Even with the shaky economic circumstances due in part to a declining dollar and falling oil prices, Canadian consumers continue to show a “stable performance” on credit products.
According to TransUnion’s Q3 2015 MarketTrends report, delinquencies are on the way down, and auto loans continue to be a bright spot in terms of consumer debt levels.
According to the report, while total consumer debt was down slightly in Q3, auto loans experienced a 3 percent annual increase in balances, moving average debt per consumer on these loans up to $19,649 from $19,101 in Q3 of 2014.
“The auto sector continues to thrive, thanks in part to lower oil prices, so balance increases are expected in this industry,” said Jason Wang, TransUnion’s director of research and industry analysis in Canada. “Credit card debt has risen to a two-year high. With the holiday shopping season around the corner, we are going to keep a close eye on how Q4 spending affects debt levels on credit cards.
Credit cards also experienced a 3-percent annual increase in debt levels, though overall average debt level per consumer (excluding mortgages) moved from $21,379 in Q3 2014 down to $21,247 this past quarter.
As far as delinquency levels go for the third quarter, these numbers continue to “stabilize,” with auto loans’ performance illustrating this trend.
Auto loan delinquency rates, or the ratio of all accounts that are 90 or more days past due, remained steady from Q3 2014 at 1.06 percent for this past quarter. Transunion reported a slight increase of just 0.14 percent.
Overall, delinquency rates have hovered in the range of 2.58 percent to 2.66 percent, and in Q3, the reading came in at just 2.60 percent. This translates to a 5.5 percent improvement from the 2.75 percent delinquency rates of Q3 2014.
“Line of credit delinquency rates are now at the lowest levels we’ve seen since we began monitoring these statistics,” said Wang. “The recent interest rate cuts have helped consumers manage their payments, but we advise consumers to always remember to spend within their means, regardless of whether interest rates are low or high.”
Canada Drives — which aims to help Canadians get car loans regardless of previous credit history and match up dealers and consumers — has been growing at a rapid pace since its launch in 2010, and the company has high hopes for 2016, as well.
In fact, the company plans to double both its dealer partners and employees by the end of next year.
Cody Green, founder and co-CEO of Canada Drives, explained that much of this growth is due to the fact there is a growing demand for lenders to better identify people who should be eligible for financing, but aren’t being offered any options.
“Data will drive the growing availability of these programs in the coming years, and Canada Drives will ensure that every Canadian has easy access to them,” Green added.
Let’s take a look at what the new finance player has been up to over the past five years.
Canada Drives, headquartered in Vancouver, British Columbia, employs over 100 people. Over the past year, the company originated over $7.2 billion in auto loan applications for its dealer partners, which resulted in over $1.1 billion in funded auto loans.
Canada Drives works to alleviate one of the biggest pain-points in car shopping at dealerships: credit approval.
Most buyers finance their vehicles, and these days, most people browse through vehicle inventory online before trekking into the dealership.
But Cody Green, founder and co-CEO of Canada Drives, said customers previously didn’t have many options to check out financing offers.
“It quickly became apparent that there was a huge demand for Canadians to be able to get their financing options from the comfort of their home at the beginning of the car buying process,” Green said, a need which spurred the development of Canada Drives.
The company aims to “improve the entire customer lifecycle,” company management shared; from simplifying the auto loan application process to closing the sale, as well as maintaining ongoing relationships with its customers.
“We’ve simplified the process for getting a vehicle loan and consumers have responded extremely well, especially those who may be new to credit or have had credit issues in the past,” said Green. “By allowing consumers to easily apply for a vehicle and find out their financing options up front, from the comfort of their homes, we’ve been able to streamline the process for both the consumers and our dealer partners.”
When going through the loan application process, shoppers are asked to mention what type of truck or car they are looking for. Then, a member of the Canada Drives’ team will match that shopper with a dealer that can meet his or her financing and vehicle needs.
The company’s dealer partners, which now stand at 300, must pass extensive screening to become a certified dealer partner.
There are four core elements required to become a Canada Drives Certified Dealer Partner, Green shared, as follows.
- The dealership must be licenced and in good standing with their local governing body.
