GM Financial sets volume record with Q1 OEM deals

FORT WORTH, Texas - 

The metrics and performance of General Motors Financial are showing more distinct characteristics of a traditional captive finance company and less of a provider that used to book a significant amount of subprime paper.

In fact, GM Financial reported that its penetration of originations associated with retail deliveries by the parent automaker reached an all-time high during the first quarter, climbing to 50.4 percent. The level smashed the previous all-time record established a year earlier, which was 37.5 percent.

“GM had some down payment assistance promotions in the market during the quarter, which drove increased penetration of standard loans,” GM Financial president and chief executive officer Dan Berce said.

However, the company didn’t abandon the subprime space completely. Berce pointed out during the company’s recent quarterly conference call that originations through its AmeriCredit channel — the division that works with non-GM dealers and typically takes the subprime paper — grew to $700 million during the second quarter, up by $200 million year-over-year.

All told, GM Financial reported that its retail originations totaled $6.5 billion for the quarter that ended March 31, compared to $4.7 billion for the quarter that closed Dec. 31 and $4.1 billion for the year-ago quarter.

“Credit trends remained stable, positively impacted by our mix shift to prime credit quality assets in U.S.,” Berce said. “And our primary headwind remains used-car values, U.S. disposition proceeds on returned leased vehicles compared to estimates at origination continued to moderate during the quarter.

“We do expect used vehicle prices to decline about 7 percent year-over-year throughout 2017,” he continued.

GM Financial indicated its outstanding balance of retail finance receivables was $36.0 billion as of March 31.

Chief financial officer and executive vice president Chris Choate explained the subprime segment of the company’s portfolio represented approximately 12 percent of its ending earning assets when the second quarter finished, down from 17 percent a year earlier.

“The composition of those earning assets continues to shift to a more prime light credit profile, consistent with some of the mix trends Dan has already discussed,” Choate said.

That additional prime paper helped to improve other GM Financial metrics.

The company reported its retail finance receivables 31 to 60 days delinquent constituted 2.8 percent of the portfolio at the close of the first quarter. A year earlier, it was 3.1 percent.

GM Financial noted accounts more than 60 days delinquent improved to 1.2 percent of the portfolio from 1.4 percent a year ago.

The company added its annualized net charge-offs remained flat year-over-year, holding at 1.9 percent of average retail finance receivables.

Berce also mentioned recovery rates stood at 52 percent for the quarter, down from 54 percent a year ago. He said the rates were “up a bit sequentially due to seasonal reasons, but we do expect recovery rates to continue to trend down year-over-year throughout 2017.”

Looking more positively, customers maintaining their payments helped GM Financial to post net income of $202 million for the quarter, up from $164 million a year earlier.

A few other notable elements to GM Financial’s Q1 report included the call out of its outstanding balance of commercial finance receivables ticking up to $11.8 billion as of March 31.

The company also highlighted total available liquidity of $12.4 billion as of March 31, consisting of $2.7 billion of cash and cash equivalents, $8.3 billion of borrowing capacity on unpledged eligible assets, $0.4 billion of borrowing capacity on committed unsecured lines of credit and $1.0 billion of borrowing capacity on a Junior Subordinated Revolving Credit Facility from GM.

“Our funding platform continued successful execution on many fronts,” Berce said. “We issued $5.5 billion in public secured and unsecured debt securities in the quarter. And subsequent to quarter end, we closed our first U.S. prime loan securitization, which we call GMCAR, for a total of $1 billion.”

Elaborating about securitizations, Choate later added, “Also, as a reminder, we have numerous securitization platforms segregated by asset type and geography. This list is very similar to a list from prior quarters, with the exception, again, that we have now executed our first U.S. prime retail loan securitization under the GMCAR platform.

“Our global senior notes platform funds our operations in the U.S., Canada, Europe and Mexico, where we expect to do five to eight issuances per year,” Choate went on to say. “And our total issuance in 2017 will be increasing this year, most notably because of the launch of our GMCAR securitization program. Otherwise, we expect our cadence to be reasonably similar to 2016.”

13 finance companies assemble to talk fraud


Machine learning and fraud solutions provider PointPredictive recently orchestrated a gathering of six of the nation’s Top 10 and nine of the nation’s Top 20 aimed at tackling the problem of auto finance fraud through collaboration.

