Latest Equifax data reflects depth of subprime volume slowdown


Updated information from Equifax showed the auto finance industry is continuing to back off originations versus the brisk pace still in place a year ago.

According to data shared this week with SubPrime Auto Finance News, Equifax reported that there have been 1.841 million retail installment contracts originated through April to consumers with a VantageScore 3.0 credit score below 620. These contracts are generally considered subprime accounts.

Analysts computed this origination volume represents a 4.5-percent decrease versus the span through April of last year. Equifax tabulated these newly issued contracts have a corresponding total balance of $32.9 billion, marking a 3.5 percent decrease year-over-year.

Through April, Equifax found that 23.1 percent of all installment contracts were issued to consumers with a subprime credit score, and they accounted for 18.3 percent of origination balances. At this juncture in 2017, the credit bureau pegged the account share at 24.3 percent and balance share at 19.5 percent.

Overall, Equifax reported that 7.96 million installment contracts, totaling $179.7 billion, were originated through April. The metrics marked 0.3-percent increase in accounts and a 2.7-percent increase in balances over this time last year.

Equifax added that installment contracts represent 85.8 percent of all auto originations and 89.4 percent of auto origination balances through the first four months of 2018.

Analysts went on to say that the average originated amount for all installment issued in April was $22,917, representing a 3.6-percent increase year-over-year. The average subprime amount was $18,411, marking a 2.3-percent increase compared to a year earlier.

Leasing figures

While not as prevalent as it is in the prime space, Equifax carved out figures connected with vehicle leasing to subprime consumers.

Analysts reported that 124,300 vehicle leases had been originated through April to consumers with a VantageScore 3.0 credit score below 620. That volume constituted a 2.1-percent decrease year-over-year.

Equifax tabulated that these newly issued leases have a corresponding total balance of $2.14 billion, a 2.3 percent decrease year-over-year.

Through April, analysts added 9.5 percent of vehicle leases were issued to consumers with a subprime credit score. During the same span in 2017, the share was 9.8 percent.

Looking at overall leasing activity, Equifax determined that more than 1.31 million vehicles leases, totaling $21.34 billion, were originated through April. These figures marked a 1.3-percent increase in accounts, but a 1.0-percent dip in balances versus the same junction a year earlier.

Analysts indicated vehicle leases accounted for 14.2 percent of all auto accounts originated through April and 10.6 percent of balances.

Equifax added that the average origination balance for all vehicle leases issued in April was $16,329; a figure that softened 3.04 percent year-over-year. The average subprime lease amount came in at $17,333; a dip of 1.19 percent from a year ago.

Analysts noted that lease origination values reflect the contract amounts only and exclude expected vehicle residual values.

Overall observations

Equifax deputy chief economist Gunnar Blix reviewed the latest figures and offered these observations.

“Consumer Credit Trends show that originations through April of this year, as reported through June, both in terms of accounts (up 0.5 percent) and balances (up 2.3 percent) are up over the same time last year,” Blix said.

“Our data indicate that a bump in lease activity as well as a continued shift toward affordable used cars may be driving the trend, and these increases are primarily being driven by customers with prime credit,” he continued.

“Auto outstanding balances in June, up 3.6 percent from the previous year, topped one and a quarter trillion,” Blix went on to say.

Analyzing why private equity wants back in non-prime market


The market fundamentals in non-prime are signaling positive. A strong economy and low unemployment are contributing to stabilization in consumer credit scores. Auto defaults are at the lowest point with one full quarter of improvements under the belt.

There continue to be new auto bond issuances, and the spreads on these lowest-rated of these securities are tightening. Competition in the secondary market for non-prime portfolios is high, thanks to the portfolio quality of the underlying assets holding up.

By many measures beyond just these, the non-prime market is showing signs of a change in trend from bear to bull. Whereas private equity (PE) interest was ice cold, things are starting to thaw. Now PE wants back in. But, why now, and why do they want back in?

Let’s take a walk down memory lane

Competition for deals amongst private equity firms for unsecured lending opportunities for the past few years has grown more and more intense. In the prior market cycle just following the Great Recession, Private Equity had excess un-deployed capital that was intended for residential real estate. They pivoted their focus to high-yield, non-prime auto loans.

