Finance & Insurance

Canadian franchised dealers continue to value finance-company relationships


As much as technology has enhanced the way Canadian dealers can find inventory that turns quickly while securing financing for their customers, personal relationships still matter, especially when it comes to store management and its F&I activities.

For the second consecutive year, dealers in Canada continue to stress the importance of the dealer-finance company relationship and are more satisfied with providers that not only understand their needs, but also consistently exceed their expectations. Those findings surfaced this week as a part of the J.D. Power 2018 Canadian Dealer Financing Satisfaction Study.

As the auto retail financing industry becomes more commoditized, the J.D. Power survey showed dealers cite “people relationships” and “ease of doing business” as the top two reasons for their selection of a financing provider. The importance of these two reasons are echoed both by captive and non-captive finance companies.

The survey revealed factors such as dealer compensation and competitive rates are also relevant in the provider selection decision, but are of secondary importance to customer service-related reasons.

“The marketplace in Canada continues to be strong, yet highly competitive, so relationships are what make the difference,” said Jim Houston, senior director of automotive finance at J.D. Power.

“Lenders can adjust their credit policy, interest rate or dealer compensation plans, but it’s how they interact with dealers and resolve issues when they arise that have the greatest effect on satisfaction,” Houston said. “When overall satisfaction increases, dealers are more willing and able to deepen the business relationship with lenders.”

The study, now in its 20th year, found that problem resolution and the speed with which an issue is rectified significantly affect dealer satisfaction levels. Moreover, it’s the credit department that bears the load and acts as the first port of call when things go sour.

Six in 10 dealers (60 percent) indicate that credit desk personnel are the first point of contact for any problems or concerns. Additionally, 76 percent of dealers said they were able to engage with credit staff when needed.

“While both captive and non-captive lenders’ credit departments perform well in making themselves available, lenders should not rest on their laurels,” Houston said. “Instead, they should maintain a sense of urgency when responding to dealers, as satisfaction levels plummet when the credit department is not readily available.

“Leveraging various communication channels and technology coupled with adequate credit department staffing are some measures in which lenders can demonstrate their commitment and differentiate themselves to increase satisfaction,” Houston went on to say.

Two other additional findings from the latest survey included:

• Finance company selection influenced by more than just relationships: Beyond the relationship influence, dealers have different views of satisfaction depending on the type of finance company with which they are doing business. Dealers who work with captives place higher importance on the provider’s customer loyalty rebates (27 percent) than those who work with non-captive finance companies (4 percent).

In contrast, dealers that choose to do business with non-captive finance companies place a greater importance on dealer compensation (13 percent), compared with those that choose to work with captives (4 percent).

• Sales performance requires improvement: In a highly competitive and fragmented market, J.D. Power learned that exceeding expectations becomes a paramount differentiator. The study found that dealers hold their finance company sales representatives to a higher set of standards, yet sales representatives exceed expectations less than half of the time.

Finance company rankings

Overall dealer satisfaction in the captive segment is 875 (on a 1,000-point scale), a 7-point increase from 2017. Overall satisfaction in the non-captive segment is 862, a 4-point decrease from 2017.

Mercedes-Benz Financial Services ranked highest in the captive segment with a score of 948. Ford Credit (903) ranked second, while Honda Financial Services (883) came in third. Toyota Financial Services (878) ranked fourth.

Among non-captive finance companies, TD Auto Finance ranked highest with a score of 884. Bank of Montreal (881) came in second, and RBC Royal Bank (868) placed third.

The 2018 Canadian Dealer Financing Satisfaction Study captured 4,861 finance provider evaluations across the two segments from new-vehicle dealerships in Canada. The study was fielded in February and March.

Why Canadian institutions leverage US auto ABS market


The U.S. financial market might become an even more important catalyst for car sales in Canada, too.

As Canadian auto sales have been on the rise, two of the Big Six Canadian banks have turned to the U.S. term asset-backed securities (ABS) market for additional fuel, according to a report published on Monday by S&P Global Ratings.

As in the U.S., S&P Global Ratings pointed out that Canadian banks are a major source of auto financing for consumers. Additionally, analysts noted the re-emergence of captives, which has accelerated the availability of vehicle leases, has been driving strong Canadian auto sales over the past few years.