As a part of launching what PointPredictive is calling its Automotive Lending Fraud Consortium, officials highlighted a total of 13 different finance companies — representing more than a third of U.S. auto financing originations — participated in the discussions during their Automotive Fraud Roundtable to expand consortium participation.

The event happened last month in Dallas and was hosted by Santander Consumer USA.

PointPredictive chief executive officer Tim Grace reiterated that the firm launched the consortium in response to historically high origination volumes that are fueling an estimated $6 billion in annual fraud losses to finance companies.

Grace explained finance companies that join the consortium agree to share the patterns of fraud in their data and meet on a quarterly basis to share fraud experiences.

“All the lenders in attendance reported that auto lending fraud is a growing concern in their organizations and that they are bolstering their defenses in response,” Grace said. “We are providing a critical missing piece to those lenders’ fraud defenses. 

“With the consortium, we’re enabling lenders to share their patterns of auto lending fraud through predictive application risk scores and dealer risk scores — just like other industries have been doing for years,” he continued. “It’s almost impossible for a lender to make a big dent in their fraud losses working in isolation.”

To kick off this next phase of consortium growth, PointPredictive indicated the finance companies in attendance set in motion a plan for enhanced industry collaboration. They established guidelines and a working plan to move forward aggressively to respond to fraud.

“The best way to stop fraud is together as an industry,” said Rich Morrin, chief operating officer for Santander Consumer USA. “We know that individuals and criminal rings work to defraud banks and financial institutions; it’s time we work together to stop them.”

To support the fraud consortium, PointPredictive noted that it will play a critical and active role through ways such as:

• Collect finance company data

• Build machine-learning predictive application risk scoring and dealer scoring

• Provide Ph.D. scientists and fraud experts to continuously analyze contributed data for patterns of risk and emerging trends across lenders

• Organize quarterly consortium meetings

“Ten years ago, members of the team at PointPredictive established the Mortgage Fraud Consortium,” says Frank McKenna, chief fraud strategist of PointPredictive. “That helped cut fraud in half in that industry within 24 months of adoption. 

“It’s an enormously powerful technique because it not only reduces fraud and early payment default losses, where fraud is often mistakenly classified, but it can detect more fraud while reducing false positives — compared to currently-used tools like bureau alerts,” McKenna continued.

PointPredictive added that the Automotive Lending Fraud Consortium is open to all U.S. auto finance companies.

“We are hopeful that many other lenders will reach out and join the consortium, and that attendance at the next meeting doubles or triples,” Grace said.

For more information about the Automotive Lending Fraud Consortium, contact Kathleen Waid at kwaid@pointpredictive.com.

NAF Association pledges to maintain conference quality

PLANO, Texas - 

The National Automotive Finance Association is organizing the 21st annual Non-­Prime Auto Financing Conference with the same mandate organization leadership has held for more than two decades.

“This is the industry event where all the non-­prime auto financing company executives gather for information on the most relevant issues affecting non-prime financing, where vendors servicing the industry gather and where 21 years of networking continues,” NAF Association executive director Jack Tracey said in a message to SubPrime Auto Finance News.

“It’s exciting to see how this conference over the past 21 years has grown in prominence,” Tracey continued. “It’s where everyone comes. Non­prime auto financing leaders attend the conference because they know they’ll see the rest of the industry there.

“We strive each year to pull together a conference program that addresses issues facing non­prime auto industry and to provide education and solutions on the problems confronting the industry,” he went on to say. “Our objective is to have everyone go home with a least one good idea for improving their business.”

This year’s event, which carries the theme, “Optimizing Non­Prime Performance,” is scheduled to run from May 31 through June 2. The event again is to unfold in Plano, Texas, but at a new facility — the Hilton Dallas/Plano Granite Park.

Some of the conference sessions includes the release of the 2017 Non-Prime Auto Financing Survey as well as a discussion about how finance companies can raise capital. Another segment has the title, “CFPB in Their Own Words.”

Among some of the notable conference speakers scheduled to appear are:

■ Rep. Jeb Hensarling, a Texas Republican and chairman of U.S. House Financial Services Committee

■ Tom Webb, retiring chief economist at Cox Automotive

■ Amy Martin, senior director of the structured finance ratings group at Standard & Poor’s

Complete registration details for the 21st annual Non-­Prime Auto Financing Conference can be found at www.nafassociation.com.

