In an effort to continue to advance the adoption of digital technologies among automotive finance companies and dealers, Dealertrack recently announced that Ally Financial is now broadly available for eContracting through the Dealertrack platform.
Dealers in 42 states currently have access to Ally for eContracting via Dealertrack, and officials indicated the remaining eight states are expected to have accessibility over the next several weeks.
Ally president of automotive finance Tim Russi said, “eContracting is gaining momentum and popularity — and will be a vital part of the car buying process in the years to come because of its convenience and efficiency.
“The broad availability of eContracting on the Dealertrack F&I platform gives more dealers the opportunity to evolve their contract process and receive faster funding with Ally, thus giving car buyers a better customer experience,” Russi continued.
From generating contracts for execution to the electronic verification, signature, submission and storage of contracts, Dealertrack can deliver an end-to-end eContracting solution for dealers and finance companies. Since introducing its eContracting solution several years ago, Dealertrack has booked more than 3 million eContracts. Mobile options are also available, and contract review and signing can be performed on either an iPad or Android tablet.
“Digital technology is transforming the way dealers and car buyers interact, including the finalization of deals and contracts,” said Mark Furcolo, senior vice president of lender solutions at Dealertrack.
Furcolo continued, “eContracting is a key part of Dealertrack’s Dealflow Advantage, uniting online and in-store processes and linking the customer journey to facilitate a transparent, efficient process for car buyers, dealers and automotive finance providers, such as Ally.”
Overall vehicle depreciation for 2- to 6-year old vehicles is expected to reach 15 percent this year, representing an increase from the level of 13.2 percent experienced in 2015. That prediction arrived on Wednesday as Black Book and Fitch Ratings released their latest joint vehicle depreciation report
Analysts indicated the projected level of depreciation will mark the first time in the previous five years that annual depreciation crests above 14 percent. Despite this rate still remaining below average pre-recession levels, Fitch and Black Book believe this increase will be driven by several factors.
Black Book is forecasting new-vehicle sales to grow slightly to 17.6 million units in 2016. Black Book contends this level of sales activity, which brings a high volume of trade activity, coupled with a large amount of lease returns, will contribute to the continued increase in depreciation rates.
Meanwhile, Fitch expects U.S. prime and subprime auto loan and lease ABS performance to be stable and within historical loss levels. Although the firm acknowledges that annualized net losses will creep up in conjunction with marginally higher vehicle depreciation in 2016, as predicted by Black Book.
Analysts recapped that the strength in last year’s performance was largely driven by truck segments. The truck segments as a whole experienced half the depreciation rate of the car segments, with annual depreciation of trucks at 9.2 percent and cars at 18.2 percent.
The report went on to mention the variability in depreciation across the segments increased during 2015.
Among the trucks, the depreciation ranged from 2 percent to 23 percent across the segments, while among the car segments, the depreciation rates ranged from 14 percent to 22 percent.
“Given the spread and volatility across various segments, it becomes important for a lender to have a diversified portfolio,” Black Book and Fitch said. “Portfolios concentrated in smaller segments experienced the steepest decline in equity.
“With longer terms and softening used vehicle values, portfolio equity will experience higher risk as it would take longer for a loan to enter into a positive equity position,” the firms went on to say.
Black Book and Fitch also noted that pressure on residual performance will trend higher in 2016 due to expectations of elevated new vehicle sales, and higher fleet and rental volumes entering the secondary market during the year.
Despite this, Fitch believes auto loan and lease ABS ratings performance will not be impacted by the negative asset performance trends in 2016. The agency has a positive rating outlook for loan ABS in 2016, with the pace of upgrades expected to continue and be consistent with 2015 albeit at a slightly slower pace.
Fitch added that its outlook for auto lease ABS asset performance is stable in 2016 given pressure on residual values, but no impacted is expected on ratings which also have a stable outlook.
“The focus in 2016 will be in the depreciation disparity between car and truck segments, which showed a widening spread toward the end of last year,” said Anil Goyal, senior vice president of automotive valuation and analytics for Black Book. “We expect this spread to remain, however there is growing belief that cars are nearing their floor in terms of depreciation changes.”
The Black Book-Fitch vehicle depreciation report is a joint venture by the two companies utilizing Black Book’s used vehicle depreciation data, and Fitch’s U.S. Auto ABS indices data.
Black Book tracks used vehicle market depreciation rates providing an understanding of how vehicle prices impact automobile lenders and lessors, auto ABS transactions, consumers and other auto market constituents.
“All eyes will remain on the health of the economy and state of the wholesale vehicle market this year,” said Hylton Heard, senior director of Fitch Ratings. “Additionally, rising off-lease returns will result in overall higher used-vehicle volumes hitting the market and will pressure auto lease residual performance in 2016.”