But, private equity returns in non-prime auto weren’t there. And, the exit wasn’t there either. So, they took their lumps and pivoted again, this time to unsecured assets like financing elective surgery and jewelry purchases. They also pivoted their focus to fintech, placing bets on disruption, and that big banks will adopt this tech. To private equity, fintech offers an exit path more like that of the subprime bureaus, where each major bureau has acquired at least one of these “big data / alternative bureau” providers.

The private equity bets on unsecured, and fintech have been good ones. So, why do they want back in on auto?

This time it will be different 

The disruptive nature of fintech is the reason is why. Fintech is completely restructuring how consumers and auto finance companies engage. Fintech has commoditized the application process, the process to evaluate risk, and how customers are serviced. Whereas in the prior market cycle, PE would take equity position in a “soup to nuts” non-prime operations, now they are focusing more on the assets and balance sheet financing. The value of the traditional auto finance company has been morphed from one that has a superior scorecard, or collection process, PE knows that Fintech has largely outsourced and commoditized what were strategic assets. Why build your own custom loan origination or loan servicing system when myriad outsourced options exist? And, why re-invent the wheel? One must look no further than what Uber did to the value of a NY Taxi medallion, and you will see what they are seeing.

The “Amazonification” of financial services businesses is what fintech is all about.

Let’s hear it directly from the source

And who better to hear it from than from the PE folks themselves? Some recent conversations with PE firms and the investment bankers that work directly with them provide us some valuable insight as to why this next cycle will be different. It will be different because of their shift to unsecured options for higher yield (as a suitable replacement to auto), but more importantly due to Fintech disruption. What constitutes itself as an asset of a financial services company is different than just a few years ago. Heck, what comprises what we now call a financial services company is different than a few years back.

Let’s look at the top three themes from these conversations:

1. Balance sheet

PE interest is squarely on the balance sheet and resulting deal structures will continue to show it. Larger PE firms are looking to be a senior secured lender, with capital deployments north of $40 million — directly into collateral.

Loan originators that could use more balance sheet to originate more can benefit from PE investment. And, they can also be effective as a capital bridge to securitizations — as discussed before, a very healthy and stable market.

2. Fintech

Fintech firms trade on a multiple of revenues, while finance companies trade on a multiple of earnings. And, a good fintech solution done right can provide value to small finance companies and big banks, which provides a lot of click revenue. So, this is just a case of investing money into something that will return more money.

Not to be discounted is the actual value of the fintech being created and made available to the non-prime finance community. Take for example a small, regional finance company that just 10 years ago would be operating on spreadsheets and a small IT footprint. That same company can operate in a cost-efficient, cloud-based environment, and utilize AI-based solutions that root out fraud, improve credit selection, drive behavioral scoring — all on subscription or a per-click basis. 

3. Confidence in outsourced servicers

Without confidence in outsourced servicers, PE would not be diving back into the non-prime asset class. The market for secondary whole loan trades has been hot and is not cooling down thanks to increasing interest from PE investors. And, that confidence is bolstered by a few key points:

• Outsourced servicers are complex; many are servicers of their own debt that rent out their additional capacity, and the result is a more stable place to park your portfolio

• Outsourced incentives are changing; we are hearing more and more about servicers putting “skin” in the game and taking compensation that is tied to targets shared with the portfolio owner

• What makes an outsourced servicer is less about geography, and more about supplementing specific skill sets, and this is providing cost savings while improving portfolio performance

• Outsourced servicers can deploy technology, training, and analytics in ways that benefit multiple companies in much the same way that Fintech can disrupt

• A more sympathetic Consumer Financial Protection Bureau changes the outlook as well

The PE firms interviewed agreed that their confidence in outsourced servicers is an enabler to giving them the confidence to get more aggressive on deploying their capital into auto assets and knowing that the results will be on target.

The democratization of auto finance

The retail car sales process is not what it used to be. You can find your car online and pick it up from a vending machine. Or, you can use your car as a taxi. Or, you can subscribe to a car service. Or, you can just rent a bike or a scooter. It is no longer about “car ownership.” It’s about mobility. The disruption of the retail car model and the democratization of mobility is in full swing.

The democratization of auto finance is just getting started. And increased PE interest has a track record of begetting more PE interest. Last time around, PE took some lumps along with the finance companies that they invested in. There were no winners. This time around the game board is set up a bit differently. Finance companies will win this time around if they can effectively utilize PE capital in its updated format. Fintech companies will continue to win, as the early cloud-based, and big-data companies already have. Finally, outsourced servicers will win by becoming a more mainstream and standard option that will see increasing demand as more and more PE firms choose to engage them.