Not only are annual vehicle sales up, but S&P Global Ratings said in the report titled, Canadian Auto Lenders Are Taking ABS on a Road Trip Across the Border, that many consumers have been opting for a brand new car rather than used. S&P Global Ratings tabulated that about 81 percent of total vehicle sales in 2017 were for new models, representing approximately 2 million units sold.

Since offering its first issuance in 2016, the Bank of Nova Scotia (Scotiabank) has completed four U.S. cross-border auto loan ABS transactions through its Securitized Term Auto Receivables Trust (START). In 2017, Bank of Montreal (BMO) established its auto loan ABS program, Canadian Pacer Auto Receivables Trust (CPART), and has since issued two U.S. cross-border transactions.

Through these transactions, S&P Global Ratings explained Scotiabank and BMO are essentially funding Canadian dollar-domiciled auto loan receivables by issuing U.S. dollar notes, which are swapped back into Canadian dollars.

Both programs have been well-received in the U.S. auto ABS market, according to S&P Global Ratings.

“They have offered the banks relatively cost-effective funding levels, which may encourage other Canadian banks with established auto loan lending programs to enter the market,” analysts said.

“Several Canadian auto captive finance companies have also issued auto ABS transactions in both the U.S. and Canadian markets in recent years,” analysts added.

From a U.S. investor’s perspective, in addition to issuer diversification, S&P Global Ratings indicated Scotiabank’s START series and BMO’s CPART series offer an increase in spread, with equal or better auto loan receivables relative to those backing similar auto ABS from U.S.-domiciled sponsors.

“In addition, the collateral pools for their issued transactions were generally comparable to those of established U.S. auto captives and non-captives,” analysts said.

“The report published today compares their transaction pools with those of U.S. auto captives and non-captives based on credit quality, vehicle type, average loan terms, geographic distribution and other characteristics,” analysts added.

With the auto finance market “stabilizing,” according to the latest analysis from TransUnion, what could additional U.S. influence mean to Canadian auto financing?

“In S&P Global Ratings' view, if Canadian auto lenders ensure performance volatility in their managed portfolios does not creep into their securitized portfolios, cross-border auto ABS should keep cruising right along,” analysts said.

“Only a rating committee may determine a rating action and this report does not constitute a rating action,” they went on to say.

Buyers pony up extra cash for used vehicles in April


The Canadian buyers who did make a used-vehicle purchase in April evidently weren’t afraid of the price tag.

Despite a month that saw unpredictable weather across Canada keeping many used-vehicle buyers from showrooms, the top 10 funded used vehicles in Cox Automotive Canada’s Dealertrack Online Credit Application Network continued to see annual average cash price gains in April.

With eight of the Top 10 funded used vehicles recording gains, the company reported that average cash prices rose 3.4 percent last month, compared to April 2017. Compared to the previous month, the April 2018 average dropped slightly — down 0.3 percent.

The Dodge Grand Caravan was the model among the top 10 funded used vehicles with the most significant annual (9.7 percent) and monthly (2.1 percent) average cash price increases, rising from $20,476 to $20,912 in April.

The vehicle with the largest year-to-year and month-to-month average cash price drop was the Dodge Journey. The compact SUV saw year-over-year and month-over-month reductions of 1.9 percent and 2.3 percent, respectively, dropping from $19,483 to $19,027 in April.

Regarding the volume of used vehicles funded in the Dealertrack Network, the Toyota Corolla jumped two spots in April, from ninth place to seventh.

“As we all experienced, the weather this spring in Canada has been cooler than normal, which may have kept used car buyers at home,” said Richard Evans, vice president and general manager of Dealertrack Canada.

FICO uncovers 7 trends about Canadians and auto financing


The latest research endeavor by Silicon Valley analytic software firm FICO showed a vast majority of Canadian consumers is much more likely to have confirmation the vehicle they found online has four-wheel drive before they have the financing available to make the purchase.

On Thursday, FICO announced the findings of its first global survey on consumer perceptions of the automotive finance process. The research looked at how consumers view the financing aspect of their purchase for new and used vehicles, as well as how the ecosystem of providers (banks, captive finance providers, credit unions, dealerships and startups) are currently meeting customer expectations.

Three primary findings from the Canadian portion of the project included:

• Nearly 8 in 10 (78 percent) of Canadian consumers shopped for a vehicle first, before inquiring about financing.

• Seventy percent of Canadian consumers obtain their financing at the dealership and are among the least likely to seek financing online (4 percent).

