With subprime paper representing only about 16 percent of the total outstanding auto finance balance figure TransUnion reported for the third quarter, the bureau’s top industry analyst indicated that’s not too much lower-end paper currently in portfolios.
“Overall, it’s probably a good thing,” Jason Laky, senior vice president and automotive and consumer lending business leader for TransUnion, said about the latest subprime balance figure that grew by 11.4 percent year-over-year.
“The reason I say that is we’re in the sixth, almost seventh, year of economic expansion,” Laky continued during a conversation with SubPrime Auto Finance News after TransUnion’s Q3 2016 Industry Insights Report powered by Prama analytics. “As long as we’re in an economic expansion, the longer that goes, the more confident I think lenders feel in lending to subprime and non-prime consumers, so I think you would expect that growth.
“Again, the further you get into an economic cycle, the more people are going to have net gains in employment,” he went on to say. “We saw 161,000 net new jobs last month, with many of those people coming back into the workforce and may have been unemployed for a period of time or are relatively new to credit. As people are getting employed, it’s naturally creating this demand in subprime and non-prime and lenders are there to meet that demand.”
Balances are higher as now almost 80 million consumers hold some kind of auto financing — a Q3 metric Laky noted as being about 6 percent higher than a year earlier. However as the leaders of both Consumer Portfolio Services and Credit Acceptance noted when they reported their third-quarter results, there is a bit of turbulence that finance companies are facing.
“If there is a tightening — and the reason I say if — from a consumer market prospective, we’re still seeing good growth of consumers getting autos,” Laky said. “From a tightening perspective you’re seeing individual lenders maybe tightening their policies or reducing or being more careful in how they’re participating in the market. There’s a tremendous amount of competition out there. What we’ve seen is the competition for most risk tiers is driving down interest rates or APRs, how they’re being compensated for the risk they’re taking. It’s harder to get at.
“But at the same time, we’re starting to see the beginnings of a higher cost of funds for lenders,” he continued. “The Fed talks about raising rates a little bit. Some of the investor concerns around the fintechs in the second quarter of the year may have just flowed through to auto lenders, particularly independent auto lenders that might have had a higher cost of funds.
“Those two things together can probably just squeeze margins enough that are causing some lenders to really think about where they want to play a little more carefully,” Laky went on to say.
And if finance companies choose to be a little less aggressive, Laky explained the two most likely strategic moves they can make.
“From a lender’s perspective, the two levers that are probably the easiest or most straightforward to pull are credit scores — changing FICO cutoffs is a quick way to manage the credit side of the risk — and the other lever is on the asset side usually with the loan-to-value ratio. That’s another good lever you can pull pretty quickly as a lender,” Laky said. “You can reduce your caps on LTVs or your score cuts relatively easily.
“Nowadays, a lender with any sophistication, things are so engrained — policies and scores and LTVs — that simply changing one isn’t always an option. There’s a lot of thought that usually goes into either expanding the buy or contracting them,” he added.
SubPrime Auto Finance News closed its conversation with Laky by asking about what TransUnion will be watching in 2017 in order to spot significant change or continued patterns of origination growth that’s been noticed for several consecutive quarters.
“From an auto lender’s perspective, we’re going to look a three areas,” Laky said. “First is we’re always going to keep a look on credit quality. We look to see not just how credit is growing across traditional tiers, but the characteristics of the consumers within those tiers and how they’re changing. I feel that’s our responsibility as TransUnion to help our lenders keep an eye on that overall.
“Second is used-car values,” he continued. “We’re a long time into a strong used-car market. There’s a lot of talk about off-lease vehicles increasing over the next couple of years. We certainly see it in the credit file so we’ll keep an eye on that.
“Third, I would keep an eye on funding costs,” Laky went on to say. “The Fed talks about raising rates. While it might only be a little bit, it does flow through to the cost of funds and can certainly challenge margins for lenders. As long as the economy is strong and the Fed is raising rates because of a strong economy, I think that’s the least of the things to worry about.”
TransUnion’s complete Q3 report can be viewed here.
According to DealerVault, its objective is to protect the “dealership data goldmine.” It’s all of the customer data that might have arrived through website leads, the F&I office or the service drive.
With some industry analysts’ expectations of customer data generating $2 billion in economic activity by 2018, Dealer Specialty Group, the parent company for DealerVault, highlighted how dealerships are leveraging its tool to protect this information and guard for cyber security.
