According to the latest TransUnion Canada Industry Insights Report, auto financing continues to be one of the fastest growing segments in the Canadian consumer credit marketplace.
During the first quarter of this year, average outstanding balances rose 2.75 percent year-over-year. At the same time, analysts noticed that serious delinquency rates — what they consider to be accounts 60 days or more past due — remained essentially flat. In Q1 2017, the rate stood at 1.70 percent compared 1.67 percent in the same period a year earlier.
“Despite an extended period of growth, auto loans continue to perform extremely well. More prime and above consumers are originating auto accounts and at higher amounts, while delinquency rates remain at historically low levels,” said Matt Fabian, director of research and consulting for TransUnion Canada.
On a yearly basis, TransUnion determined originations grew by just over 6 percent in the last quarter of 2016. The credit bureau reiterated that originations are viewed one quarter in arrears to account for reporting lag.
As originations increased, the percentage of lower-risk consumers originating auto financing expanded over the past year, according to TransUnion’s report.
In Q4 2015, TransUnion indicated non-prime consumers — the combination of subprime and near-prime individuals —accounted for 37 percent of originations. In Q4 2016, analysts noted the share of non-prime originations decreased slightly to 35 percent.
Meanwhile, analysts said originations in the prime plus and super prime tiers grew at 10.4 percent and 12.2 percent, respectively, over that time period.
Looking deeper into the data, TransUnion also mentioned the average amount financed for newly originated auto finance contracts increased by 3.2 percent in Q4 2016. Analysts added that all risk tiers saw yearly increases in average new account balances, with the highest percentage growth observed in super prime (4.9 percent) and prime (4.8 percent) consumer risk tiers.
Fabian pointed out this development reverses a trend observed the prior year; in 2015 TransUnion observed the greatest growth in average amount financed among subprime and near prime consumers.
“Auto delinquency rates remain at nicely controlled levels. The fact that delinquencies have not materially increased over the past year despite the higher growth by below-prime consumers seen in 2015 is especially encouraging—consumers across the risk spectrum are taking care of their auto loans,” Fabian said.
More information about the Q1 2017 TransUnion Canada Industry Insights Report can be found here. Among the details are more information about auto, installment and lines of credit balance, and delinquency rates.
Overall credit performance
Beyond just auto financing, TransUnion indicated consumers in major Canadian markets outside of oil-rich provinces led the nation’s strong credit performance in the first quarter of 2017.
Canada’s average consumer non-mortgage debt levels rose nearly 2 percent in the past year to conclude Q1 2017 at $21,696. Conversely, the 90-plus day non-mortgage account delinquency rate dropped to 2.72 percent, down nearly 1.5 percent from one year prior.
Much of the annual delinquency declines were observed around major cities in Ontario and Quebec, including Toronto (down 7.55 percent), Montreal (down 2.51 percent) and Ottawa (down 2.37 percent).
“The consumer credit market in Canada is expanding, and is doing so in a healthy manner,” Fabian said. “More consumers are gaining access to credit, and credit limits have been increasing at a strong rate during the last two years.
“At the same time, serious delinquency rates have remained relatively low. It’s especially encouraging to see some major Canadian markets lead the way in delinquency declines and credit growth, as it bodes well for Canada’s overall economic activity,” he went on to say.
Editor's note: Watch for an upcoming report in Auto Remarketing Canada that will include more analysis and commentary from TransUnion Canada.
Canadian auto lenders who don’t want to miss out on a dealer’s business are wise to, well, helping to make sure that the dealer doesn’t miss out on business because of the inability to get the shopper financed.
While that may sound simple, the J.D. Power 2017 Canadian Financing Satisfaction Study finds that the happiest dealers (in terms of their lending partners) are the ones who have a primary buyer or buying team assigned to them from the lender, and perhaps helping to curb such missed opportunities.
In fact, when the lender has a primary/team structure, the dealer intent to send more business to that provider goes up 10 percent for captives and 24 percent for non-captives, J.D. Power said.
“In the current marketplace, the difference between closing a deal and losing a customer to the dealership down the street will frequently be determined by the finance department’s ability to secure the right loan at the right price,” Jim Houston, senior director of automotive finance at J.D. Power, said in a news release.