• Canadians are the most likely consumers globally, to only consider one financial offer before making their decision (60 percent).

“FICO’s research provides valuable insight into the auto finance experience for consumers. As a customer-centric organization, GM Financial puts our customers at the center of everything we do. The results of the research are a great validation that lenders and their dealers must be relationship-focused throughout the customer journey,” said Bob Beatty, executive vice president for North America customer experience at GM Financial.

Among the key findings, FICO noticed a sizable gap between a consumer’s interest in online auto financing (33 percent) versus current global market adoption (10 percent).

In Canada, FICO indicated there is a 19-point difference, as only 4 percent of Canadian consumers applied for their auto financing online, while 23 percent plan to do so for their next contract.

Also, throughout the provinces, the dealership is still the main channel for consumers with 70 percent financing their vehicle purchase at the dealership.

FICO pointed out that Canadian consumers appreciate immediacy in their financing process. The survey showed that 35 percent of Canadian respondents would accept or at least consider an instant offer for financing a vehicle if that meant they could avoid dealing with a bank or doing extra paperwork.

Further, the project highlighted that Canadian respondents (60 percent, to be exact) were the most likely to report only considering one financing offer in their auto-financing process, compared to the global average of 44.4 percent.

“Canadian consumers want to speed up and streamline the auto-lending process,” said Kevin Deveau, vice president and managing director of FICO Canada.

“This haste could mean that there is a lack of understanding of available options which ultimately may result in Canadians taking financing offers that aren’t right for them,” Deveau said. “Lenders have an opportunity to be proactive, to educate their customers, and to humanize the experience.”

FICO shared four other data points of note for Canada, including:

• A good offer can sway consumers since the research showed 32 percent of Canadians didn’t initiate the auto-financing process; rather, a company had reached out to them with an offer.

• There are generational differences in auto financing. FICO noticed Baby boomers strongly prefer going to a dealership and millennials prefer going to a bank. In general, younger consumers are more likely to seek digital financing, however, is not the first choice for the majority of any age group.

• Obtaining auto financing is perceived as simple. Canadian respondents were the most likely globally to rate their auto-finance process as easy.

• Overall, consumers are fairly satisfied with their experience. FICO reported that 89 percent of Canadian respondents feel they got a good or excellent deal. Further, the clear majority of consumers around the world feel that they are receiving at least a fair deal in during their financing experience.

FICO’s independent research surveyed 2,200 adult consumers across nine countries including Canada, the United States, Mexico, Chile, Australia, New Zealand, Germany, Spain and the United Kingdom. The respondents were between the ages of 18 and 64 and had acquired financing for a new or used vehicle within the last three years.

More information on the survey results can be found at this website.


COMMENTARY: How car dealerships can dominate the subprime market


According to Statistics Canada, the average Canadian household spends an average of $11,000 annually on private transportation. Vehicles are typically the second most expensive asset owned, after a home, and buying a vehicle is a significant event in a person’s life.

Through the car-buying process, Canadians want trust, reliability and an agreement that they’re comfortable with.

When a consumer walks into a dealership, the first person they talk to about their financial situation is a member of the dealership team.

But if the customer falls under subprime and staff aren’t trained to help someone with less-than-perfect credit, it could be a lost lead. Scotiabank’s February Global Auto Report reports more Canadians are interested in buying used cars as opposed to new cars.

For dealerships in Canada, this stat is important when mapping out how a dealership business should operate.

Subprime consumers are starting to take up a large percentage of the automotive market, and auto loan lenders can help consumers with less-than-perfect credit apply for financing within a subprime budget.

Credit-challenged customers in Canada impact car dealership buying trends, so it’s best to be ready for these leads when they walk through a dealership’s doors.

It’s important for car dealerships across the country to ensure that Canadians facing all types of credit situations have access to a fair auto finance market – one that helps both subprime and prime customers.

Building a subprime infrastructure, developing strong relations with subprime lenders and training a dealership sales team for subprime customers will open doors to a massive market.

Sonny Dhanoya is an account manager at Canada Drives.

Axis Auto Finance finalizes acquisition of Trend Financial


To borrow a phrase from vehicle delivery vernacular, the acquisition of Trend Financial by Axis Auto Finance “rolled over the curb” this week.

According to a news release, Axis said its acquisition of all of the issued and outstanding securities of Trend closed on Monday.

