kia Soul

5. Dodge Journey

6. Chevrolet Malibu

7. Chevrolet Cruze

8. Chrysler 200

9. Kia Rio

10. Nissan Sentra

Among the trends, analysts found when compiling the new-model list:

• Compact cars that offer good fuel economy and value in their class heavily dominated the list.

• With four models on the list, Kia “definitely is hitting a mark with this segment. Its range of product is resonating with this buyer,” analysts said.

• More domestics (6) made the list than imports with Kia and Nissan as the only import brands in the Top 10.

• No SUVs or trucks made the list, although the Kia Soul offers an 'SUV-like' vehicle without the expense of actually being one. And the Dodge Journey with a three-row seat option offers family-friendly space, more affordably than the average mini-van.

• Below-prime buyers snapped up the great deals offered by dealerships as they moved the 2013 Malibu off their lots to make way for a design update.

• The most popular vehicle with these consumers, the Dodge Avenger, is an often overlooked midsize sedan that performs well at a competitive price

• The Chrysler 200 is a natural for the list given that it is essentially the same vehicle as the Dodge Avenger: different design but similar incentives.

• Ford Focus is “no surprise” in third place, according to the site, which added, “It’s a well-designed, competitively priced compact, available as a sedan or hatchback, with appeal as a great ride even at the most basic and affordable trim level.”

• The popularity of the Optima, Soul, Rio and Forte, which offer 10-year/100,000-mile warranties, indicate that not only are fuel economy and pricing probably key to this buyer, but so are longer manufacturer warranties

Top 10 Used Vehicles Purchased by Below-Prime Buyers

1. Nissan Altima

2. Chevrolet Silverado 1500

3. Ram 1500

4. Ford F-150

5. Chevrolet Impala

6. Dodge Charger

7. Toyota Camry

8. Chevrolet Malibu

9. Honda Accord

10. Ford Fusion

Among the trends, analysts found when compiling the used-model list:

• The used story is one of trucks and domestic sedans and import sedans that hold their value.

• Domestics (led by Chevrolet) overwhelmed imports with only three import models, Altima, Camry (top-selling sedan in the U.S) and the Accord, cracking the Top 10.

• Unlike the new-vehicle list, which lacks trucks or SUVs, it’s no surprise to see three trucks near the top here, given their overall popularity in the market, their longevity and the value they offer as pre-owned vehicles.

• Chevrolet Impala and Dodge Charger show up as strong choices for consumers looking for larger cars at more affordable prices.

AWARE Gears New Financing Educational Tools to Help Baby Boomers


Younger buyers might not be the only age demographic that could use some assistance in explaining how the vehicle financing process works.

To help baby boomers as well as consumers of all ages easily research vehicle financing in one place, Americans Well-informed on Automobile Retailing Economics (AWARE) offers multiple, easy-to-use tools on its website.

AWARE members include American Financial Services Association, National Automobile Dealers Association, National Association of Minority Automobile Dealers and American International Automobile Dealers Association, as well as members of these organizations.

“Consumers may get overwhelmed when researching vehicle financing online,” AWARE spokeswoman Susie Irvine said. “ contains free, relevant information in one place to help consumers understand the entire vehicle financing process.”

AWARE provides the following tips and resources:

• Set a budget and determine a price range based upon your needs and financial situation, and stick to it. Use the Auto Finance Calculator at and the AFSA Education Foundation’s Monthly Spending Plan at

• Obtain a copy of your credit report and check it for errors. You can obtain a free credit report once every 12 months from each of the three nationwide credit bureaus at The information in your credit report can impact your ability to get credit and your interest rate.

• Become familiar with common vehicle finance terms, such as APR or Annual Percentage Rate, collateral, down payment, and lien. Many of these terms can be found at

• Understand the difference between buying and leasing a vehicle. Learn more at

• Understand the value and price of optional products such as extended service contracts, credit insurance, or guaranteed auto protection. If you do not want these products, do not sign up for them.

• Compare annual percentage rates and other financing terms from multiple finance sources.

• Negotiate your finance arrangements and terms.

• Read the contract carefully before signing it.

Additional information in English and Spanish can be found at

AFIP Announces Launch of Certification Boot Camps


In response to dealer demand, the Association of Finance & Insurance Professionals announced the introduction of AFIP Certification Boot Camps, which include two days of accelerated preparation for the federal and state regulation-based AFIP certification exam.

The first boot camps are being offered in Cleveland, Kansas City, Mo., Scottsdale, Ariz., and Trenton, N.J., in April.

The AFIP certification course are designed to address the laws that apply to in-dealership vehicle funding and leasing and aftermarket product sales.