CPS’ positive-earnings streak reaches 23 straight quarters


Consumer Portfolio Services chairman and chief executive officer Brad Bradley likes the position where the subprime auto finance company sits after the first quarter.

And it’s not just because CPS posted its 23rd consecutive quarter of positive earnings.

Bradley pointed to the difference where CPS stands with more than 25 years in the subprime business versus newer operations that might have only a fraction of that the portfolio seasoning.

During the company’s Q1 conference call conducted last week, Bradley touched on some similarities in the competitive landscape he’s seeing now that percolated back in 2008 and 2009.

“Both of those were some result of a recession. We haven't had a recession this time, but certainly feels a lot like there is going to be some consolidation in industry. We’re going to lose some of the competitors in the industry,” Bradley said.

“There is a lot of competitors in our industry struggling. Lots of small ones that came into the industry over the last couple of years are now having some real significant problems as the paper they’ve bought hasn’t performed,” Bradley continued a couple of moments later during his opening comments when he often shares his assessment of the entire subprime industry.

“They’re going to have more difficult access to the capital markets. And that also applies to some of the larger players in our industry who have grown real fast and haven’t really done as well as people might have expected. And so again many folks are waiting to see how that shakes out,” he said.

In terms of how the first quarter shook out for Consumer Portfolio Services, the company reported earnings of $4.5 million, or $0.16 per diluted share.

Meanwhile, revenue jumped 6.9 percent year-over-year to land at $107.6 million. However, the company’s Q1 operating expenses spiked 12.9 percent to $99.8 million; impacting in part on the year-over-year decline in net income.

A year earlier, CPS said, its net income came in at $7.2 million, or $0.24 per diluted share.

During the first quarter of 2017, CPS purchased $229.6 million of new contracts compared to $215.3 million during the fourth quarter of 2016 and $312.3 million during the first quarter of 2016.  The company's managed receivables totaled $2.323 billion as of March 31, an increase from $2.308 billion as of Dec. 31 and $2.142 billion as of March 31 of last year.

“In terms of originations, as I mentioned, we haven't seen too much signs of tightening overall in the industry,” Bradley said. “I think some of the bigger folks, some of the larger banks have certainly talked about tightening, and you may be seeing a little bit of it there. Down in our end of the neck of woods, you really haven't seen too much of it lately.”

Bradley mentioned that CPS did tighten its loan-to-value ratio to the lowest point it has been since Q2 of 2014.

“We think LTV is one of the real indicators of what you're buying,” he said. “So, that would be an easy way to indicate that we certainly did do some tightening in the first quarter.

“I think other players will tighten as they go or maybe we’ll see more tightening, but at the moment certainly through the first quarter we haven’t seen too much other than sort of ourselves,” Bradley said.

Also noted in the company’s latest financial statement, CPS indicated annualized net charge-offs for the first quarter of 2017 stood at 7.91 percent of the average owned portfolio as compared to 7.57 percent for the first quarter of last year.

The company added its delinquencies greater than 30 days (including repossession inventory) involved 9.74 percent of the total owned portfolio as of March 31, as compared to 8.97 percent on the same date a year earlier.

CPS announces $225.2M securitization

In other company news, Consumer Portfolio Services also announced the closing of its second term securitization in 2017.  The transaction is CPS’ 24th senior subordinate securitization since the beginning of 2011 and the seventh consecutive securitization to receive a triple-A rating on the senior class of notes from at least two rating agencies. 

In the transaction, qualified institutional buyers purchased $225.17 million of asset-backed notes secured by $230.0 million in automobile receivables originated by CPS.  The sold notes, issued by CPS Auto Receivables Trust 2017-B, consist of five classes.

Ratings of the notes were provided by Standard & Poor’s and Kroll Bond Rating Agency, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer.

Amount Interest
Price S&P
 A  $101.660 million  1.75%  .71 years  99.99332%  AAA  AAA
 B  $38.985 million  2.33%  1.87 years  99.99341%  AA  AA
 C  $34.155 million  2.92%  2.57 years  99.98493%  A  A
 D  $27.715 million  3.95%  3.26 years  99.97496%  BBB  BBB
 E  $22.655 million  5.75%  3.94 years  99.98065%  BB-  BB-

The company indicated the weighted average coupon on the notes is approximately 3.45 percent.