- The dealership must maintain excellent relationships with a full spectrum of lenders, ranging from major banks with extremely low interest rate options to non-prime lenders that have easier approval guidelines.
- The dealership must have highly trained staff dedicated to working with Canada Drives’ customers to maintain our high standards of customer service.
- The dealership must have a large enough inventory to offer maximum choice for consumers based on lenders’ approval guidelines. This allows customers to have access to cars, trucks, SUVs and minivans from both domestic and import manufacturers.
“These are in place to ensure the best experience for the customer, as well as to ensure that dealerships have the best chance of long-term success,” Green added.
The company’s partners range from large dealer groups with hundreds of staff in major urban centres, to single point independent dealers with only a few people located in extremely rural areas.
“We tailor our service to what the dealer requires,” Green said. “These services can include everything from training staff on industry best practices, helping dealerships leverage custom built technology like our SMS platform to providing call centre operations that set up customer appointments and collect all of the necessary documents to complete an approval.”
In 2016, Green shared the company is expanding its network of dealer partners from 300 to over 600 to allow for the increase in consumer demand as well as to better serve smaller markets.
The company also expects its staff to more than double in size to over 250 by the end of next year.
“As our service continues to grow in popularity, we need to ensure that Canada Drives has the right number of dealer partners in place to maintain our high standards of customer service,” Green said. “Based on feedback from customers we’re also looking to add more dealer partners in smaller markets rather than having these customers serviced out of the larger urban centers.”
Green said the company plans on becoming even more involved in supporting their dealer partners wherever possible. One of the ways Canada Drive aims to do this is by hosting a non-prime dealer conference in Canada at the company’s new headquarters in Vancouver.
The event will be “aimed at helping our most successful partners share strategies and allowing us to gain even more insight into areas we can create long term value,” Green said.
The conference is designed to provide a closed setting for industry leaders in the non-prime space to discuss strategies and highlight areas for improving financial results.
“Planning this conference is a direct result of receiving requests from our dealer partners,” said Green. “As the industry leaders in our market for both dealers and consumers, we are well positioned to organize this kind of event and our current plans are for this conference to take place in late fall 2016.”
Back in January, special financing company TREND Financial kicked off the year by signing an $81 million credit facility with Maxium Financial Services to keep up with growth — and now, the company is making way for every more expansion.
TREND announced Tuesday it has received an additional extension of a non-revolving credit facility for $45 million from their long-term senior lending partner.
“This puts us in an enviable and unique position, backed by one of the strongest senior lenders, which allows us to continue growing and maintaining the strong demand of our services,” said Brent Sawadsky, chief financial officer at TREND. “This extension is a testament to the incredible momentum TREND Financial is experiencing. We are also thankful to our many customers and partners for their continued trust in us.”
The extension brings the company’s total facility to $126 million, and company management shared the move would allow TREND to continue its “aggressive” pace of growth up to the second quarter of 2016 in an effort to meet its strategic and financial objectives.
“We at TREND Financial are humbled by the confidence of our Senior Lending Facility; we believe this extension contributes further excitement for 2016,” said Nahum Kaplan, chief executive officer of TREND Financial. “We continue to be the fastest growing company in our market category and we look forward to delivering on our mission.”
F&I product company Sym-Tech announced a partnership that will add significant insurance services and “financial backing” to the company.
Sym-Tech Dealer Services recently announced that AmTrust Financial Services Inc. — through its subsidiary AMT Warranty — has partnered with Sym-Tech through a minority investment in the company.
“We are very pleased that AMT Warranty chose to partner with Sym-Tech,” said Brad Wells, chief executive officer of Sym-Tech Dealer Services. “AMT Warranty’s automotive expertise as well as their underwriting, OEM, insurance and re-insurance knowledge and experience will allow for an expanded offering of F&I products and services for clients in Canada.”
Sym-Tech offers a full suite of F&I products, as well as F&I menu and propriety technology, and through the new partnership, Canadian dealers who use their services will be privy to even more options.
AMT Warranty provides F&I products to automobile, RV/trailer, marine and powersports retailers, manufacturers and financial institutions.
Through the new partnership, users will be privy to AMT Warranty’s products and services, as well.