“The closing of the Trend acquisition creates a powerhouse in the Canadian subprime auto lending market,” said Ilja Troitschanski, Axis’ founder and president. “We are excited to welcome the Trend team to Axis and look forward to our future together.”

The acquisition was completed pursuant to a share purchase agreement dated March 6 for a total consideration of approximately $29.3 million, comprised of:

— Approximately $20.7 million in cash, inclusive of a $1 million holdback amount paid into escrow and releasable following the completion of the purchase price adjustments under the share purchase agreement.

— The issuance of 3,252,244 common shares in the capital of Axis and 1,918,194 common share purchase warrants.

— The issuance of 2,015,409 common shares and 2,562,933 warrants, paid into escrow and, subject to certain exceptions, releasable no later than the date that is 19 months from the closing date of the acquisition

— The issuance of a contingent 1,684,345 Common Shares and a contingent 2,141,929 Warrants, paid into escrow and payable in accordance with the terms of the Share Purchase Agreement. Each Common Share was issued at a deemed price of $0.70 per Common Share and each Warrant entitles the holder thereof to purchase a Common Share at a price of $0.90 at any time during a period of 36 months following the closing date of the Acquisition.

In addition, as previously disclosed, Axis reiterated that it issued an additional $3 million principal aggregate amount of extendible convertible unsecured subordinated debentures to certain vendors of Trend, who subscribed for such debentures with a portion of the cash entitled to be received by such vendors pursuant to the acquisition.

The company indicated the Debentures are not listed or posted for trading on any exchange and are subject to a statutory four-month and a day hold.

Axis also explained the acquisition was funded in part by a private placement financing of subscription receipts and debentures, which closed on March 22, through a syndicate of underwriters co-led by Canaccord Genuity Corp. and INFOR Financial Inc. and including PI Financial Corp. and Raymond James Ltd.

Pursuant to the offering, Axis issued 10,440,784 subscription receipts at a price of $0.70 per subscription receipt for gross proceeds of approximately $7.3 million and $14.55 million aggregate principal amount of debentures.

In accordance with the terms of the subscription receipts, each subscription receipt was exchanged upon the closing of the acquisition for one common share and the proceeds from the sale of the subscription receipts were released from escrow. Holders of subscription receipts are not required to take any action in order to receive their common shares, according to the company.

INFOR Financial acted as financial adviser to Axis in connection with the acquisition and Dentons Canada acted as legal counsel to Axis.

In connection with the closing of the acquisition, Axis said it will pay INFOR:

— A cash advisory fee in connection with Axis’ prior acquisition of Cars on Credit Financial

— An advisory fee in connection with the acquisition, satisfied in part by payment in cash and in part through the issuance of 321,428 Axis units at a price of $0.70 per unit.

Each unit is comprised of one common share and one half of a warrant, with each warrant entitling the holder thereof to purchase a common share at a price of $0.90 at any time during a period of 36 months following the closing date of the acquisition.

“I want to commend the Axis deal team, the management at Trend, as well as our advisers for successfully getting this transaction closed,” Axis chief executive officer Todd Hudson said. “We have become a clear leader in the Canadian subprime auto finance space and we intend to continue to grow Axis from coast to coast. The Trend deal puts us one step closer to that goal."

Further information on the company can be found at

Sym-Tech announces partnership to deliver Audi, Volkswagen branded F&I services


Sym-Tech Dealer Services announced Tuesday a nationwide partnership with Audi Finance and Volkswagen Finance to deliver both the Audi After Care and Volkswagen Protection Plus branded suite of F&I products and services. The deal will be effective Nov. 1. 

Sym-Tech said that it has an experienced team of sales, technology, operations, dealer communications, claims and administration support to ensure a seamless transition for Audi and Volkswagen dealers in the fall.

"We're extremely pleased to be entering into this partnership with Audi Finance and Volkswagen Finance and supporting them in the evolution of Audi After Care and Volkswagen Protection Plus branded products," Sym-Tech chief executive officer Brad Wells said in a news release.

"In addition to a full suite of F&I products, we bring our industry proven F&I training, a dedicated in-store development team and our proprietary F&I technology solution, dave. We look forward to working with the Audi and Volkswagen Dealer network across Canada."

Axis to acquire Trend Financial


Axis Auto Finance has signed a share purchase agreement to buy subprime finance company Trend Financial, the company announced late Tuesday afternoon.