CPS said the 2017-B transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance and over-collateralization of 2.10 percent.

The final enhancement level requires accelerated payment of principal on the notes to reach overcollateralization of 7.45 percent of the then-outstanding receivable pool balance.

Officials went on to note the transaction utilizes a pre-funding structure, in which CPS sold approximately $145.7 million of receivables in April and plans to sell approximately $84.3 million of additional receivables during May.

“This further sale is intended to provide CPS with long-term financing for receivables purchased primarily in the month of April,” the company said.

2 new relationships designed to boost originations and payments

CARY, N.C. - 

A quartet of auto finance technology firms collaborated this week on a pair of relationships aimed at enhancing both originations and payments.

First, Payix and Nortridge Software announced they formed a strategic alliance to help finance companies connect with their borrowers and improve their ability to collect payments. The alliance is geared to allow Payix to offer real-time integration between its suite of collections tools and the Nortridge Loan System (NLS).

Then, AutoGravity announced a partnership with CarFinance.com, a direct to consumer online finance company that is an affiliate of Flagship Credit Acceptance. The partnership is designed to give qualified users access to even more financing options through the AutoGravity digital platform.

Both developments come at time when the latest report generated by the Federal Reserve Bank of New York declared that 2016 officially represented the year of the highest auto finance originations — at least in the 18-year history of the data officials obtained from Equifax.

Payix’s collections tools include its intuitive, engaging and affordable mobile collections application, as well as web, interactive voice response (IVR), text and collector portal applications. Nortridge explained that its clients can add the Payix solutions to their existing collections tools with virtually no IT work on their part and in just a few weeks’ time.

“Lenders are always striving for ways to improve collections,” Nortridge Software president and chief executive officer Greg Hindson said. “The integration between Nortridge and Payix makes it easy for borrowers to pay anywhere and anytime — benefiting both borrowers and lenders.”

Executives went on to mention the Nortridge and Payix teams collaborated in the development of the seamless web services interface between the Nortridge Loan System and the Payix payment system, ensuring that transactions could be carried out in real-time and without interruption.

“We are elated to partner with an organization as strong and well-respected as Nortridge Software,” Payix president Chris Chestnut said. “Their products are incredibly flexible and reliable, and their team of industry leaders is fantastic to work with. We both realize our organizations are stronger together, and we couldn’t be more pleased to be able to form this alliance with them.”

Payix’s collections tools are white-labeled to help finance companies promote their own brands with their borrowers, and they were specifically designed for any size lender to use easily and affordably. Chestnut elaborated about the tool in this report from SubPrime Auto Finance News.

So finance companies can have more contracts on which to collect, the team at AutoGravity contends its smartphone technology helps potential buyers get up to four personalized finance offers on the new or used vehicle of their choice — on average in under 10 minutes.

Designed with state-of-the-art security, AutoGravity protects user information with advanced bank-level encryption to ensure that sensitive information is processed securely. The tech company also recently confirmed that its network of partner dealerships has grown to more than 1,400 franchised dealers.

“AutoGravity transforms car financing by empowering car buyers with up to four binding finance offers in minutes,” AutoGravity founder and chief executive officer Andy Hinrichs said. “Growth in our network of partner lenders creates more options for our users, marking another great step forward in delivering a world-class digital car shopping and financing experience.”

CarFinance.com joins a growing list of automotive finance providers that have embraced proprietary AutoGravity technology to allow consumers to shop for vehicles and see personalized financing options, all from the convenience of their mobile phones. Users are empowered by a one-of-a-kind financing experience that delivers efficiency, transparency and freedom of choice.

“We are pleased to partner with AutoGravity, a rising star in the digital car financing market,” said Samuel López, senior vice president and general manager of CarFinance.com. “More consumers are using digital tools to shop for and finance their cars, as we have seen with our customers at CarFinance.com.

“Our partnership with AutoGravity will provide car buyers, particularly millennials, access to our suite of best-in-class online tools that make it easy to complete the entire loan process online,” López continued.

Finance offers from CarFinance.com are now available to shoppers on all versions of the AutoGravity auto financing platform.

“Our success at CarFinance.com is driven by our ability to offer a fantastic user experience as our customers secure financing for their next car,” said Gerry Quinn, vice president of business development at CarFinance.com.