The full suite of solutions includes:
- A complete line of F&I products and programs
- Training and in-dealership development
- Proprietary F&I technology
- Expertise in underwriting, actuary, insurance and re-insurance services
“AMT Warranty has experienced tremendous success in the United States and we look forward to extending our success to the Canadian marketplace through a long-term relationship with Sym-Tech,” said Sean Stapleton, president and CEO of AMT Warranty. “Sym-Tech has a solid reputation, one of the best F&I software platforms in the industry, extensive knowledge of the market and significant experience. Importantly, Sym-Tech’s vision, values and strengths are strongly aligned with AmTrust.”
New data from Equifax Canada’s Q2 National Consumer Credit Trends Report showed that demand for new credit is strongest in the auto sector, and is growing everywhere except Quebec.
The report also found that Canadians are still adding on debt, but at a slower rate seen in past quarters.
According to the report, total consumer debt is now at $1.568 trillion, driven primarily by the installment loan and auto loan sectors. In fact, debt in the auto loan sector increased by 3.9 percent year-over-year in Q2.
The average consumer debt is $21,164, which increased by 2.0 percent versus 2.7 percent in the previous quarter, the report stated.
“The overall trend we’ve seen with debt levels going up and delinquency rates coming down is still the case, but some of the sub-segments within the Canadian population are changing their behavior,” explained Regina Malina, senior director of decision insights at Equifax Canada. “We’re starting to see the impact of low oil prices in the West as these prices are forcing a new reality on Alberta and Saskatchewan in particular. In these two provinces the debt levels are stable, but the delinquency rate has started to increase.”
As oil prices continue to slide, Equifax Canada reported Canada is slipping into a “mild recession,” though the company also reported appetite for new credit is still on the rise, with the strongest activity observed in the auto, bank and national credit card sectors.
As far as delinquencies go, in mid-2015, it decreased to 1.09 percent after rising in Q1. And Equifax Canada reported auto loan delinquency rates continued to increase when compared to the previous quarter.
When compared to the same quarter last year, the national 90+ day delinquency rate decreased, as well, driving by improving rates in Ontario.
On the other hand, delinquency rates in Quebec and the Eastern region are on the rise.
And in the Western provinces, after delinquency declined over the past several year, the areas saw rates rise this past quarter.
This movement was driven, of course, by significant delinquency increases within the oil-heavy regions of Alberta and Saskatchewan.
A recent study from TransUnion asserted consumers and lenders should expect “sharp increases” in credit and loan product delinquencies in the near future, especially in the oil-heavy regions of Alberta and Saskatchewan.
“Based on an historical analysis of the last oil crash and recent payment behavior trends, we expect materially higher delinquency rates in Alberta and Saskatchewan in the second half of 2015,” said Jason Wang, co-author of the study and TransUnion’s director of research and industry analysis in Canada.
Taking a look at demographics, the delinquency rate for Canadians over 65 rose for the first time since 2010 by a rate of 2.4 percent in Q2, according to the Equifax Canada report.
“Delinquency rates for all other age groups are decreasing by different degrees, but for the first time in several years, we’ve seen this change in behavior from seniors,” said Malina. “In the light of the fact that debt carried by seniors has been increasing faster than for other age groups for a while, we will monitor this trend closely in the coming quarters.”
As for bankruptcies go, rates have consistently declined since 2009.
Equifax Canada reported Ontario continues to lead the pack in terms of the decline in bankruptcies.
The number of bankruptcies has decreased since 2009.
Ontario continues to lead in terms of the rate of decrease of bankruptcies.
That said, the report stated that average bankruptcy balances increased in Q2 year-over-year, driven primarily by the younger segments, as well as in the Western and Eastern regions.
Scotiabank and General Motors of Canada announced today they are teaming up to help Canadians earn their next vehicle.
The two companies have launched the new Scotiabank GM VISA cards, which acts as an expansion of a strategic partnership with a suite of credit cards designed to make it easier for drivers to visit a dealer and secure their choice of a Chevrolet, Buick, GMC or Cadillac.