“The more adept these financial professionals are at helping dealers address specific challenges along the way, the more business they will ultimately do with that dealer,” he said.
The study has been going on for 19 years, and this year, J.D. Power restructured it to evaluate captive and non-captive lenders separately.
Captives are defined as those that are “wholly owned by a manufacturer or is directly affiliated with a manufacturer,” and they are evaluated for dealer satisfaction in application/approval process, relationship, provider offerings and lease return.
Non-captives, which are defined as “an independent lending institution,” are evaluated in just the first three categories.
One difference spotted between the two deals with what drives dealer satisfaction with each lender type.
For captives, it’s the relationship the dealer has with the credit desk. For the non-captives, it’s the relationship with the sales representative.
Interestingly enough, if a dealer has an issue, they tend to reach out to the credit desk regardless of whether they’re working with a captive or non-captive, the study found.
And whether you’re a captive or non-captive, dealers don’t want a visit at the end of the month, according to the study. Or a Monday.
Make the visit in the beginning or middle of the month, in the morning and brief (30 minutes maximum), based on the study’s findings.
So which lenders have the best scores for dealer satisfaction? Here’s how the top four shakes out:
Captives
BMW Financial Services: 972 (out of 1,000)
Mercedes-Benz Financial Services: 930
Ford Credit Canada: 899
Honda Financial Services: 877
The average was 868 for captives.
Non-captives
Bank of Montreal: 897
Scotia Dealer Advantage: 896
TD Auto Finance: 875
Scotiabank: 868
The average was 866 for non-captives.
The only president RouteOne Canada has ever had is heading for retirement.
The company made a thank-you announcement on Tuesday, praising Barry McMillan for his 14 years of service as he is going to retire at the end of February. McMillan has led RouteOne Canada as its president since 2003 when the company was formed.
The company highlighted McMillan has had a profound impact on building and establishing RouteOne's presence in the Canadian marketplace. Leadership said his expertise in the industry and his strong relationships with customers will be missed; as will his guidance of the Canadian team.
Under his tenure, RouteOne Canada grew its network to include nearly all national and regional finance sources, numerous dealer service provider integration partners, and 1,000s of dealers that rely on RouteOne every day.
In addition, under McMillan’s watch, RouteOne's digital retail services used by dealers and OEMs grew to become an increasingly important area of business and meeting the evolving customer needs.
"I would like to personally thank Barry for his leadership, loyalty, and service to RouteOne over the years,” RouteOne Canada chief executive officer Justin Oesterle said. “I know that he is looking forward to his next chapter with pleasure and anticipation.
“He will be missed by his team, colleagues, and customers alike,” Oesterle added.
As part of the transition, RouteOne Canada said Anthony Goulbourne has been promoted to senior vice president, reporting directly to Oesterle. As a long-time employee of RouteOne and industry veteran himself, Goulbourne will assume day-to-day responsibilities of the organization, supported by his staff and the executive management team of RouteOne.
TREND Financial says its mission is to change the way consumers obtain vehicle financing. With release of version 3.0 of the TREND Lending Platform, the finance company consumers will now be able to receive an instant customizable approval for their auto financing needs.
Starting now, consumers can access the TREND Lending Platform through TREND’s dealer partners. Consumers will be able to immediately obtain a financing offer and be able to customize that offer based on vehicle chosen, term of the contract and payment amount.
TREND Financial explained the process is instantaneous and will allow the consumer to shop with confidence for the vehicle of their choice.
TREND chief operating officer Eric Kaplan noted that the company recognizes that consumers need to be empowered when they shop for a vehicle. Kaplan pointed out version 3.0 of the TREND Lending Platform can offer consumers looking for a vehicle with approvals that are convenient and transparent.
“Version 3.0 of the TREND Lending Platform utilizes a proprietary advanced data-driven process developed by TREND to assess credit based on a wider set of data sources — creating a personalized profile of a customer and customizing a consumer's auto finance approval,” Kaplan said.