“As a result of recent high-dollar penalties and enforcement actions, we’ve been inundated with calls from dealers who want their people AFIP certified, but don’t want to wait the six to eight weeks it typically takes to complete the course,” AFIP executive director David Robertson said.

“The boot camp allows dealers to certify their people in a much shorter time period. We recommend that attendees spend about three weeks of independent study before the sessions,” Robertson continued.

The first day of boot camp is devoted to an intensive review of the key state and federal regulations. The second day begins with a final exam review and culminates in administration of the proctored exam.

The boot camp fee is $150, plus the cost of the AFIP certification course. Boot Camps are open to first-time, senior- and master-level candidates in AFIP’s three-tiered continuing education program.

Onsite boot camps are available to dealer groups. Managers can contact AFIP for pricing and availability.

Robertson noted the boot camp concept was originally developed to assist a national dealer group’s personnel who were having trouble completing the course.

“The methodologies implemented with this group turned out to be highly successful,” he said. “The scores and passing rates were higher than those typically achieved through the traditional course of study.

“When we started getting calls from dealers who wanted their people certified yesterday, we already had an accelerated program in place that we knew would ultimately benefit all candidates and expedite the certification process,” Robertson went on to say.

For more information about AFIP, visit

AFIP Announces $1,000 Scholarship Winner

In other news, Christina Robertson, AFIP’s corporate counsel and director of education said the recipient of the $1,000 Jakob Murray Lange Memorial scholarship went to Luke Flannery, a Northwood University automotive marketing major from Bad Axe, Mich.

Robertson noted Flannery earned the scholarship for his exemplary achievement as a dealership intern last summer.

Flannery interned at Bill Marsh Automotive Group in Traverse City, Mich. The full service dealership operates on four campuses and sells new and used Buick, GMC, Chrysler, Dodge, Jeep, Ram, Hyundai and Ford vehicles.

According to general sales manager Dan O’Connor, “We first connected with Luke in a roundtable discussion on campus. I was very impressed with his professionalism and knowledge of the business. He later approached us about internship opportunities. We’d never had an intern, but decided to take Luke on last summer.

“Luke spent time in every department on all four campuses — sales, service and parts, the body shop, centralized reconditioning, marketing, accounting and J.D. Byrider — plus time on the job shadowing me,” O’Connor continued.

“Our experience with Luke went beyond our expectations,” O’Connor went on to say. “He was always prepared, conducted himself in a very professional manner and was a ‘sponge’ to all things Bill Marsh. He not only became a part of our team, by the end of the summer Luke was contributing in leadership meetings and truly had an understanding of our philosophy and culture.

“I’d like to thank Elgie Bright for his dedication to the young students coming out of Northwood. He’s a great role model and example to the next generation of automobile professionals,” O’Connor added.

This is the second year AFIP has awarded the scholarship, recently named to honor a gifted AFIP staff member, Jakob Murray Lange, who died in a car accident last year.

A plaque recognizing the scholarship recipients is on display in the NADA building on the Northwood University campus.

In addition to the scholarship funds, Flannery will receive a crystalline obelisk in recognition of his achievement.

Bright emphasized that internships have been an important component of Northwood’s automotive marketing and management program for many years.

“The experience students gain working at dealerships has proven invaluable to their success in moving from the classroom to the showroom,” Bright said. “Having AFIP support our efforts through their scholarship program raises the prestige of the experience and helps boost interest in internship opportunities.

“We are grateful to Dave Robertson and the AFIP staff for all they do to support our program here at Northwood,” Bright went on say.

And David Robertson added, “As I've learned firsthand working with dealers throughout the U.S., Northwood interns are highly prized for their ability to apply the lessons learned in the classroom to the real world challenges they encounter in the dealership."

Free NADA Webinar to Address Federal Advertising Requirements

McLEAN, Va. - 

With dealer advertising promoting attractive financing options in the crosshairs of the Federal Trade Commission, the National Automobile Dealers Association is hosting a free webinar aimed at helping stores keep their campaigns compliance.

NADA officials highlighted the upcoming “Comply with Federal Advertising Requirements” webinar will provide participants the opportunity to hear directly from a panel of FTC attorneys on key requirements and restrictions related to dealership advertising.

Set to be a part of the session from the FTC are Mark Glassman, Teresa Kosmidis, and Carole Reynolds

NADA chief regulatory counsel Paul Metrey will moderate the discussion, which will highlight recent FTC advertising enforcement actions from dealerships around the country as examples of what to avoid.

The 75-minute webinar is available to dealership employees, dealership compliance professionals, and persons who provide advertising services to dealerships.

The webinar will be held at 1 p.m. ET on March 19.

Click here to register.