"GM Canada is excited to bring the new Scotiabank GM Visa Card to Canadians and enable them to earn their way far more quickly to one of the most important purchases in their lives," said Stephen Carlisle, president and managing director of General Motors of Canada. "With the Scotiabank GM Visa in their pocket, our customers will be several steps closer to owning their next new Chevrolet, Buick, GMC or Cadillac — they could even earn enough points to cover their next vehicle purchase outright."
With the new card, customers can earn 5 percent in GM Earnings on the first $5,000 of net purchases annually, and 2 percent thereafter with no limits on earnings and no annual fee, the companies shared.
And with the next step up, the Scotiabank GM Visa Infinite Card, shoppers can earn 5 percent in GM Earnings on the first $10,000 of net purchases annually, and 2 percent thereafter with no limits on earnings for a low annual fee of $79.
The companies also said that GM Earnings have no redemption limits and don’t expire for cardholders.
This is how it works: One GM Earning dollar is equal to one dollar toward the purchase price or lease down payment of any eligible new Chevrolet, Buick, GMC or Cadillac.
And customers have the ability to redeem GM Earnings anytime, and can combine them with any in-market offers, as well.
"Scotiabank is proud to offer our customers some of the richest credit card rewards in the Canadian marketplace and today's launch continues to set us apart," said James O'Sullivan, group head of Canadian Banking at Scotiabank. "The new Scotiabank GM VISA Cards are another opportunity to provide our customers with unique reward offerings and get Canadians even closer to the purchase of their first car, family car or dream car."
Safe-Guard Canada announced it is expanding its offerings with a new office outside Toronto, which opened its doors Monday.
The company relocated to a new office in Mississauga, Ontario in an effort to better service clients such as Honda Financial Services, Mercedes-Benz Financial Services, Nissan Canada Extended Services Inc., Porsche Financial Services and North American Automotive Group as well as their dealers across Canada.
Safe-Guard, which has been serving Canadian customers since 2001, said the expansion at the new facility is connected to continued growth in the country’s automotive industry as well as an increased focus from dealers on F&I products.
The company explained the new facilities in Mississauga “provide the necessary space and technology for Safe-Guard Canada's growing call center and customer service team.”
It also allows for the company to grow its training capacity as it aims to further support Canadian clients and dealers with training initiatives through learning curriculum such as Safe-Guard University and Nissan Academy.
The new office includes training facilities and technologies to host corporate, regional and dealer personnel, and also offers technologies that allow one-on-one finance manager coaching.
"We're very excited about the opening of our new Mississauga office," said Randy Barkowitz, chief executive officer of Safe-Guard.
"As our industry grows, we want to be able to coach our clients and their dealers on the latest F&I product knowledge, sales best practices, and compliance standards. Our new and expanded office in Mississauga will allow us to offer on-site solutions to our Canadian partners to help them grow their businesses and create long-term customers. And having a new and expanded facility in Mississauga will better position Safe-Guard Canada to support and grow our clients' business,” he continued.
As the prices for oil continue to drop dramatically, this larger economic trend may begin to affect lenders in the auto space and beyond.
A recent study from TransUnion asserted consumers and lenders should expect “sharp increases” in credit and loan product delinquencies in the near future, especially in the oil-heavy regions of Alberta and Saskatchewan.
“Based on an historical analysis of the last oil crash and recent payment behavior trends, we expect materially higher delinquency rates in Alberta and Saskatchewan in the second half of 2015,” said Jason Wang, co-author of the study and TransUnion’s director of research and industry analysis in Canada.
“If lenders do not take proactive measures to address the impact of the decline in oil prices, we could potentially see double-digit delinquency rate increases in Saskatchewan, and as much as a 60 percent rise in areas of Alberta," Wang continued.
TransUnion shared that in “both speed and severity” the oil price drops seen in 2014 and this year look a lot like the oil slump of 2008. According to the study, WTI Crude Oil traded at U.S. $91.17 per barrel at the beginning of Q4 2014, but closed down more than 41 percent at U.S. $53.45 by the end of 2014.
The drop continued into 2015, and on July 13 oil per barrel had dropped to U.S. $52.19. For comparison, oil barrels were going for U.S. $145.16 in July of 2008 and fell to U.S. $30.28 just five months later.