In fact, company officials claim 13 of the top 25 dealer groups now use DealerVault.
In 2013, Authenticom and Dealer Specialty Group created a cloud-based system that was designed to allow automotive retailers control over how their customer data is stored and used. In addition to working with 13 of the top 25 automotive retailing groups, DealerVault has nearly 5,600 dealer customers and more than 450 vendor partners in total.
“The best metric we have for our success is the number of automotive retailers and their vendor partners who choose to work with DealerVault,” Authenticom chief executive officer Steve Cottrell said. "We always say, ‘We will only grow our business by making sure our customers grow their business first.’ Every day, we’re driving toward their success."
Cottrell reiterated that the “dealership data goldmine” at $2 billion annually projects to more than $100,000 per franchised dealer annually in additional costs. He claimed some DMS providers' additional data use fees support their own revenue growth, but drive up costs for dealers and their third-party vendors.
DealerVault offers standardized pricing of $25 per month for a single nightly data feed or $50 per month for two or more nightly data feeds.
“DealerVault has invested heavily in data security by leveraging Microsoft's most secure cloud-based solution, Azure,” the company said.
“In addition, DealerVault's easy-to-use web platform allows its dealership partners to quickly and easily view and modify current data feeds, check the status of its ongoing vendor projects, disable access when needed and manage multiple stores with the simple click of a button,” the company went on to say.
EFG Companies, together with Northwood University, recently announced the judging panel in the 2016 F&I Innovator of the Year competition. Representing all automotive brands spanning across the country, the eight-member blue-ribbon judging panel brings extensive experience and expertise in understanding consumer drivers in the F&I space.
The judges will select a winning F&I product idea from one of six teams currently competing in the F&I Innovator of the Year competition, which will conclude on Friday. The winning team and product will be announced Dec. 8 at Northwood University.
The 2016 competition judges include:
—Alvin Heggs, dealer principal at Superstition Springs Chrysler Jeep Dodge Ram
—Kurt Hornung, vice president of F&I operations at AutoNation
—John Kane, co-founder of Empire Dealer Services
—Tiger Lester, regional finance and insurance director at Group 1 Automotive
—Anthony Patterson, vice president of operations, Patterson Auto Group
—Claudia Sands, director of financial services, Penske Automotive Group
—Fernando Somoza, executive manager, Central Houston Cadillac, Central Houston Nissan, & Baytown Nissan
—John Stephens, senior vice president of dealer services, EFG Companies
“The judges selected for this panel have developed reputations as change agents within the automotive industry on both regional and national levels,” said John Pappanastos, president and chief executive officer of EFG Companies.
“Their ability to raise the bar in innovation, backed by their years of experience, gives them the unique ability to determine what F&I product has the most potential to benefit consumers, dealerships and the industry as a whole,” Pappanastos continued.
The F&I Innovator of the Year competition is designed to foster breakthrough ideas in the F&I space. It includes six competing teams from Northwood University that have been tasked with developing a business case for a new F&I product. The students must research, rationalize and demonstrate market viability of their new product, and its potential to facilitate F&I product sales in franchise dealerships.
At the conclusion of the competition, EFG Companies will award the winning team $25,000. The company will also develop the winning F&I product for the retail automotive marketplace, and return a percentage of the product’s revenues to Northwood University.
Visit this website to learn more about the F&I Innovator of the Year Contest.
F&I product provider JM&A Group recently entered into an agreement with Volvo Car USA to provide a full suite of branded F&I products for new and used vehicles to more than 300 Volvo dealers nationally.
Through Volvo’s branded F&I program known as Volvo Increased Protection (VIP) Plans, JM&A will administer its F&I products. These will include vehicle service contracts, prepaid maintenance, tire & wheel protection and certified pre-owned (CPO) service contracts.
As an added benefit, JM&A’s nationwide network of 300-plus dedicated field representatives are being asked to deliver training services and in-store support to help enhance the vehicle-buying experience, boost customer loyalty, reinforce dealer compliance and improve overall performance.
“We are honored to join forces with a globally recognized and trusted brand like Volvo and be a part of its continued growth and success,” JM&A Group president Forrest Heathcott said. “Our company remains committed to providing premier products and services to our partners and their loyal customers. We look forward to sharing our market knowledge to bolster Volvo’s F&I results.”
The new alliance was announced to an audience of more than 500 dealers and personnel during the 2016 Volvo North American Customer Service Conference on Oct. 25.