“Through our partnership with AutoGravity, we are seizing the opportunity to expand our reach and serve new customer segments with a cutting-edge mobile solution that complements our own digital lending platform and seamless online journey,” Quinn went on to say.

Few signs industry is backing off record financing pace


The latest report generated by the Federal Reserve Bank of New York declared that 2016 officially represented the year of the highest auto finance originations — at least in the 18-year history of the data officials obtained from Equifax.

And at least one finance company that specializes in subprime paper isn’t sure when the current cycle of aggressive originating is going to slow.

The New York Fed indicated there were $142 billion in auto originations during the fourth quarter, leaving the amount of outstanding balances at $1.16 trillion, roughly $93 billion higher than the close of 2015.

In the company’s letter to shareholders distributed this week, Credit Acceptance chief financial officer Kenneth Booth tried to leverage past credit cycles to project what might happen for the rest of this year and beyond.

Booth told Credit Acceptance shareholders that he expected the current origination cycle to unfold similar to the one that began in 1994, which lasted four years, as well as the one that started in 2003, which stretched on for five years. He acknowledged the current cycle began in 2012 and now is working toward a sixth year.

“While much has been written about an imminent collapse of our industry, so far those predictions have not materialized,” Booth wrote. “The first two cycles ended for different reasons. In the mid-1990s, it was mistakes made within our industry that caused the cycle to end. Like us, others in the industry grossly misjudged the performance of the loans they were originating. In contrast, the end of the 2003–2007 cycle had very little to do with anything that occurred in our industry, but instead was due to the global financial crisis triggered by the collapse of the housing market.

“As I write this letter, it is difficult to see anything on the horizon that will cause this current cycle to end,” he continued. “Some might point to a decline in used vehicle values (which adversely impacts loan performance), although so much has been written about this that I expect many in the industry have already factored it into their models. Some might point to an expected rise in interest rates, although it would seem to be relatively simple for the industry to gradually adjust pricing models to offset any increase in rates.

“Although I continue to believe that we will have a more favorable environment at some point in the future, my long-term outlook has changed,” Booth went on to say.

Booth then mentioned that the current environment “may be the norm,” while the period that included the Great Recession “may be the exception,” in reference to the span from 2008 through 2010.

“While this is not much more than a guess on my part, and I try to avoid making predictions about the future, I think it’s important to share my thoughts with shareholders, even when those thoughts may prove to be incorrect,” Booth wrote. “In my view, it seems likely that the markets that supply capital to our industry may have figured out how to protect themselves by structuring financing transactions with a margin of safety.

“There is much more information available today and a much longer historical track record upon which they can base their conclusions. If so, capital availability may at times be modestly more restricted, but a complete exit of capital sources from our industry as occurred in the mid-1990s and after the financial crisis may not occur for many years,” he continued.

So where do current conditions leave Credit Acceptance and perhaps other finance companies, especially ones that book subprime paper?

“If this is true, we will need to accelerate our ability to adapt to a competitive cycle that lasts much longer than we hoped,” Booth wrote. “For us, this means continuing to focus on our product and our culture, but also recognizing that it will be critical to make progress more rapidly.

“What we don’t plan to do is grow volume by taking risks we view as unwise. Instead, we will continue to invest your capital in ways we think make sense and return the rest to you,” he added.

Moody’s sees consumers on ‘trade-in treadmill’


In a new report released on Monday, Moody’s Investors Service explained what likely might be happening in the war rooms at auto finance companies nowadays.

Financing providers are increasingly faced with the choice of taking on greater risk by rolling negative equity at trade-in into the next vehicle loan. The credit rating agency believes finance companies are increasingly accepting this choice, resulting in mounting negative equity with successive new-car purchases and growing credit risk.

“Now that new-vehicle sales have plateaued, the competition for remaining loan supply will intensify, driving increased credit risk for auto lenders,” according to Jason Grohotolski, a Moody’s vice president and senior credit officer.

Moody’s pointed out that the need for auto finance companies to be more accommodative to sustain or increase origination volumes is compounding credit risk on their balance sheets at a time when the average dollar amount of negative equity at trade-in is at record levels.