It’s a move that doubles the Axis portfolio — putting its net finance assets to roughly $110 million — and brings its “largest director competitor” into the fold, says the company’s president.

Additionally, Axis named Todd Hudson as its chief executive officer, a move that is effective March 15 and splits the president/CEO role at the finance company.

Hudson comes to Axis from ECN Capital, where he was chief operating officer.

Axis founder Ilja Troitschanski remains president.

Details on purchase

The deal would be worth approximately $29.3 million. 

The purchase would be funded through a private placement offering of approximately $6.5 million in subscription receipts and $17.4 million in extendible convertible debentures.

The purchase price would include approximately $23.9 million in cash and the issuance 6.95 million common shares and 6.6 million common share purchase warrants.

“This is a transformational event in the development of Axis. Not only are we doubling our portfolio, but we are also acquiring our largest direct competitor,” Troitschanski said in a news release.

“Together with the recently completed acquisition of Cars on Credit, Axis has firmly established itself as a dominant force in the Canadian subprime automotive finance market,” he added. 

Hudson named CEO

In addition to his time with ECN, Hudson —  the new CEO — worked for Element Financial Corp., where he was executive vice president of originations, as well as Hathway Financial, where he was president and founder.

Hudson also worked for Newcourt and CIT Group prior to founding Hathway in 2003.

“I am excited to join the Axis team and feel that I can make meaningful contributions to the Company's development,” Hudson said.

 “Next to the substantial organic growth potential, there is a clearly identified opportunity for a growth-by-acquisition strategy in the Canadian non-prime finance market, something our team did very successfully at Element Financial and ECN Capital,” Hudson said.

Axis said in a news release that dividing the president and CEO posts affords the company “greater depth of management to continue its rapid organic growth and effectively evaluate and integrate potential acquisition targets.”

Troitschanski said: “We are delighted to welcome Mr. Hudson to our team. His decades of experience in alternative finance, specifically with respect to execution and integration of M&A transactions, will be a great boost to Axis’ acquisition and integration activities.”


TransUnion Canada sees credit market functioning ‘correctly’


TransUnion Canada director of research and industry analysis Matt Fabian used the words credit, consumer and correctly within the same thought to describe the overall picture painted by TransUnion’s latest Canada Industry Insights Report

Fueled by younger Canadians and overall confidence in the nation’s economy, Fabian and the TransUnion team spotted an array of positive signs in the fourth-quarter data, including how auto finance performed as dealerships nationwide enjoyed record sales.

“We’re still seeing a consistency in terms from an overall debt perspective. Consumer balances continue to rise. To us, seems in line with the economic expansion and the fundamentals we saw at the end of 2017. There was a build in consumer confidence toward taking on that additional debt,” said Fabian, who is among the experts scheduled to share presentations during the Auto Remarketing Canada Conference that begins on March 27.

“Additionally, overall we’ve seen delinquency rates remain at low levels. In fact, year-over-year they’ve dropped,” he continued during a phone conversation ahead of Thursday’s report release.

“The overall consumer picture for us is that the market is still working fundamentally correctly as it should. And consumers in Canada, despite having an increases in their balances, are still being pretty cautious and being good at managing that overall debt,” Fabian went on to say.

As Canadian consumer debt continues to rise, TransUnion found that millennial and Gen Z borrowers are playing leading roles in this growth.

Average consumer non-mortgage debt balances rose 4.3 percent between Q4 2016 and Q4 2017 to close the year at $29,312. However, both millennials (born 1980 to 1994) and Gen Z (born 1995 or later) consumers experienced significantly higher yearly percentage increases of 12.6 percent and 22.9 percent, respectively.

“As consumer debt continues to increase, it’s clear that the youngest generations are playing a critical role in the consumer credit market,” Fabian said. “Millennials are taking on additional balances as they reach significant life events that put pressure on their overall wallet — many of them are now supporting children, purchasing homes and acquiring additional vehicles.

“These costs may be financed through additional borrowing, so this growth in debt is not surprising,” he added.

TransUnion also found that the high rate of balance growth among Gen Z, albeit from a much lower base level, is also expected. These younger consumers are entering the workforce for the first time and starting households, milestones which also increase demand for credit.

“It’s interesting that Gen Z is growing at a fast pace, but they also are the only generation that has shown increased delinquency rates on debt over the past year,” Fabian said. “It could be they’re inexperienced in managing their credit obligations and demonstrating less discipline in making regular payments, which we tend to see reflected in their risk distribution, which is typically non-prime compared to older generations.