Questions Arise about Industry’s New Normal

CARY, N.C. - 

From captive finance companies to one-lot buy-here, pay-here dealers, the entire industry is seeing a shift to a ‘new normal,’ which includes smaller down payments, longer terms and negative equity being rolled into a larger financed amount.

While metal is being moved now, trends and buying patterns that might appear three years or more down the road are what industry observers are currently pondering.

“As we shift over to the ‘new normal,’ which is a little bit concerning, right now the belief is the typical consumer goes $400 to $500 on a new car and $300 to $400 on a used car as the monthly payment,” Experian Automotive president John Gray said.

“So how do you get them the most car in that payment structure? As the interest rates have come down, the prices have gone up so you move out the financing,” Gray continued. “The question is still going to come in as interest rates go up in the future, can you put still put a rate out there that puts them in that payment structure? Also, you’re in the car longer so how can you get equity in the car? Is this going to cause the auto industry to think about when people are going to come back into the market?”

Gray’s Experian colleague is considering the same kinds of questions.

Senior director of automotive credit Melinda Zabritski said, “You’ve got extended (loan to value) and loans. Will consumers change their owning patterns?

“For years, consumers would take their car and trade it back in every 36 to 38 months,” Zabritski continued. “It cut back during the recession. But if the consumer still expects to return to market in 3½ years and they’re on a 72- or 84-month loan with a high origination LTV, are they in a position to come back into the market unless LTVs also continue to expand out?”

The latest data from Experian as well as J.D. Power showed these questions aren’t going away any time soon.

According to its latest State of the Automotive Finance Market report, Experian indicated the average amount financed for a new vehicle was $27,430 in Q4 2013, up from $26,691 in Q4 2012. This marked the highest average loan amount for a new vehicle since 2008 and the first time the amount has exceeded $27,000.

Additionally, the average loan amount for a used vehicle during the quarter was $17,974, up $345 from the previous year, which was also a record-high since 2008.

Furthermore, Experian determined new-vehicle interest rates were up to 4.37 percent in Q4 2013 from 4.36 percent in Q4 2012, while used-vehicle interest rates were up to 8.71 percent in Q4 2013 from 8.48 percent in Q4 2012

And the latest analysis from J.D. Power showed long-term loans — classified as loans that are 72 months and longer — accounted for 33.1 percent of new-vehicle retail sales in February, according to data gathered by the Power Information Network (PIN) from J.D. Power.

That pace surpassed the previous record set in September 2012, when 30.6 percent of new-vehicle sales were loans of 72 months or longer.

“Longer loan terms, coupled with the current low interest rate environment, increases the affordability of new vehicles for consumers,” said Thomas King, senior director of PIN at J.D. Power. “This is resulting in strong demand for new vehicles and also record transaction prices.”

King noted that while the increased use of long-term loans has caused concern in the automotive industry about the risks associated with extended purchase cycles, those risks are mitigated by a couple of factors.

First, while 72-month loans are becoming increasingly popular, loans for 24 to 60 months are keeping the average term for new-vehicle loans at 66 months, an increase of only three months since 2009. Second, increased leasing, with typical contract lengths of just 36 months, ensures a healthy supply of future vehicle buyers with shorter purchase cycles.

“Unlike buyers who finance their vehicle and have considerable discretion regarding when to return to market, consumers who lease their vehicle must come back into the market when their lease terminates,” said King. “The current level of leasing means there will be a steady and significant stream of lessees returning to market three years from now.”

J.D. Power also pointed out that while loans of 84 and 96 months are available to consumers, analysts contend such loans have yet to compose any meaningful portion of the auto financing market, with 84-month and longer loans comprising only 3 percent of all sales in February.

Subprime Buyers Finding More Financing for New Models


Finance companies still aren’t shying away from giving contracts to subprime consumers based on the fourth-quarter information from Experian Automotive.

According to its latest State of the Automotive Finance Market report, Experian highlighted today that financing became easier to obtain in Q4 2013, as the average credit scores for both new leases and loans decreased from the previous year. The average credit score for a new-vehicle lease dropped 16 points to 719 in Q4 2013 from 735 during the previous year.

The average credit score for new vehicle loans, however, saw a slightly smaller decrease year-over-year, dropping from 724 in Q4 2012 to 715 in Q4 2013.

Analysts determined market share for nonprime, subprime and deep subprime new vehicle loans also rose slightly in Q4 2013 to 34.1 percent from 32.8 percent in Q4 2012.

For used vehicles, Experian noted nonprime, subprime and deep subprime loans accounted for 62.8 percent of all loans, down 1.6 percent from 63.8 percent in Q4 2012.