According to Edmunds data, an estimated 32 percent of all trade-ins toward the purchase of a new model through the first three quarters of 2016 were underwater. This is the highest rate on record, and it’s up from 30 percent of all trade-ins toward new-vehicle purchases from January to September of last year. These “upside down” shoppers had an average of $4,832 of negative equity at the time of trade-in, also a record.

The phenomenon of upside down trade-ins is not limited to new-model purchases. According to Edmunds’ Q3 Used Vehicle Market Report, a record 25 percent of all trade-ins toward a used-car purchase in the third quarter had negative equity. These shoppers had an average of $3,635 of negative equity at the time of trade-in, also a Q3 record in the used market.

“It’s curious to see just how many of today’s car shoppers are undeterred by how much they owe on their trade-ins,” Edmunds senior analyst Ivan Drury said. “With today’s strong economic conditions at their back, these shoppers are willing to absorb a significant financial hit to get into a newer vehicle.”

Moody’s also mentioned that finance companies also have accommodated borrowers by extending original loan terms, slowing principal amortization for the sector at large.

“As a result, auto lenders increase the collateral deficiencies in their portfolios, and thereby increase loan-loss severities, upping the pressure on their already thin profitability,” Moody’s said in the report, titled Auto Finance — United States: Credit Risk Increases for Lenders, with Negative Equity at an All-Time High.

The report goes on to note that an accommodative financing environment has allowed vehicle buyers to purchase a new model while simultaneously rolling negative equity from a prior loan balance into a new installment contract. Grohotolski explained this pattern is achieved with longer loan terms, higher loan to values and higher interest rates, which creates a “trade-in treadmill” where vehicle buyers are in a cycle of regularly renewing their loans at increased negative equity at trade-in.

Therefore, each successive vehicle installment contract is riskier, according to Grohotolski.

“Consumers will have to get off the treadmill, and the industries’ response will help dictate how painful it is,” Grohotolski said.

Top 20 finance companies by market share in Q4

CARY, N.C. - 

Shared exclusively for SubPrime Auto Finance News, Experian Automotive determined the top 20 market holders of what analysts classify as finance companies — operations that do not hold consumer deposits and often specialize in originating subprime paper.

Experian Automotive compiled this listing based on both used- and new-vehicle originations compiled during the fourth quarter. The rundown is as follows:

1. Santander Consumer USA: 16.8 percent

2. Credit Acceptance: 10.6 percent

3. World Omni Financial: 6.8 percent

4. Gateway One Lending & Finance: 6.8 percent

5. Westlake Financial Services: 6.4 percent

6. AmeriCredit Financial Services: 4.8 percent

7. Exeter Finance: 2.6 percent

8. Regional Acceptance: 2.5 percent

9. American Credit Acceptance: 2.3 percent

10. Flagship Credit Acceptance: 2.2 percent

11. Consumer Portfolio Services: 2.1 percent

12. Prestige Financial Services: 1.1 percent

13. Lobel Financial: 1.0 percent

14. Lincoln Automotive Financial Services: 0.9 percent

15. United Auto Credit: 0.7 percent

16. Financial Institution Lending Option: 0.7 percent

17. Reliable Credit Association: 0.6 percent

18. Global Lending Services: 0.6 percent

19. First Investors Financial Services Group: 0.6 percent

20. Nicholas Financial: 0.6 percent

Before Experian released this market share data, many of these finance companies that are publicly traded discussed their Q4 results, including Credit Acceptance chief executive officer Brett Roberts.

“The first factor I would look at is the competitive environment. That certainly makes things challenging. We’re not getting any improvement there, but I don’t think it got any worse either,” Roberts replied when asked what might be impacting originations; elements such as softening consumer demand or the sales battle between franchised and independent dealerships.

“So I think what you saw in the fourth quarter is — as we talked about in prior calls — our strategy when the environment is competitive is to focus on growing the number of active dealers,” Roberts continued according to the transcript of the company’s latest conference call with investment analysts.

“It is difficult to grow volume per dealer when it is very competitive,” he went on to say. “But as I think we alluded to several quarters ago, as the base of dealers gets bigger, it becomes more difficult to grow that at a fast enough rate in order to offset the decline in volume per dealer, and to a lesser extent, attrition. So that is what we're seeing right now. We're having difficulty signing up enough dealers to offset those other two factors.”