“JM&A Group understands our business values and objectives and we look forward to a seamless integration of their expertise into our efforts,” said Tony Nicolosi, president and chief executive officer of Volvo Car Financial Services. “We focus on building a luxury brand that is synonymous with excellent customer care and superior products, and JM&A was a natural alignment to help accomplish our goals.”
Lending Club, which claims to be the world's largest online marketplace connecting borrowers and investors, this week announced the launch of an auto refinance product that is designed to give vehicle owners a simple solution to save money on their installment contracts.
The product is being launched initially to California residents, with plans to expand nationally in early 2017.
In less than a minute, consumers can check their rate online to see what they might qualify for based on their credit profile and ability to repay, as well as the make, model, mileage and current value of their vehicle.
Once a borrower selects an offer, completes the application process and is approved, WebBank will issue a new loan ranging from $5,000 to $50,000, with terms ranging from two to six years and APRs starting at 2.49 percent and up to 19.99 percent, and Lending Club will facilitate paying off a borrower's existing contract.
Lending Club president and chief executive officer Scott Sanborn explained this auto refinance product leverages the company’s technology and expertise to help eligible consumers save money by refinancing into more affordable terms with better rates, clear terms and no hidden fees.
“Tens of millions of Americans borrow over half a trillion dollars every year to buy cars,” Sanborn said. “The practices and processes of the auto lending industry offer consumers limited options and a lack of transparency. This has created a gap between the rates consumers pay and the rates they might otherwise qualify for, unnecessarily driving up debt burdens.
“We are excited to leverage our technology and core capabilities to put thousands of dollars back in consumers' pockets,” he continued.
Lending Club has become one of the nation’s largest platform for personal loans, primarily by helping consumers gain access to lower interest rates as compared to traditional options such as high-interest credit cards. The company declared that currently there is more than $1 trillion in outstanding auto debt, with just a fraction of that figure — $40 billion — refinanced annually.
The company thinks this ratio represents huge potential for both Lending Club's platform and the millions of Americans who could save by refinancing into a more affordable product.
Lending Club estimated the average APR for borrowers on new contracts through Lending Club will be about 1 percent to 3 percent lower than their current contract, translating into an average savings of up to $1,350 over the life of the loan.
“This is Lending Club's first offering of access to a secured loan with an overall risk and return profile that's complementary to the unsecured loans available through our platform. It’s a big step in the evolution of our platform, a win for consumers, and will give our investors access to another proven asset,” Sanborn said.
Customers can find out more about their auto refinancing options through Lending Club at lendingclub.com/apply/site/auto-refinancing.
SubPrime Auto Finance News has announced the winner of the fourth annual Subprime Auto Finance Executive of the Year Award, which is again sponsored by Black Book Lender Solutions.
The honoree — who will receive the award during the SubPrime Forum at Used Car Week in Las Vegas — is Ozzie Ramos, the founder, president and chief executive officer of National Auto Lenders, a subprime finance company based in Miami Lakes, Fla.
“Congratulations to Ozzie Ramos and the entire team at National Auto Lenders,” said SubPrime Auto Finance News publisher and Used Car Week chair Bill Zadeits.
“The company plays a critical role in the auto finance market, serving dealerships while taking on the additional risk the subprime segment presents,” Zadeits continued. “It’s forward-thinking executives like Ozzie that embody what the Subprime Auto Finance Executive of the Year Award encompasses.”
National Auto Lenders works with more than 500 dealerships in 11 states, including Florida, Texas, Virginia, Ohio, Kentucky, Alabama, Tennessee, Georgia, North Carolina, South Carolina and Indiana. Along with leading his company for the past 20 years, Ramos also is board member of the National Automotive Finance Association.
“Over the past 20 years starting from a small office in Miami, Ozzie’s team at NAL has grown, adapted and implemented innovative tools, ideas and solutions that have helped them to become a leader in the subprime industry within the markets they serve,” Jared Kalfus, Black Book’s senior vice president of sales.
“Ozzie is continuously challenging his team to build and refine their lending models while, always keeping their dealers and customers in mind,” Kalfus continued. “At Black Book, we’ve observed the growth that Ozzie and his NAL team achieved and have found them to be a great resource as they openly share ideas, feedback and observations about the evolving market that allows our team to have greater insight into the industry.”