Joel Kennedy is a director with Spinnaker Consulting Group. He has a passion for growing and improving auto finance ecosystem. He has more than 23 years of experience helping big banks down to start-up finance companies to build, grow, improve, and repeat. He can be reached at (240) 308-2169 or joel.kennedy@spinnakerconsultinggroup.com.

EFG Companies enhances F&I training to create six-figure revenue rises


Figures that include six digits and a comma typically catch the attention of dealership management.

EFG Companies recently calculated that the average EFG trainee generates an additional $204,605 per year in F&I income through a 22-percent performance increase. To help sustain this performance increase, EFG Companies announced the launch of EFG Learning Opps Through Virtual Engagement (LOVE), a dynamic digital portal designed to boost F&I Producer knowledge, reinforces training learnings, and reduces the cost of a poor hiring decision for a dealership.

EFG Companies acknowledged that many dealer principals and general managers complain that their past experience in sending F&I producers to training only impacts per-month results in the short term. In addition, when training is not reinforced in the dealership, improvements are quickly negated by diminishing returns.

EFG Companies conducted a six-month analysis of the true impact of its industry-leading, behavior-based F&I training combined with its in-store engagement model. The company compiled a series of metrics, both pre- and post-training, with both the trainees and their dealership management.

EFG trainee performance showed:

• EFG’s guided-discovery training represented $204,605.00 in additional F&I income per producer per year, based on 80 turns per producer per month.

• Average trainee F&I performance increased 22 percent.

• PRU increased from $967 to $1,180 on average.

“It’s clear that using multi-sensory learning methods with interactive tools better enables F&I managers to effectively deliver measurable results to a dealership’s bottom line,” said John Pappanastos, president and chief executive officer of EFG Companies. “That’s why we developed EFG LOVE for our F&I class graduates.

“This analysis proved that our proprietary behavior-based approach to F&I producer development can generate more than $1.13 million in average F&I revenue per producer per year,” Pappanastos continued. With an average training cost of $2,000 per producer, the dealer sees a 100-times return on the initial investment in the first year.”

In addition to fortifying the lessons learned from EFG’s in-classroom training, EFG LOVE can equip dealers with information and best practices on how to both sell to, and employ, the soon-to-be largest generation in the workforce with the most buying power — millennials.

EFG Companies pointed out that numerous industry studies have shown that retail automotive faces a recruiting and staffing crisis. The 2017 National Automobile Dealers Association Workforce Study reported that retail automotive suffered from a 43 percent turnover rate, an 88 percent attrition rate among female new hires, and a below average rate of millennial new hires when compared to other industries.

And 65 percent of dealers state that recruiting and hiring is their No. 1 challenge — greater than customer acquisition or generating revenue.  

In EFG’s more than 40-year history, the company has placed hundreds of top performers at automotive dealerships across the country. This has resulted in the deliberate build-out of a core-competency sourcing model to identify the core qualities of Top Performers.

EFG LOVE pairs this top performer profile with industry statistics and trends to better enable dealers to develop high-performing teams.

“EFG LOVE helps shorten the onboarding time for new hires, keeps employees motivated and accelerates the knowledge growth needed for a successful career,” said Steve Roennau, vice president of training and compliance with EFG Companies. “We created the content to enable the user to self-select actionable lessons in multiple digital formats.

“The more a producer can easily select materials that help them overcome their daily challenges, the more they will display the successful behaviors that they learned in our training,” Roennau went on to say.

EFG closed by mentioning turnover and failure to recruit high-performing professionals directly impacts a dealership’s bottom line. For example, a single poor hiring decision in F&I can easily result in up to $75,000 in lost profit due to onboarding costs and lost production, according to its analysis.

To see one of the many training videos featured on EFG LOVE, visit this website.

17 credit unions join GrooveCar Direct in Q2


GrooveCar Direct announced 17 new credit union partners have joined its online vehicle shopping and financing program during the second quarter.