Consumer Portfolio Services chairman and chief executive officer Brad Bradley addressed a Wall Street observer inquiry about what firms are originating subprime vehicle installment contracts if the conjecture about many of the firms on the list above is true — that many finance companies are tightening their underwriting. Bradley acknowledged he received the question “about a dozen times in the last couple months” when CPS held its quarterly conference call back in February.

“If vehicle sales are still really strong and subprime is cutting back, who’s buying all this paper, right? The niche that sort of fills that generally speaking would be like credit unions, savings and loans, things like that,” Bradley said. “So maybe the credit unions are picking it all up.

“You’d almost want one guy to say, ‘Oh, ours grew a ton,’ but no one has said that,” he continued. “So the paper’s got to be going somewhere and so maybe a few of the sort of bigger guys are reaching a little bit but it doesn’t seem to appear that way. So the only place it could also disappear that nobody is really seeing it, would be like credit unions. And so that would be if I had to give an answer, I would bet that.

“Subprime is mostly pre-owned vehicles. So you wouldn’t really see the comparison with the new,” Bradley went on to say.

How ‘fairly stable consumers’ could impact subprime

CARY, N.C. - 

Certain macroeconomic trends — especially employment and consumer confidence — prompted Santander Consumer USA president and chief executive officer Jason Kulas to say that he sees a “fairly stable consumer” after he examined the finance company’s portfolio as well as the entire auto finance market.

However, those two particular economic trends could leave negative ramifications when consumers look to obtain auto financing later this year, in particular individuals who fall into the non-prime or subprime spaces.

To recap those upbeat trends, the U.S. Bureau of Labor Statistics reported this past Friday that total nonfarm payroll employment increased by 235,000 in February, and the unemployment rate remained virtually unchanged at 4.7 percent. Federal officials said employment gains occurred in construction, private educational services, manufacturing, health care and mining.

Meanwhile, The Conference Board Consumer Confidence Index, which had declined moderately in January, increased in February. The index stands at 114.8, up from 111.6 in January.

The monthly Consumer Confidence Survey, based on a probability-design random sample, is conducted for The Conference Board by Nielsen

“Consumer confidence increased in February and remains at a 15-year high,” said Lynn Franco, director of economic indicators at The Conference Board. “Consumers rated current business and labor market conditions more favorably (in February) than in January. Expectations improved regarding the short-term outlook for business, and to a lesser degree jobs and income prospects.

“Overall, consumers expect the economy to continue expanding in the months ahead,” Franco added.

SCUSA conducted its annual investor day just before each of those trends were updated. Still, Kulas conveyed an optimistic assessment.

“This is an interesting topic because there's a lot of people are out with their earnings calls talking about what they're seeing with the consumer. We've done the same,” Kulas said according to a transcript of the event posted by the finance company. “What you'll hear from us is we still think the consumer is pretty strong. It’s not that we ignore trends. We certainly factor in what we see into how we originate and how we think about the future, but the facts are pretty interesting.

“The first one is obviously employment. … The consumer has a job,” he continued. “Consumer confidence is a really positive story right now.

“If you look at debt ratios, while they’re increasing, they’re still below where they were pre-crisis, particularly if you look at auto,” Kulas went on to say. “So for us, it’s not that we ignore the trend. We certainly factor in the trends, but in our assessment of the consumer, the consumer is still relatively strong today, and that’s why we see positive performance. … That's what we see reflected in our performance, a fairly stable consumer.”

Evidently, the Federal Reserve thinks consumers are “fairly stable,” too, which is why it’s widely expected that the monetary agency will push up interest rates later this week. Comerica Bank chief economist Robert Dye is projecting the uptick to be 0.25 percent.

Dye also touched on what else the Federal Open Market Committee (FOMC) is likely to share when it meets this week. The Fed will release a new “dot plot” and economic projections on Wednesday, and chair Janet Yellen will have a press conference.

“With a Fed funds rate hike a near certainty, the focus is now on forward guidance,” Dye said. “If the Fed hikes on Wednesday, they will have begun a pattern of raising interest rates every other meeting, and on meetings with scheduled press conferences. So analysts will be looking for clues in the policy announcement, in the dot plot and in Janet Yellen’s answers to reporters’ questions about the pacing of interest rate hikes for the remainder of this year.