Ramos joins previous winners of the award, including Bill Jensen of Chase, Ian Anderson of Westlake Financial Services and Dan Ulatowski of Credit Acceptance.
After Kalfus hands him the hardware, Ramos will be part of the panel discussions at the SubPrime Forum, which is presented by Digital Recognition Network. The event, which is produced in collaboration with the NAF Association, runs from Nov. 14-16 at the Red Rock Resort and Casino in Las Vegas.
Thus far, more than 1,000 dealers, finance company and auction executives and other industry experts are registered to gather during Used Car Week for networking, presentations from experts and more. There is still time to register for the series of events, which also include the CPO Forum — America’s Used Car Conference as well as the Re3 Conference and the National Remarketing Conference/NAAA Convention.
For more details, go to www.usedcarweek.biz.
In an effort to broaden support of customers and the community, General Motors Financial launched what the finance company dubbed its Mobility Initiative, a multifaceted effort aimed at empowering and enriching local communities through financial education and resources, along with community collaborations, to create opportunities for social, travel and financial mobility.
Initially, GM Financial explained that the Mobility Initiative includes two community-focused programs that leverage the captive’s proximity to — and engagement with — today’s consumer, as well as the company’s financial services expertise and resources. These programs include:
1. Keys by GM Financial
This program, a combination of live training sessions with community partners and online financial education information and resources, is designed to help consumers unlock a “smarter” financial future by bridging the financial literacy “gap” and empowering mobility.
Planned for expansion in 2017, the Keys training curriculum is based on a blend of respected third-party research and the company’s own internal expertise and customer data insights, ensuring it can deliver relevant and practical educational information.
GM Financial recently held its first Keys live training session at the Center for Transforming Lives in Fort Worth, Texas. This event, one in a series planned for communities in North Texas and beyond, recognized the “indisputable link” between financial literacy and successfully mobilizing people to financial stability.
2. Ronald McDonald House Collaboration
GM Financial insisted its leadership and team members have a long history of service to Ronald McDonald House. GM Financial and Ronald McDonald House will now join forces to address a mobility challenge for House visitors by facilitating the use of off-lease vehicles to transport sick children and their families.
With more than 600,000 GM vehicles coming off-lease during the next two years, executives are thinking this component of GM Financial’s Mobility Initiative has the potential to meaningfully impact the lives of thousands of Ronald McDonald House residents.
More details on the official launch of this program, which will be piloted in Fort Worth, will be announced in the coming weeks.
“Every day, nearly 7,000 GM Financial team members facilitate the mobility dreams of customers by providing simple financial solutions that help put them behind the wheel of a GM vehicle,” said GM Financial president and chief executive officer Dan Berce.
“Our Mobility Initiative extends this mission through programs, investments and engagement tools that ignite all forms of mobility for consumers across the U.S. and Canada,” Berce went on to say.
More details about the project are available here.
This week, used-vehicle service contract and related finance and insurance product provider GWC Warranty announced the addition of Therese Pramick as its new strategic brand manager.
As a member of the marketing department, the company explained Pramick will be responsible for developing strategies that increase GWC’s brand awareness and value among new and existing GWC partners in an effort to help them build more successful businesses.
GWC highlighted Pramick brings to this role more than a decade of experience in marketing and marketing communications. Most recently, she spent nine years as a marketing and public relations specialist with Pennsylvania’s Geisinger Health System, overseeing the planning and execution of marketing activities for numerous health services.
Having graduated Magna cum Laude from the University of Memphis in 2003, Pramick was also named to the Northeast Pennsylvania Business Journal’s Top 20 Under 40 in 2009.
FactorTrust vice president of auto finance Scott Brackin viewed the move made by Carvana to launch a prequalification financing program as more than just a lever the online auto retailer is pulling to turn used vehicles.
What piqued Brackin’s interest is how Carvana has rolled out this program by providing customers personalized financing terms without impacting their credit scores.
“A person’s credit score is their gateway to financial success,” Brackin said. “With various important situations in life that can affect consumers' credit scores, such as student loans, mortgages and even rental applications and cell phone contracts, it is vital for consumers to be aware of these elements and make smart purchasing decisions.
“I applaud Carvana for realizing the need for a solution that puts the consumer first and has no burden on credit scores,” he went on to say. “I’m impressed by its ongoing commitment to helping consumers make more informed purchases and transforming the automotive space.”