“This technology developed by TREND Financial enables consumers to borrow based on non-traditional lending algorithms,” he continued.
The platform will also be available on Android devices in the near future, enabling consumers to apply for financing directly on their smartphones.
TREND Financial went on to mention that obtaining an instant custom approval for auto financing can provide consumers with:
• Budgets that they can afford.
• Customizable monthly payments
• The ability to shop like a cash buyer
“Most dealerships have consumers obtain financing as the last step in the auto purchasing process and many consumers settle for what the dealer offers,” said the company, which has originated more than $125 million in contracts to date. “With an instant custom approval from TREND's Dealer network, the dynamic changes, putting the consumer in the driver's seat.”
Volvo Car Canada now has its own captive finance company.
On Wednesday, the automaker officially launched Volvo Car Financial Services (VCFS), which the company indicated will handle day-to-day management of the financial services business including leasing and financing.
“Volvo Car Financial Services is an integral part in growing the Volvo Car business in Canada,” said David Carroll, VCFS’ national sales manager for Canada. “We are here to support our retailer sales and increase customer satisfaction.”
With this launch, the OEM highlighted VCFS will offer an immediate expanded product offering with additional enhancements coming in the first half of 2017.
In addition, VCFS will have a local field team of dealer representatives throughout Canada.
The company added Volvo Car Financial Services has been a significant part of the U.S. business since 2012 and expects to provide the same level of support and service in Canada.
As part of Auto Remarketing Canada's annual Power 200 this fall, we reached out to some of the top executives in the Canadian used-car business for an inside look at their businesses and their insight into the remarketing industry.
Next up in this series is a September Q&A with Tim McGee, manager of vehicle remarketing with Element Financial Corp.
Auto Remarketing Canada: What are the top challenges for consignors in the Canadian remarketing space in 2016?
Tim McGee: With increasing volumes of used vehicles coming back to auction, consignors will be tasked with ensuring that vehicles are in top condition. Element works with clients to ensure vehicles are as close to retail-ready when returned for resale. Often referred to as ‘front-line ready,’ these vehicles require minimal reconditioning effort from the purchasing dealer and garner the most attention and sale dollars at auctions. Clients with definitive preventive maintenance, accident, safety and driver policy and procedures reap higher returns than those clients without fixed policies.
ARC: How do you maximize technology in the wholesale marketplace in Canada?
TM: Element utilizes ADESA’s auction locations and their technology platform to remarket our vehicles across Canada. ADESA provides buyers with more visibility to our fleet vehicles and allows for large-scale sales, as well as providing the buyer base with advance notice of all vehicles up for auction. This helps ensure that the right dealers are present and the right mix is available when our clients’ vehicles are being auctioned. This unique sales approach gives our clients’ vehicles maximum exposure in front of a targeted yet expansive buyer audience across Canada and the United States.
ARC: How as a consignor do you balance inlane versus online wholesale sales?
TM: At ADESA’s auctions across Canada, Element receives one of the largest attendance of all fleet management companies, and is well respected in terms of our professionalism, quality product and service. This all translates into better returns when our clients’ vehicles go to the in-lane auction and simulcast online during sale day. If a vehicle does not sell in-lane it is put up online until our required sale amount is received or until the next in-lane auction date.
ARC: How are wholesale volumes trending for you this year? What segments appear to be the strongest?
TM: The fallout from the 2009 global financial crisis resulted in years of lower new vehicle sales and consequently low supply, high demand and prices for used vehicles with lease returns bottoming out in 2013. As new-vehicle sales reach historic highs (with each of the past three years setting records in Canada), combined with the growth in leasing, the supply/ demand ratio is beginning to favor supply and increase depreciation rates in 2016. Although supply of used vehicles is rising, values have remained firm for mid to full size SUVs and pickup trucks due to a strong US dollar.
TREND Financial has released an updated version of its VIP Dealer Portal, giving dealers the ability to receive immediate loan financing pre-approvals.
Customers can then apply their instant credit pre-approval toward inventory at TREND VIP Dealers.