Coming aboard the program in Q2 were institutions from 12 different states, serving 137,305 members, including:

— AAA Federal Credit Union, South Bend, Ind., with assets of $64 million serving 6,905 members
— Allegheny Health Services Employees Federal Credit Union, Pittsburgh, with assets of $13.1 million serving 3,647 members
— Bessemer System Federal Credit Union, Greenville, Pa., with assets of $38.1 million serving 4,467 members
— Central Communications Credit Union, Independence, Mo., with assets of $50 million serving 5,998 members
— Central Jersey Federal Credit Union, Woodbridge, N.J., with assets of $75 million serving 7,783 members
— Chief Financial Federal Credit Union, Rochester Hills, Mich., with assets of $154 million serving 26,478 members
— Complex Community Federal Credit Union, Odessa, Texas, with assets of $495 million serving 38,233 members
— CS Credit Union, Catawba, N.C., with assets of $31 million serving 2,855 members
— Department of Public Safety Federal Credit Union, Oklahoma City, with assets of 26.3 million serving 2,718 members
— G.A.P. Federal Credit Union, Johnstown, Pa., with assets of $46 million serving 5,163 members
— Kingsport Press Credit Union; Kingsport, Tenn., with assets of $69 million serving 6,641 members
— McIntosh Chemical Federal Credit Union, McIntosh, Ala., with assets of $24 million serving 2,425 members
— Michigan Columbus Federal Credit Union, Livonia, Mich., with assets of $46 million serving 4,281 members
— None Suffer Lack Federal Credit Union, Suitland, Md., with assets of $23 million serving 2,989 members
— Tri-Valley Service Federal Credit Union, Pittsburgh, with assets of $15.9 million serving 4,166 members
— Upper Cumberland Federal Credit Union, Crossville, Tenn., with assets of $64 million serving 7,486 members
— West Texas Credit Union, Odessa, Texas, with assets of $57.2 million serving 5,060 members

As members continue to perform daily tasks from the palm of their hand while on their phones or in front of their computers, GrooveCar Direct insisted that credit unions find the online buying program a perfect complement to meet members’ needs.

The GrooveCar Direct program can deliver five activities online vehicle shoppers are conducting, including:

— Researching prices
— Locating vehicles listed for sale
— Comparison shopping of different models
— Trade-in values
— Locating a dealer

Other means of lead generation the platform can include:

— Shoppers saving their searches
— Applying for financing online
— Finance calculator
— Free Carfax reports
— Installment contract refinancing
— Accessing credit union promotions
— Preferred dealer network price specials

“We recognize that a one-size-fits-all car shopping platform to engage their members is not what our credit union partners need or what they want. Our success is due to the engagement strategy built into the program, along with it being highly customizable,” said Robert O’Hara, vice president of strategic alliances at GrooveCar Direct.

“Credit unions are provided with a suite of services and features that meet a member’s demands while providing continuous support that our partners appreciate in a turn-key program,” O’Hara continued. “These programs include marketing and sales webinars on trending topics, branding assistance, marketing collateral, video and email marketing campaigns and consulting.” 

7 highlights of 2018 Non-Prime Automotive Finance Survey

FORT WORTH, Texas - 

With more data than ever to consider, the National Automotive Finance Association and the American Financial Services Association highlighted seven of the most important findings from this the 2018 Non-Prime Automotive Finance Survey.

Released last week during the annual Non-Prime Auto Finance Conference, the NAF Association and AFSA collaborated with FICO, TransUnion, IHS Markit and Black Book to generate the report that serves as a key source of benchmarking for those who participate in or support non-prime automotive financing.

The 2018 report represents 40 financing sources and $34.6 billion in principal balance as of the end of 2017 — an increase for the seventh consecutive year.

In addition to key financial metrics, this report helps to promote best practices and collective knowledge of leading industry professionals to ensure that financing companies can meet their portfolio goals and work effectively with their dealers, liquidity providers, vendors and other partners to create compelling customer value.

This year’s data survey has been managed by FICO and provided the analysis and conclusions in the report.

Key findings from the survey include:

• Non-prime portfolio balances have increased 5.3 percent year-over-year in 2017. However, the number of contracts originated in each of the last two years has decreased.

• Competition remains robust overall, but niches of underserved sub-segments still exist.

• Financial metrics were mixed overall and softened for some.

• Automated origination activity is increasing.

• Rise in dealer, first-party and synthetic identification fraud

• Used-vehicle depreciation was mitigated by destructive hurricanes, which increased the demand for used vehicles.

• The customers of non-prime auto finance companies represent mainstream America.

The survey report, which has been produced for the past 22 years, is distributed at no cost to finance company participants. Others may purchase a copy of the report for $500.  Ordering is available online at nafassociation.com.