“It will be important for these emerging consumers to learn the importance of maintaining their credit health,” he continued. “We have seen that credit education tools provided by financial institutions such as credit monitoring and score simulators can be very effective in building positive credit behaviors, reducing delinquency rates and increasing credit scores.”

TransUnion’s report determined that overall consumer delinquency rates for commitments 90 days or more past due declined 23 basis points during 2017 to finish at 5.30 percent. While Gen Z experienced a 39-basis point increase in serious delinquency rates, millennials saw a 69-basis point drop in delinquencies during 2017.

Comparing Consumer Credit Performance by Generation


Q4 2017 Avg. Consumer Non-Mortgage Debt Balance

Y-o-Y Balance growth change (%)

Q4 2017 Avg. Consumer 90+ DPD delinquency

Y-o-Y delinquency change (bps)

All Canadians





Baby Boomers





Gen X










Gen Z






TransUnion insisted the credit performance of the youngest generations is especially significant because they are increasingly taking a larger role in the overall Canadian credit marketplace.

In fact, analysts discovered the share of all credit-active consumers in the millennial and Gen Z age ranges combined has increased from 28.0 percent in Q4 2015 to 30.0 percent in Q4 2016, and again to 31.6 percent in Q4 2017 — an increase of 12.2 percent in just the last two years.

Conversely, between Q4 2015 and Q4 2017, the number of Baby Boomers (born 1946 to 1964) with credit declined 3.4 percent, while Gen X (born 1965 to 1979) dropped 1.6 percent.

“Millennials are already a significant part of the consumer credit dynamic in Canada. In fact, Millennials surpassed Gen X in market share for consumer credit at the end of 2016 and continued to outpace them in 2017,” Fabian said.

“Of even greater anticipated consequence is Gen Z, even though they comprise only 7 percent of all credit consumers in Canada currently,” he continued. “The share of Gen Z consumers will increase materially in the next few years as they are expected to grow from about 25 percent of the population today to 30 percent in a few years, with many obtaining a credit product for the first time.

“It will be important for lenders to understand the credit needs and preferences of this rapidly growing segment in order to effectively serve them in the coming years,” Fabian went on to say.

Keeping tabs on interest rates

The latest Industry Insights Report from TransUnion also showed that the consumer credit market is performing well.

The overall risk tier mix of Canadian consumers has improved, with 68 percent of consumers having prime or better risk scores — a 2.3 percent increase over last year. The number of consumers with access to credit also has increased about 0.4% in the last year to 28.5 million.

Serious delinquency levels for all major credit products remain at relatively low levels, though recent Bank of Canada rate increases may be starting to impact some consumers.

Q4 2017 Canadian Consumer Credit Debt/Delinquency Picture


Average Balance

Annual% Change


Delinquency Rate*

AnnualBasis Point Change (bps)

Credit Cards




+1 bps

Installment Loans




+14 bps

Auto Loans




+8 bps

Lines of Credit




-13 bps

Mortgage Loans




- 7 bps

*Serious delinquency rates are 60 days or more past due for all credit products except for credit cards (90+ DPD).

“Most consumers will not be materially affected by the Bank of Canada rate increases. However, using our next-generation CreditVision credit data that identifies payment amount trends and behaviors, we have started to see an uptick in delinquency among pockets of consumers vulnerable to an interest rate shock,” Fabian said.

In 2017, TransUnion observed an increase in 90-day delinquency in consumers who have typically made just their minimum monthly payments or slightly more. The percentage of such consumers rose 2.9 percent over the past year to approximately 120,000 consumers.

“These consumers are among the most vulnerable to interest rate increases — the fact that they are making monthly debt payments near the minimum due indicates that they may have less financial cushion to absorb monthly payment amount increases,” Fabian said.

“While it’s a relatively small percentage of the overall consumer credit population, it is important for lenders to identify those consumers who are most at risk from interest rate increases, and to incorporate these insights into their customer and portfolio management strategies,” Fabian added.

Fabian also touched on observations solely about the auto finance sector; a trend likely quite familiar to underwriting departments.

“There has been a move toward longer terms. In Canada, that’s certainly been the case. It’s allowed consumers to afford more expensive vehicles than maybe they would have as their payments are no longer an obstacle. So we’ve seen balances grow as a result,” Fabian said.