The decision to release immediate financing pre-approvals to VIP dealer customers comes after pilot testing of version 1.0 of the VIP Dealer financing portal released earlier this year, in response to dealers’ desire to have real and quick customer pre-approvals to expedite sales and to enhance the customer experience.
“Release 2.0 of the VIP Dealer Portal is part of TREND’s technology road-map designed to reinvent the traditional used vehicle financing and sales business model,” said Eric Kaplan, TREND’s chief operating officer.
“TREND Financial’s technology team has the mandate to provide TREND VIP Dealers with proprietary technological platforms that will accelerate the lending process, enhance the customer experience and increase sales leads. Already TREND's automated financing algorithm has reshaped credit adjudication in the speed and quality of pre-approvals, with much more potential to come.”
With the eventual goal of allowing for a complete digital finance application process, TREND Financial through its technology team continues to innovate when it comes to how dealers sell and customers purchase their vehicles.
“Digital technology continues to be a way of the future when it comes to the financing and purchase of a vehicle,” chief financial officer Brent Sawadsky said. "Digital technology will play a key factor when it comes to funding of deals and providing a transparent financing transaction for vehicle purchasers and partner VIP Dealers.
“The release of an immediate pre-approval to our VIP Dealers through our digital dealer portal will result in a highly efficient process when it comes to the financing aspect of purchasing vehicles.”
TREND Financial was included in Auto Remarketing Canada’s Power 200 rankings for 2016.
A new study by TransUnion found that the large majority of Canadians would not be materially impacted in the near term by an interest rate increase.
However, more than 700,000 consumers could struggle with their finances — which might include staying current on their vehicle installment contract — even with a quarter-point hike, and up to 1 million borrowers may not be able to absorb the increase in their monthly payments if interest rates rise by 1 percent.
“Despite rising debt loads for Canadians, our study found that the far majority of consumers will be able to manage an interest rate hike of up to 1 percent,” said Wang.
“Our assessment, though, identified a subset of the population of nearly 1 million borrowers who may face financial challenges when rates rise.”
Interest rates in Canada have remained low for several years, and the Bank of Canada Target Overnight Interest Rate stands at 0.5 percent. This is the benchmark interest rate set by the Bank of Canada at which major financial institutions lend overnight funds among themselves; changes in this target rate influence other interest rates, including the Prime business rate, currently standing at 2.7 percent.
Most finance companies price loans based on the Prime rate plus some margin.
TransUnion recounted that the Target Overnight Interest Rate peaked near the end of 2007 at 4.5 percent. Since then, it declined to a low of 0.25 percent (where it remained for much of 2009) and now stands just above that level at 0.5 percent. It is expected that this and other interest rates will rise in the future, though the timing and magnitude of any rate increases remain uncertain.
TransUnion’s study determined that there are more than 26 million credit-active Canadian consumers, and on average, they carry 3.7 credit products each. The study focused on two major types of debt that carry variable interest rates that typically adjust when benchmark interest rates change: lines of credit and variable-rate mortgages.
Approximately 7 million Canadian consumers carry at least one of these two variable interest rate debt types. These loan types are most impacted by interest rate changes and can create a payment shock —the increase in borrowers’ monthly payment obligations that they cannot control.
Rate hike will impact several hundred thousand consumers
While the far majority of Canadians will not be negatively impacted in the near term by an interest rate increase, TransUnion emphasized there is a material subset of the population that may find it difficult to absorb an increase.
The study found that a ¼-point interest rate increase may seriously impact 15 percent of the population that currently has a variable-rate mortgage, a line of credit, or both. These consumers would see a $50 or more increase in their monthly payments. A ½-point interest hike and a 1-point increase would cause 30 percent and 40 percent, respectively, of the above-mentioned population to have a monthly payment shock of $50 or more.
“The size of the monthly payment shock is only one side of the equation,” said Wang. “For some, a $50 increase in their obligations may simply be managed by forsaking a couple of restaurant dinners and eating at home, while for some others, this may mean they would not be able to fill their gas tanks to get to work.
“So we need the other side of the equation: comparing the payment shock with consumers’ available cash flow,” he continued.