Last week, Carvana rolled into its 17th market: Cincinnati. This is the eighth new market for the company this year, including the move to fellow Buckeye city Columbus late last month.
And now, Carvana is broadening its financing capabilities.
As the first auto retailer to integrate an online, real-time prequalification program into the car-buying experience, Carvana continues to lead the charge to modernize and disrupt the auto industry.
The retailer explained that by answering 10 basic questions, customers can instantly view personalized financing options and exact payment terms for which they prequalify across all 4,700 vehicles available on Carvana.com, all without suffering a hard inquiry on their credit history. Hard inquiries can lower credit scores by up to five points and remain on a person's history for up to two years.
“When it comes to any financial decision, it's imperative consumers shop around to ensure they receive the best interest rate,” said Carvana chief executive officer and co-founder Ernie Garcia, who along with FactorTrust's Brackin is part of the long list of executives and experts involved in Used Car Week, which runs Nov. 14-18 at the Red Rock Resort and Casino in Las Vegas.
“Our main focus is on consumers, with the goal to bring transparency back into the antiquated car buying process,” Garcia continued. “We believe consumers should have the ability to shop around and inquire about financing options to help them better understand life events without negative effects on their credit.”
Carvana referenced AutoTrader’s 2016 Car Buyer Journey that indicated 88 percent of vehicle buyers use the Internet to shop. As the industry continues to shift online, Carvana has been trying to be a leader in the space, providing a platform where buyers can qualify for financing and complete the purchase with completely signed contracts in as little as 11 minutes, with delivery arriving as soon as the next day.
Both S&P Global Ratings and the American Bankers Association spotted rises in auto finance delinquencies in their recent reports, but Cox Automotive chief economist Tom Webb insisted this week that the “overall financing environment remains extremely favorable.”
According to results from the ABA’s second-quarter Consumer Credit Delinquency Bulletin, both of its categories of auto financing registered slight year-over-year upticks. ABA reported direct auto loan delinquencies — contracts arranged directly through a bank — edged 1 basis point higher in Q2 from 0.81 percent to 0.82 percent.
Meanwhile, ABA noted Q2 indirect auto loan delinquencies — financing arranged through a third party such as a dealer — moved up from 1.45 percent to 1.56 percent.
And S&P Global Ratings carved out its look strictly at subprime paper and noticed the 60-plus-day delinquency rate ticked up to 4.85 percent in August 2016 from 4.74 percent in July and 4.14 percent in August of last year. Analysts acknowledged subprime delinquencies remain below the highest level, which was recorded in August 2009 at 5.19 percent.
Webb also considered where wholesale prices currently stand when evaluating how delinquencies might be impacting auto financing activity.
“There have been some lenders who have pulled back as a necessity because they became overly aggressive and they started to see it in their portfolio performance. However, there have been other players who have come in,” Webb said during his quarterly conference call. “From the dealer standpoint, the availability of financing is not an issue at all.
“From the lender standpoint, although delinquencies are ticking up a little bit, they’re not overly alarming,” he continued. “There have been some significant increases for some lenders in terms of their severity of loss. But I would suggest that would not be because of used-vehicle values but because of their loan-to-value ratio going in.”
Looking back at the ABA bulletin, the composite ratio — which tracks delinquencies in eight closed-end installment loan categories — fell 3 basis points to 1.35 percent of all accounts — a record low. This reading also marked the third year that delinquency rates were below the 15-year average of 2.21 percent.
The ABA report defines a delinquency as a late payment that is 30 days or more overdue.
“Consumers have become more confident over the past two years and for good reason — their financial picture is improving and their paychecks have finally started to rise as we near full-employment levels,” ABA chief economist James Chessen said. “Quarter after quarter, consumers continue to build a stronger balance sheet as they earn more, save more and keep debt levels low relative to income.”
So if Chessen is correct, auto finance companies might be leveraging a strategy Webb described. After all, Equifax recently reported that newly opened auto loans and installment contracts year-to-date through June and reported to Equifax as of August represented a rise of 3.5 percent versus the same period a year ago.
“Going forward, you assume that wholesale values are going to deteriorate a least a little bit. To use the same loan-to-value ratio, you’re putting more risk on your books because your loan-to-value ratio is based on current values whereas your repo might occur 16 to 18 months later,” Webb said.
“I think they have to incorporate that and I wouldn’t be surprised if everyone tries to get a little more up-front money in the deal. I think it would be better for everyone,” he went on to say.