FCA wants its own captive, reviews Chrysler Capital options


According to confirmation from Fiat Chrysler Automobiles on Friday, how FCA dealers can finance inventory and their retail sales is going to change.

The automaker announced it intends to establish a captive financial services arm to provide U.S. consumers with more options to finance vehicle purchases while supporting the company’s sales volumes and bolstering its earnings.  

The currently does not have a captive finance company within its portfolio, even though Chrysler Capital exists. Established more than five years ago, Chrysler Capital is part of Santander Consumer USA.

More than 2.1 million new cars and trucks were sold by FCA in the U.S. last year. FCA said it currently is the only major automaker in the U.S. without a captive financing arm.

“Given our strong financial performance and improving credit profile, we believe the time is right to pursue a U.S. Finco strategy,” FCA chief executive officer Sergio Marchionne said. 

“FCA will have adequate capital to fund the equity needed and expects to have the credit rating to make the Finco funding competitive,” Marchionne continued

Chrysler Capital , along with a variety of other providers including Ally Financial, currently underwrites consumer financing for most FCA vehicle purchases in the U.S.

FCA said is exploring whether to acquire an existing financial services business, which could include exercising an option to acquire Chrysler Capital, or to build its own Finco. 

Exploratory discussions with Santander regarding Chrysler Capital have begun, according to the company.

Subprime origination level at lowest point in 12 years


The latest information from Equifax reinforced the depth at which finance companies are backing off in their originations within the subprime space.

Equifax recently shared its observations of auto finance originations through January. Through that juncture, analysts found that 19.2 percent of retail installment sales contracts and leases were issued to consumers with a subprime credit score. Analysts indicated this is the lowest subprime share since 2006.

In 2017, Equifax pinpointed the year-to-date share at 20.3 percent.

“It is evident that banks, captives and lenders are focused on reducing their exposure to subprime accounts in automotive, but with the economy at healthy levels, there is also a smaller pool of subprime candidates shopping for vehicles compared with several years ago,” said Gunnar Blix, deputy chief economist at Equifax.

“There seemed to be more of a focus on pursuing subprime volume in 2017, and today lenders are looking to pull back a little and find more balance in their portfolios,” Blix continued.

Again, looking at data through January, Equifax found that 386,500 installment contracts and leases were originated with consumers with a VantageScore 3.0 credit score below 620. These are generally considered subprime accounts. That contract amount represents a 9.5-percent decrease year-over-year.

Analysts added that this newly issued paper has a corresponding total balance of $6.9 billion, constituting a 9.4-percent decrease year-over-year.

Looking throughout the credit spectrum, Equifax tabulated that 2.01 million total installment contracts and leases, totaling $44.1 billion, have been originated year-to-date. The figures marked a 4.1-percent decrease in accounts and a 2.0-percent decline in balances over this time last year.

Equifax pointed out that 2017 marked the third highest year on record for the number of auto accounts originated; 2016 is the record holder, followed by 2015.

The average origination balance for all contracts and leases issued in January came in at $22,205, according to Equifax. The figure represented a 3.5-percent increase over January 2017.

Also, the average subprime installment contract amount was $18,128, marking a 1.4-percent increase year-over-year.

Credit Acceptance sees increased activity for originations and compliance


As the subprime auto finance company’s field representatives are generating more business from their active dealer network, state and federal regulators are keeping the compliance team at Credit Acceptance busy, too.

The latest filing to the Securities and Exchange Commission showed Credit Acceptance has encountered nine different regulatory matters since December 2014, including actions from the attorneys general in New York, Massachusetts, Maryland and Mississippi, as well as officials from the Consumer Financial Protection Bureau and the Federal Trade Commission.

The newest addition came when Credit Acceptance indicated that on April 10 the company was contacted by the New York Department of Financial Services, Financial Frauds & Consumer Protection Division (DFS). According to the SEC paperwork, Credit Acceptance said that DFS believes that the company may have:

— Violated the law relating to fair lending

— Misrepresented to consumers information related to GPS starter interrupt devices

— Provided inaccurate information in the course of a DFS supervisory examination

“We have not received any written communication from the DFS regarding its conclusions,” Credit Acceptance said in the filing. “We have provided information to the DFS, as requested, but cannot predict the eventual scope, duration or outcome at this time. As a result, we are unable to estimate the reasonably possible loss or range of reasonably possible loss arising from this inquiry.”