This year’s trend could spell bad news for the lending industry, as back in 2008, overall delinquency rates in Alberta jumped almost 60 percent in the four quarters following the dramatic price drop in oil.
“What’s particularly important to understand is that balances are much greater today than they were in the 2008 and 2009 period. Thus any delinquent accounts will place a greater burden on the economy,” said Wang.
And as these oil-heavy areas, with a large workforce in the lagging crude oil industry, suffer, TransUnion warns lenders they should be taking precautionary steps.
The study explained that one of the traditional measurements of consumer credit health normally includes the incident rate of being 90 days or more past due, or in some cases, being totally written off the books as a loss.
“These measurements are trailing indicators with a material lag before one can see any change in effect. Relying on these metrics alone can result in lenders losing precious time to take action in managing the risks in their loan portfolios,” said Wang. “However, payment patterns have proven to be a strong leading predictor of subsequent delinquencies, and we have observed deteriorating trends in Albertans’ payment patterns.”
In other words, auto lenders and dealers should be paying close attention to their accounts and may need to take precautionary measures before the oil economy pushes many of these consumers into the red.
What’s the first sigh of potential cash flow problems for consumers in these provinces? TransUnion says it normally shows up first in reduced credit card payments — a sign of impending financial distress.
When the fraction paid on the minimum card payment continuously drops, TransUnion said this trend is an effective indicator of future non-repayment risk, including vehicle loans and other lines of credit.
For the study, TransUnion zeroed in on payment patterns in the Alberta oil town of Fort McMurray, and discovered that the number of residents there who pay no more than twice the minimum amount due on their credit card balances had increased by 10 percent from last summer.
Interestingly, these trends were not observed for the rest of the country, showing the importance of oil prices for the towns that rely heavily on that market.
“In short, this is a first sign of emerging liquidity constraints. As a result of the slump in the oil industry, many consumers in Alberta may be facing challenges meeting their monthly payment obligations,” said Wang.
TransUnion said in Alberta the issue comes down to the area’s heavy dependence on oil and the large number of lending accounts held by residents there put added pressure on the province when there are major moves in oil prices.
Take this statistic, for example. In Alberta, the weight of oil industry in provincial gross domestic profit is 26 percent — the greatest in the country, just above Saskatchewan at 16 percent. For comparison, that number is just 2 percent in Manitoba.
Alberta also ranks fourth in terms of the percentage of lending accounts in the province (12 percent), behind Ontario, Quebec and British Columbia.
As a result, Alberta and Saskatchewan are being impacted the most by lowering oil prices.
As for how oil price impacts delinquencies specifically, take a look at these steps.
- Oil price drops tend to cause lower oil sector investment.
- Then, the lower investment can lead to higher unemployment rates and tightens disposable income.
- Consequently, consumers have lower ability to service debt, resulting in higher loan delinquency rates.
“Insolvencies, primarily personal bankruptcies, are an extreme form of inability to maintain debt. Insolvencies in Alberta and Saskatchewan have material negative correlations with oil price,” the study reports. “The lower the oil price, the higher the insolvencies (primarily personal bankruptcies). This is not the case in any other Canadian province.”
So, the study may paint a bleak outlook for these oil-reliant provinces, but Transunion did offer a few solutions to the potential crisis.
The study indicates that the close relationship between oil prices and investment in the oil industry will likely impact Alberta for at least a few more years.
That said, Wang explained, “We believe there is a potential credit crisis in the offing in the oil regions of Canada — but that crisis is not inevitable. We hope that by examining such leading indicators of delinquency as payment ratio on a credit card, lenders will be well equipped to identify and anticipate which consumers may run into financial problems, and when.
“More importantly, these tools allow lenders to work closely with consumers to help avoid or mitigate some of the problems they may be facing during the difficult times immediately following the oil price decline,” Wang concluded.
It was announced last week that Reynolds and Reynolds is partnering with the Nova Scotia Automobile Dealers Association (NSADA) to develop new F&I forms in an effort to help dealers simplify and smooth F&I transactions.
As part of the partnership, Reynolds Document Services has worked up three new F&I documents, including a vehicle purchase agreement, a trade-in vehicle information statement and a used-vehicle disclosure statement.