“It will be something that we’ll keep an eye on if it promotes more risk into the system,” he went on to say.

Regional analysis

While most parts of Canada have seen relatively low delinquency levels over the course of the last three years, TransUnion pointed out that two provinces proved to be outliers — Alberta and Saskatchewan.

Analysts explained the massive drop in oil prices between 2014 and 2016 negatively impacted consumer credit performance in Alberta and Saskatchewan, but these risks, too, may finally be subsiding.

“Economic conditions have been improving for a few quarters in these two oil provinces, but we had not seen similar improvements in consumer credit behavior,” Fabian said. “We’re beginning to see that now, as delinquency rates are finally beginning to drop on a yearly basis while debt level increases have slowed in these provinces.”

The report mentioned the average non-mortgage debt balance per consumer in Alberta and Saskatchewan grew below the national average, increasing 1.7 percent and 2.6 percent, respectively. Although the actual dollar balances are still above the national average, TransUnion observed that this growth trend has slowed.

Also reassuring, according to analysts, is that the 90-day delinquency rate dropped in both provinces (down 4 basis points in Alberta and down 24 basis in Saskatchewan).

Ontario saw the largest yearly increase in average consumer non-mortgage debt at 6.2 percent to $30,191.

“This growth appears to be driven by a couple of factors, including auto finance where Ontario consumers recorded the highest percentage increases in both volume and average size of auto loans. We also saw material increases in lines of credit and mortgages, likely due to increased home equity values, especially in the greater Toronto Area,” Fabian said.

Although Quebec consumers remain the least indebted, with average non-mortgage consumer debt at $22.543, TransUnion noted the province did see an increase of 3.1 percent year-over-year, marking the third consecutive quarter where balances grew.

TransUnion added serious delinquency rates in Quebec remain very low, and well below the national average at 4.3 percent (an annual drop 7 basis points).

What else analysts are watching

Fabian noted that this year’s increase in the Canadian minimum wage should enhance consumer confidence further. However, he and the TransUnion team are expected some slowdown in overall economic growth because 2017 was so robust.

“We’ve seen disposable income go up quite a bit year-over-year. The latest data suggests the median household income continues to increase from previous year. That’s partially fueling things,” Fabian said. “Plus, it’s just an overall economic expansion. If you look at the fundamentals, we have one of the lowest unemployment rates in many years. We see GDP in Canada continue to grow and expands.

“Of course, there are risks with possible changes to (the North American Free Trade Agreement) and other agreements and how those might affect overall consumer trends going forward. Those also might be regional depending on the negotiations with NAFTA go,” Fabian continued.

“I think in Q1 you will see growth but not at the rate it was 2017. It will be interesting to see how consumers adjust and if we start to see some deleveraging happen,” he went on to say.

More information about the Q4 2017 TransUnion Canada Industry Insights Report, including details about a variety of credit products, can be found here. You can visit this website to register for TransUnion's Q4 2017 Industry Insights Webinar scheduled for March 7 at 2 p.m. ET.

Axis Auto Finance sets new revenue record


On Wednesday, publicly-traded subprime automotive finance company Axis Auto Finance shared results from the second quarter of its 2018 fiscal year; a span that ended on Dec. 31 and included a new record.

The company highlighted its Q2 revenue shot up to a record $2.2 million, up 34 percent from $1.6 million a year earlier. Executives calculated Q2 revenue equated to an annualized revenue run-rate of $8.7 million, compared to actual 2017 fiscal year revenues of $6.8 million.

Thanks to the revenue jump, Axis Auto Finance reported net income for the quarter was $44,696, or $0.001 per share, a significant improvement from the net loss of $161,044 in Q2 of fiscal 2017.

Axis also shared several other metrics from its Q2 financial report, including:

— Lease receivables balance of $25.4 million at the end of the quarter compared to $20.6 million as of Dec. 31, 2016

— Average portfolio yield of 35 percent, unchanged year-over-year

— Annualized loss rate at 6.17 percent, down from 6.98 percent for the second quarter of fiscal 2017

— Adjusted earnings of $0.4 million for the quarter compared to $0.2 million for the second quarter of fiscal 2017

The company also pointed out its annualized loss rate well within the management expectation of a loss rate that can fluctuate between 5 percent and 10 percent.

Axis Auto Finance closed by noting he average portfolio remains consistent with the management objective to maintain the average yield on its lease receivables portfolio above 30 percent.