During the company’s quarterly conference call with investment analysts, Credit Acceptance Brett Roberts chief executive officer responded as to whether state regulators are taking a great interest in how GPS and starter interrupt devices are being used since the company previously has been questioned about them by the FTC.

“I think it’s hard to compare at this point. It’s very early,” Roberts said. “I think what we disclosed is really what we know at this point. We had a call. The substance of the call is what’s described in the 10-Q, and we're waiting for something in writing.”

Later in the call, Roberts also addressed how the regulatory environment has intensified.

“I think that maybe the main point here is in the last four years, as you point out, we have seven, eight, nine things that we’ve disclosed now. I think in the 24 years I was with the company before that, I don't think we had any. So clearly, something's changed in the regulatory environment,” Roberts said.

“We’re under a lot of scrutiny. We have been for quite a while now,” he continued. “The regulators have a job to do. We respect that. They certainly have their prerogative to ask questions and challenge the things that we’re doing, and it’s our job to operate in a highly compliant way, and we take that seriously. And what’s disclosed in the 10-Q is just where all those matters stand at this point.

“As you said, I don’t want to generalize. We've been asked a lot of questions. We’ve provided a lot of answers, and that’s where it stands at this point,” Roberts went on to say.

First-quarter performance

During the first quarter, Credit Acceptance generated an 18.5-percent year-over-year increase in the number of contracts originated through its active dealer network, which grew by 11.6 percent.

All told, Credit Acceptance added 112,345 contracts to its portfolio in Q1 through 8,762 active dealers, which the company defines as a store that finalizes at least one deal during the quarter.

The average volume per active dealer rose 5.8 percent to nearly 13 contracts per store.

When addressing that growth, Robert told a Wall Street watcher “that could cause you to conclude that the environment was easier. But at the same time, we've made a big investment in our sales force, which could also be driving that number. It’s hard to break out what’s internal and what’s external there.

Roberts added later in the call, “We can see the growth that came from the people that we’ve hired since the expansion started. In rough terms, they grew about twice as fast as the overall book did, so that still leaves decent growth in the sales reps that were here before the expansion started. So we’re seeing faster growth from the new group but strong growth from everywhere.”

That Q1 origination activity as well as collection on the contracts already in its portfolio all combined to push Credit Acceptance to post consolidated net income of $120.1 million, or $6.17 per diluted share. That’s up from $93.3 million, or $4.72 per diluted share, for the same period in 2017.

The company computed that its adjusted net income, a non-GAAP financial measure, for the three months that ended March 31 came in at $118.9 million, or $6.11 per diluted share, compared to $92.3 million, or $4.67 per diluted share, a year earlier.

Accounting discussion

Credit Acceptance senior vice president and treasurer Doug Busk responded to multiple questions about how the company is bracing for Current Expected Credit Loss (CECL) requirements outlined by the Financial Accounting Standards Board (FASB). Some organizations have to begin complying with these new mandates by the end of next year.

After being peppered earlier in the call, Busk offered his understanding of what accounting regulators are asking finance companies like Credit Acceptance to do.

“CECL is an accounting methodology where, as opposed to recognizing a loss when some event occurs, a certain amount of delinquency or a repossession or a sale of a car, you anticipate that loss at the time you originate the loan, and then book a loss upfront,” Busk said. “The flip side of that is, over time, cash equals accounting, so you'd end up recording some loss at loan origination, and then, conceptually here, then recognizing more revenue over time.

“The fair value option is, you're looking at coming up with an estimate of the forecasted cash flows that the portfolio would generate, and you’re basically calculating an exit price, which represents the fair value of the portfolio at that point, which as I mentioned earlier, would include an estimate of a discount rate, which would represent the return associated with exiting the portfolio,” he continued.

What investment analysts want to know is exactly how Credit Acceptance is going to handle these changes.

“Well, we’re still assessing both alternatives, and our objective would be to end up with the accounting that most closely reflects the economic reality of our business,” Busk said. “So we’re in the process of assessing both of those things. Once we have something material to report, we’ll disclose it in our public filings.

“If neither of those methods line up with the underlying economics of our business, we'll continue to include non-GAAP information in our press release to give shareholders better insight into how the business is actually performing,” he continued.

“We’re obviously working on it. We're working on it hard, but we're not in a position to disclose anything until we've completed our work and fully understand all the issues,” he added.