The company and NSADA explained the new documents were designed in an effort to help new car and truck dealers in Nova Scotia more effectively handle F&I transactions.
To get insight into just how these new forms will help dealer F&I efficiency, Auto Remarketing Canada reached out to Reynolds and Reynolds to get the details.
But first, a bit about how the partnership came about.
NSADA took the initiative to create standardized F&I forms and reached out to Reynolds Document Services based on the company’s long-standing working relationship with the association, Reynolds director of corporate communications Tom Schwartz told Auto Remarketing Canada.
Reynolds Document Services, which has been in the Canadian market since the early 1960s, is also well-known for its work with F&I documents, particularly privacy language and statements around disclosure.
One of the company’s core strengths, Schwartz said, is in developing forms that help dealers improve and standardize their processes — primarily in F&I and Service.
“This was very much a partnership in creating the forms and launching this project,” said Schwartz. “The three new forms are created to work in tandem.”
This move is really all about standardization. In the past, dealers may have been using best practices individually in F&I, Schwartz pointed out, but each store likely would have been using different forms or processes.
These discrepancies lead to consumers having slightly different F&I experiences depending upon which dealership they visited.
“The NSADA initiative helps standardize the process for all dealers across Nova Scotia and takes a proactive role on including disclosure language,” said Schwartz.
Reynolds management also explained that standardized forms will help F&I managers, serving to provide a consistent, repeatable process to improve efficiency, as well as helping deliver a more consistent and predictable F&I experience for shoppers.
“The F&I standardization can help make the process smoother at the dealership. The F&I manager isn’t searching for forms or having to re-create a process from scratch each time,” Schwartz said.
And extra disclosures don’t just help protect consumers; they work as joint protection for dealers, as well.
In the new Used Vehicle Disclosure Statement, dealers will be asked to confirm items such as whether the vehicle was used as a fleet vehicle or rental; it’s repair history; or if it’s been imported from the U.S.; and so on, increasing transparency and protecting the store should a problem arise down the road with that vehicle and owner.
“Disclosure statements help protect the dealer’s business so that employees have followed the correct processes and disclosed what they are expected to disclose,” Schwartz said.
The Trade-in Vehicle Information Sheet includes information from the consumer such as whether there is an outstanding lien on the trade-in vehicle; whether the vehicle has ever sustained flood damage; a list of repairs and defects in equipment or accessories; and so on, the company shared.
Lastly, the new Vehicle Purchase Agreement includes additional signature blocks to confirm that the privacy notice has been received and read, again helping to protect both dealer and buyer.
“Overall, the NSADA initiative with standardized forms helps create a consistent F&I process and experience across dealerships,” Schwartz said. “This can lead to more efficiency in the F&I office, more transparency in the experience for the buyer and seller, and a more consistent expectation and experience for consumers.”
F&I forms: the biggest pain-point for many auto shoppers — as well as many dealership employees.
Reynolds and Reynolds is partnering with the Nova Scotia Automobile Dealers Association (NSADA) to develop new F&I forms in an effort to help dealers simplify and smooth F&I transactions.
As part of the partnership, Reynolds Document Services has worked up three new F&I documents, including a vehicle purchase agreement, a trade-in vehicle information statement and a used-vehicle disclosure statement.
The company and NSADA explained the new documents were designed in an effort to help new car and truck dealers in Nova Scotia more effectively handle F&I transactions as well as improve and protect their business operations.
"We're pleased to partner with the Nova Scotia Automobile Dealers Association to develop new F&I forms for dealers in the province," said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services.
"It's one of our core strengths to develop business documents that help dealers improve their processes, better protect their interests, and deliver a smoother, more pleasing car-buying experience to their customers," Kirwan continued.
John Sutherland, executive vice president of the NSADA, said, "Dealers in Nova Scotia continue to make significant investments in their businesses. Those investments have a sizeable impact on the economy of our province and in Canada. We're pleased to work with Reynolds to offer these new documents to help dealers improve their F&I processes and protect their business investments."
Editors Note: Stay tuned to Auto Remarketing Canada for more information on these new documents and what it means for Novia Scotia dealers.