“The December 2016 dot plot was consistent with three rate hikes for 2017. We could see the March dot plot shift upward to be consistent with four rate hikes in 2017. The minutes of the March 14/15 FOMC meeting should prove interesting when they are released on April 5,” Dye went on to say.

Turning back to the event hosted by Santander Consumer USA, chief operating officer Rich Morrin described how interest rates inching higher might impact non-prime auto finance applicants.

“The biggest impact for the most part is going to be the fact that fewer people will not be able to actually transact because we're going to be requiring, for example, more money down to get to a certain amount financed that we're willing to extend,” Morrin said. “So what generally will happen is they just can’t come up with those dollars.”

Morrin went on to mention why SCUSA could handle that development better than other finance companies that book non-prime and subprime paper.

“If the overall market starts to kind of fall, the reason why we feel comfortable given where we are in that space is the fact that we’re a large player in the space and smaller players who are taking share, we start to become in an environment like that given our marginal cost relative to those competitors, we start to be able to pick up volume that they might not be able to pick up in that kind of environment and make better decisions about which consumer should get the right price given that dynamic.

“In an environment like that for non-prime consumers, we would expect that we actually can maintain share or actually potentially grow depending on the ultimate impact to smaller players in the space,” he added.

Equifax rolls out suite of 3 advanced analytics tools


On Thursday, Equifax announced the global launch of a portfolio of analytics tools dubbed Equifax Ignite that’s available now in the U.S., Canada and the U.K., and coming to Australia in the fall.

The company explained that Equifax Ignite challenges what it classified as the traditional “one size fits all approach” with an innovative suite of solutions that provides fast, configurable and actionable data to solve clients’ most critical challenges and help drive their growth strategies. Offering insights through three distinct delivery channels, Equifax said this “tailored for you” approach was designed with various key users in mind — from marketing senior executives to data scientists. 

The driving force behind Equifax Ignite is the company’s established insights through powerful data and analytics solutions that can help propel critical business decisions. Officials said Equifax Ignite embodies the company’s deep expertise in big data, specialized risk, fraud and marketing analytics, as well as its vast portfolio of directly sourced, directly measured data from the credit, finance and telecommunications industries.

Equifax Ignite can deliver deep insights through an extensive data portfolio including trended data, risk scoring models and the linking and keying of disparate sets of data.

 “Harnessing the power of big data poses a tremendous challenge for businesses,” said Trey Loughran, chief marketing officer at Equifax. “Whether it’s providing the latest in data visualization through an app or access to our differentiated data, advanced analytical tools and technology, Equifax Ignite brings data to life and helps drive businesses forward by helping the end user become a data-driven organization.”

As an example, the company explained that with Equifax Ignite, a bank could leverage key insights to help assess risk at various decision points relevant to their unique goals. From more accurately targeting and screening new customers through market intelligence and alternative data, to creating risk models and monitoring risk scores over time, the user is able to access the vast array of insights available, using leading-edge analytic techniques.

“Equifax Ignite redefines access to data and speed to market,” said Prasanna Dhore, chief data and analytics officer at Equifax. “There is a paradigm shift happening: the market needs more tailored data solutions that don’t take months to deliver.

“Generic models aren’t relevant to many businesses’ needs, and custom models and diagnostics simply take too long,” Dhore continued. “Equifax Ignite meets market demand through a frictionless process that reduces building, testing and deployment from months to days.”

The Equifax data and advanced analytics is funneled into three delivery channels: Equifax Ignite Models and Scores, Equifax Ignite Direct and Equifax Ignite Marketplace.

• Equifax Ignite Models and Scores: Configurable scores that offer the power of a custom solution with the speed and ease of an off-the-shelf product. The Equifax Ignite portfolio of configurable scores can help businesses enhance customer acquisition, risk segmentation and decisioning, and improve customer relationships. 

• Equifax Ignite Direct: Created as a self-serve platform, this high-speed solution can allow users to create analytics using direct access to data, attributes and analytical tools. Seamless integration enables teams to build, test and deploy models that suit their unique needs.

• Equifax Ignite Marketplace: A virtual destination for all of the Equifax analytical applications (apps) available for download. The apps will be leveraged for visualizing and digesting data, benchmarks and trends across industries including insurance, banking and telecommunications.

For more information about Equifax Ignite, visit Equifax.com/EquifaxIgnite