2 reasons why auto finance stabilized in Q1


Brian Landau, senior vice president and automotive business leader at TransUnion, again used a single word to summarize the latest quarterly auto finance information he and his team assembled. Landau decided the first-quarter moniker should be stabilization.

Landau explained his thinking to SubPrime Auto Finance News as TransUnion released its Q1 Industry Insights Report that showed performance of non-prime vintages helped to construct his assessment.

“Just looking the data, this was a quarter of stabilization. That’s how I would define it for a number of different reasons,” Landau began.

“One is we’re kind of trending like how we’ve done in previous quarters as originations are still in decline year-over-year, but the rate of decline is starting to slow down a little bit. I think we’re reaching a point of stabilization with regard to that,” he continued.

“Another key point is around delinquencies, which are rising but rising at a much slower rate. It’s a much different message now than what it was in 2016. There was a hike from 2016 to 2017 but just a marginal increase from 2017 to 2018,” Landau said.

“More recent vintages in the non-prime space are starting to show some marginal improvement relative to prior vintages with delinquencies growing in a less accelerated manner,” he added.

“All of those signs are pointing to stabilization in the market right now,” Landau went on to say.

TransUnion’s Industry Insights Report showed that tighter underwriting and improvements in the oil states appear to be positively impacting serious auto finance delinquency rates per borrowers who are 60 days or more past due.

After growing from 1.16 percent in Q1 2016 to 1.30 percent in Q1 2017, TransUnion determined the serious delinquency rate stayed relatively flat at 1.32 percent in Q1 2018.

Analysts noticed the top six states with the largest annual decreases in delinquency rates in Q1 2018 — Alaska, Wyoming, Texas, New Mexico, Oklahoma and North Dakota — are among the eight states where oil, gas and mining account for 10 percent or more of gross domestic product.

TransUnion added the other two states — Louisiana and West Virginia — also performed better than the national average in terms of annual changes in 60-plus days past due rates for Q1 2018.

When asked to explain what the trends in those states mean, Landau said, “This is another case of anomalies regressing back to the average. I would say the same thing when we had the financial crisis. There were certain states like Arizona, Nevada and Florida that were heavily impacted by the mortgage crisis. Then you saw them rebound pretty well. I see this as a similar trend.

“Oil and mining are necessities when it comes to manufacturing and transportation. They help the economy move forward,” he continued. "Until we get to a point where we’re moving away from these sources of energy, that will always be the case. There will always be demand for these commodity products.”

While total auto balances rose 5.2 percent to $1.183 trillion, TransUnion indicated this figure marked the lowest annual growth rate since Q1 2012, which at the time was 4.2 percent and on the rise. TransUnion also observed continued shifting in the origination makeup of auto finance holders, which continues to migrate to higher credit tiers.

Analyst added overall originations, viewed one quarter in arrears to account for reporting lag, declined 1.5 percent in Q4 2017. This marked the sixth consecutive quarter of yearly declines, though the smallest such decrease was in 2017.

With that kind of streak in place, Landau responded to the thought of whether the industry could ever see the significant growth the auto-finance space enjoyed coming out of the recession.

“You had a little bit of the perfect storm there,” he said. “You had pent-up demand for new vehicles driven by the fact consumers were delaying their purchases during and shortly after the financial crisis we had. In addition to that, you had below average fuel prices and inexpensive credit fueling demand for more expensive vehicles. In a sense, that helped to promote more financing than in the past.

“To see that kind of growth doesn’t happen too often,” Landau continued. “It may not repeat any time soon, but I would say the market is resilient, and people will still need vehicles to get to and from work, to other places of importance. And vehicles aren’t getting any cheaper, so there will always be the need for financing.

“There is a greater demand now for SUVs and CUVs, which have a price point relative to sedans,” he added. “The OEMs are enhancing the technology in vehicles today, increasing the value of the product. The economy is fairly healthy right now. Wages are growing. Consumers have the means to make more expensive purchases.”

Q1 2018 Auto FinanceTrends


Auto Finance Metric

Q1 2018

Q1 2017

Q1 2016

Q1 2015


Number of Auto Loans


79.7 million


76.4 million


72.2 million


66.4 million

 Borrower-Level Delinquency Rate (60+ DPD)










Average Debt Per Borrower





Prior Quarter Originations*

6.6 million

6.7 million

6.7 million

6.3 million

Average Balance

of New Auto Loans*









*Note: Originations are viewed one quarter in arrears to account for reporting lag.