Trended credit data now available on TransUnion’s CreditVision consumer credit report can provide an accurate assessment of consumers’ available cash flow and capacity to absorb increased payment amounts based on historical payment amounts.
These insights revealed that, with a ¼-point interest rate increase, 718,000 consumers might not be able to absorb the ensuing payment shock. An additional 253,000 consumers might not be able to absorb the shock if the rate were to rise by a full percentage point.
Among these at-risk consumers, more than 650,000 currently have credit scores that put them into prime or better risk segments — segments that are generally considered to be low risk.
“This is especially compelling news for lenders, as hundreds of thousands of borrowers traditionally believed to be low-risk consumers may suddenly become risky,” Wang said. “While lenders expect subprime consumers to be risky, this sudden change in prime or better segments may come as an unpleasant surprise.
“Based on this study, we recommend lenders evaluate their own portfolios in a similar manner to determine who might be vulnerable to a payment shock among their customers, and work with those customers to ensure their accounts remain in good standing,” he continued.
“This is a key point of the study — to understand and measure the size and magnitude of the potential impact — so that both consumers and lenders can be better prepared,” Wang went on to say.
Porsche Financial Services Canada (PFSC) appointed David Williams as president and chief executive officer on Friday in a move the company sees as strengthening the local representation of Porsche’s captive financial organization in the Canadian market.
Williams, a native of Toronto, joined PFSC in 2014 as the director of sales and operations. During his time with the company, the captive highlighted he has been instrumental in leading the growth strategy for PFSC including improving relationships with Porsche Centers nationally, increasing PFSC lease and finance penetration, and contributing to the enhancement of the Porsche Centers PFSC satisfaction scores.
“Announcing David as president and CEO of Porsche Financial Services Canada was a logical decision as he has proven to be a leader with the PFSC results garnered in a short period of time,” said Alexander Pollich, president and CEO of Porsche Cars Canada.
“As we continue to expand our business within Canada we are confident David, along with his team, will continue to elevate PFSC to new levels.”
Williams began his career at Ford Motor Credit and brings more than 20 years’ experience in the automotive industry including leadership roles in both the captive finance and OEM areas of the business.
Prior to joining PFSC, Williams was part of the senior management team at Nissan Canada Finance/Infiniti Financial Services Canada. He holds a bachelor of arts degree with a major in economics from Bishop’s University.
“I’m honored to be able to lead Porsche Financial Services Canada in an expanded capacity and excited for what the future has in store,” Williams said. “We have made impressive strides over the last two years and will continue to build on the momentum.”
Established in 2003, Porsche Financial Services Canada supports and manages the lease and finance portfolio of the brand in Canada. It employs a team of six people and services 17 Porsche Centers nationwide.
Axis Auto Finance, a non-prime finance company servicing the Canadian used-vehicle market, announced Wednesday that Richard Lloyd has been appointed as the company’s chief financial officer.
The company highlighted Lloyd’s appointment follows an extensive, months-long selection process with the assistance of an executive recruiting agency.
Lloyd is a chartered professional accountant (CPA) with more than 20 years of finance and operations experience. He spent seven years as director of operations and finance at Travelers Leasing Corp., which was acquired by Bank of Nova Scotia in 2007 and re-branded as Scotia Dealer Advantage.
At Travelers and later at Scotia Dealer Advantage, Lloyd led the development and build-out of the operations team that grew the business from a midsize regional finance company to one of the largest near-prime finance companies in Canada. As part of the Travelers leadership team, Lloyd played an integral part in expanding the business to a nationwide footprint and completing several acquisitions.
"We are very pleased to have Mr. Lloyd join Axis as CFO,” Axis chief executive officer Ilja Troitschanski said. “His skillset and experience should only strengthen Axis' continued growth and allow us to increase efficiency and scalability across all business disciplines.
“We believe that Mr. Lloyd can make a meaningful contribution to the success of Axis and I look forward to working with him in the future,” Troitschanski continued.
Concurrently with his appointment as CFO, the Axis board of directors granted Lloyd, five other employees as well as two board members a total of 750,000 stock options at an exercise price of $0.70 per share. The company explained the options vest in equal installments over 24 months and expire seven years from the grant date.