“We are still seeing remarkable stability in the automotive finance industry, even as lenders continue to ease slightly on credit standards to provide loans and leases,” said Melinda Zabritski, senior director of automotive credit for Experian Automotive. “What makes this good news for consumers is that the more credit-challenged car shoppers who need a vehicle may find that they have more financing options to choose from and can more easily shop around for the best rates and terms.”

As Zabritski referenced, more consumers are choosing to lease vehicles, bringing the share of new vehicles financed with a lease to its highest level since the company began publically reporting the data in 2006.

Experian found that 28.4 percent of all new vehicles financed were leases in Q4 2013, up from 24.8 percent the previous year.

“Leasing continues to grow in popularity among car shoppers, especially those hoping to stay within a strict monthly budget,” Zabritski said. “Our analysis this quarter showed that the average monthly lease payment was $51 lower than the average loan payment, which can make a big difference to consumers trying to stretch their dollar.”

To be exact, Experian discovered the average monthly payment for a new-model loan came in at $471 in Q4 while the monthly commitment to a new-vehicle lease came in at $420.

Other findings from the report showed the average amount financed for a new vehicle was $27,430 in Q4 2013, up from $26,691 in Q4 2012. This marked the highest average loan amount for a new vehicle since 2008 and the first time the amount has exceeded $27,000.

Additionally, the average loan amount for a used vehicle during the quarter was $17,974, up $345 from the previous year, which was also a record-high since 2008.

In other trends:

• Average monthly loan payments for used vehicles were up from $348 in Q4 2012 to $352 in Q4 2013.

• New-vehicle interest rates were up to 4.37 percent in Q4 2013 from 4.36 percent in Q4 2012.

• Used-vehicle interest rates were up to 8.71 percent in Q4 2013 from 8.48 percent in Q4 2012.

• The average credit score for a used vehicle loan rose from 644 in Q4 2012 to 646 in Q4 2013.

Credit Acceptance Sees Originations, Dealer Network, Net Income All Rise in 2013


As the finance company closed the year with a 16.2-percent jump in active dealers, Credit Acceptance Corp. watched its unit and dollar volumes rise by double figures during the fourth quarter as well, to leave the operation with a healthy gain in consolidated net income for 2013.

Credit Acceptance reported unit and dollar volumes increased 12.6 percent and 11.3 percent as the company originated 46,677 contracts during Q4. For the year, the company originated 202,250 loans, up from 190,023 in 2012.

The company's active dealer level finished 2013 at 6,394 stores, up from 5,319 dealerships a year earlier.

"There's a wide variety of dealerships that would work on our program that works at — very small and independent dealers and some of the largest franchise dealers in the country. We're not targeting one group or the other, and the increases we're seeing are really across all groups," Credit Acceptance chief executive officer Brett Roberts said last week when the company conducted a conference call to discuss its results.

As far as the bottom line, Credit Acceptance indicated consolidated net income for Q4 came in at $65.9 million or $2.80 per diluted share, up from $59.9 million or $2.40 per diluted share during the same period last year.

For all of 2013, the company's consolidated net income totaled $253.1 million or $10.54 per diluted share, compared to $219.7 million or $8.58 per diluted share Credit Acceptance generated in 2012.

Credit Acceptance also mentioned its increase in adjusted average capital of 17.6 percent due to growth in its loan portfolio derived primarily as a result of growth in new consumer loan assignments in recent years, which resulted in the dollar volume of new consumer loan assignments exceeding the principal collected on its loan portfolio. 

"The growth in new consumer loan assignments in recent years was the result of an increase in active dealers, partially offset by a decline in volume per active dealer," executives said.

The company went on to pointed out its increase in its cost of capital of 20 basis points arrived primarily due to an increase in the average 30-year Treasury rate, which is used in the average cost of equity calculation, partially offset by a decline in the average cost of debt resulting from the change in mix of its outstanding debt.

Elsewhere, Credit Acceptance acknowledged that a full-year decrease of 60 basis points in its adjusted return on capital came primarily as a result of two factors:

—A decline in the yield on its loan portfolio decreased the adjusted return on capital by 120 basis points due to higher advance rates on new consumer loan assignments.

—An increase in other income increased the adjusted return on capital by 40 basis points primarily due to an increase in global positioning systems with starter interrupt devices fee income resulting from an increase in the fee earned per unit and an increase in vehicle service contract profit sharing income as a result of a new profit sharing arrangement entered into with a third-party provider during 2012.

After looking at all of the numbers, Credit Acceptance chief financial officer and chief accounting officer Kenneth Booth said, "I would say that we continue to be satisfied with the performance. We continue to grow net income, earnings per share, economic profit. We're growing the business in a challenging economic environment, so I'd say we're satisfied with the year."