Q1 2018 Auto Loan Performance by Age Group


60+ DPD

Annual Pct. Change

Average Loan Balances Per Consumer

Annual Pct. Change

Gen Z (1995 – present)




+ 2.8%

Millennials (1980-1994)




+ 2.0%

Gen X (1965-1979)




+ 1.7%

Baby Boomers (1946-1964)




+ 0.5%

Silent (Until 1945)




- 1.2%

Source: TransUnion

Update on credit-card usage

TransUnion also offered a trove of information about consumers using their credit cards.

With more than 416 million credit cards and nearly 175 million consumers with access to them, analysts indicated credit card usage continued its upward trajectory in Q1, according to the latest TransUnion Industry Insights Report, powered by Prama analytics.

TransUnion’s report found that serious credit card delinquency rates per borrower (90 or more days past due) increased in Q1 2018 to 1.78 percent, up from 1.69 percent in Q1 2017. The delinquency rate is now level with the 1.77 percent mark observed six years prior in Q1 2012, though it remains below the 10-year first quarter average of 1.91 percent.

Analysts indicated the average card debt per borrower also followed a similar path as delinquencies during the last year, rising 2.63 percent to $5,472 in Q1 2018 from $5,332 in Q1 2017.

“Though delinquency rates are certainly rising, there are several reasons we do not believe this is a worrisome trend at this juncture,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion.

“First, credit card issuers have been relatively conservative over the last five quarters, issuing more credit to lower-risk consumers compared to higher-risk consumers. Second, the credit limits they are extending to consumers in most risk tiers are generally lower than those they had issued in prior years,” Siegfried continued.

“Finally, we believe it’s a positive sign for the economy that more consumers have access to credit and that delinquency rates, while growing, are doing so at a slow pace and remain below levels observed immediately post-recession,” he went on to say.

Enterprise Car Sales cites credit unions for record origination volume in 2017


The combination of auto financing availability and credit unions and late-model used vehicles from one of the largest rental companies is continuing to generate record-setting originations.

Strong credit union partnerships have long been a driving force behind the growth of Enterprise Car Sales, which opened five new locations in Arizona, California, North Carolina, Pennsylvania and south Florida — in the past 18 months.

In fact, Enterprise Car Sales secured 38 new credit union partners and generated a record $576 million in origination volume in 2017.

“We’re thrilled to partner with Enterprise Car Sales,” said Dorothy Spilker, vice president and chief operations officer at First Eagle Federal Credit Union, which has branches in Maryland, Texas, Illinois and Tennessee and is one of Enterprise Car Sales’ latest credit union partners.

“Enterprise shares our commitment to excellent service, which — combined with First Eagle’s low-rate financing — allows us to provide the best experience to our members," she said. 

Compared with other types of finance companies, officials pointed out that credit unions saw the highest rate of growth in 2017, growing total automotive finance market share to 21 percent — an increase of 6.9 percent.

In addition, Enterprise insisted used-vehicle financing offers increased profit potential for credit unions, as the average used-vehicle installment contract amount reached $19,189 last year.

Enterprise Car Sales, which sold 12 percent more vehicles in fiscal year 2017 than in the previous fiscal year, is further supporting this growth through tailored used-vehicle buying programs that create opportunities for credit unions to increase their used-auto loan portfolios and optimize member loyalty.

All told, Enterprise Car Sales has helped generate nearly $11 billion in origination volume during the past 30 years with more than 1,000 credit union partners nationwide, including longstanding partners Golden 1 Credit Union and Municipal Credit Union.

“Our relationship with Enterprise Car Sales offers tremendous value to our members,” said Greg Brown, senior vice president and chief lending officer at Golden 1 Credit Union, which is based in Sacramento, Calif. “Golden 1 is committed to providing exceptional service to our members, and Enterprise is a partner we can trust to do the same.”

Sue Calais, assistant vice president of strategic partnerships for Enterprise Car Sales, added, “By expanding our network of credit union partners, we’ve charted a course to continued strong growth.

“We value the enduring partnerships we’ve built with credit unions over the past three decades. And we take pride in the fact that they are underpinned by a shared commitment to customer service,” Calais went on to say.

In addition to partnering with credit unions, Enterprise Car Sales also recently launched a commercial accounts program, which specializes in assisting businesses making multiple vehicle purchases.