The Black Book-Fitch vehicle depreciation report is available for download by clicking here.
While currently holding the top market share position in retail auto financing, Ally Financial said late on Monday that it will appoint a new independent director to its board of directors in a strongly worded announcement where the chairman described how executives “are frustrated with the market perception reflected in the price of Ally’s stock.”
Ally indicated this new independent director will be identified in consultation with Lion Point Capital, as well as some of Ally’s other largest shareholders. Ally said it expects to appoint the new director no later than June 30.
The appointment will expand the board to 12 members.
“Adding a highly qualified and independent director to our board demonstrates Ally’s continued commitment to diverse perspectives and sustainable shareholder value creation,” Ally chairman Franklin Hobbs said. “Our inclusion of shareholder input in this process reflects our commitment to strong corporate governance.”
Back in January, Ally responded to demands from Lion Point Capital — a hedge fund that previously had advised Ally that it holds less than 1 percent of Ally’s common stock — in a development Hobbs called a “clear agenda to force a sale of Ally.”
At the beginning of the year, executives noted Ally’s Compensation, Nominating and Governance Committee and its full board previously concluded that Ally stockholder value would not be enhanced by the creation of create a strategic alternatives committee. They insisted at the time that Ally’s business and financial fundamentals and prospects were strong, and that it would be a “highly disadvantageous time” in the business, market and regulatory cycle to pursue a sale transaction.
But then late on Monday, the Ally board of directors announced that it amended the company’s bylaws to permit shareholders holding at least 25 percent of Ally common stock to call a special meeting, as well as to provide for majority voting in uncontested director elections.
These changes were effective as of Wednesday.
Ally explained its upcoming proxy will include updates to executive compensation policies, which will be directly connected to the company’s financial and operational performance, to better align management’s and shareholders’ interests. The Ally board’s Compensation, Nominating and Governance Committee is also continuing to explore programs to further ensure the alignment of these interests.
In connection with these developments, Hobbs said in a company press release that, “Ally has undergone tremendous transformations over the past several years, and today has the strongest auto finance franchise in the U.S., with a simple and clean balance sheet.
“Ally’s portfolio contains high-quality secured loans generated via strict underwriting standards and has demonstrated effective risk management and consistent profitability,” he continued. “Our leading direct bank also continues to grow in importance with several important new products to be rolled-out through the course of 2016.”
Then came perhaps Hobbs’ most intense comment.
“We are frustrated with the market perception reflected in the price of Ally’s stock and the current discount to book does not reflect the inherent value of this company,” he said. “Management expects to announce a number of new initiatives that will drive value creation over time and further position Ally for strong, long-term performance.
“Being a disciplined steward of capital remains at the forefront of our decisions, and there is much more potential to be realized in this company. We are all aligned in our commitment to maximize shareholder value both operationally and strategically,” Hobbs went on to say.
According to the latest State of the Automotive Finance Market Report, Experian Automotive pegged Ally with the largest market share of all retail financing providers as of the fourth quarter. Ally’s share stood at 5.75 percent; just a shade above Wells Fargo Dealer Services, which came in at 5.66 percent.
Stance from Lion Point Capital
SubPrime Auto Finance News reached out to Lion Point Capital representative to obtain their reaction to Monday’s developments.
In light of what the hedge fund described as “the positive steps taken and commitments made by Ally,” Lion Point Capital chose to withdraw its director nominations and shareholder proposal.
“We are pleased that Ally Financial has committed to add a highly qualified new independent director to its board of directors in consultation with Lion Point Capital and the company’s other largest shareholders,” the hedge fund said.
“We are also encouraged that Ally has moved to strengthen its corporate governance policies and focused upon further aligning executive compensation with the financial performance of the company and the shareholders’ interests,” the firm continued.
“Lion Point looks forward to the long-term success of Ally, as well as a continuing and productive dialogue with management and other shareholders focused upon maximizing the value of the company to its owners,” Lion Point Capital went on to say.
The firm added that it agrees with Hobbs’ assessment about Ally’s stock price, stating, “that there is significant value available to be unlocked at Ally that is not reflected in the current public market price, and commend the board for its stated commitment.”
TransUnion named its newest suite of solutions Prama, which in Sanskrit means the source for accurate and valid knowledge about the world.
No matter if they speak English, Spanish, French or even Sanskrit, TransUnion’s Steve Chaouki insisted that finance company executives — especially ones that delve deep into the subprime space — will be able to comprehend the data and insights Prama can deliver through a cloud-based solution portable enough to be taken into the board room, the underwriting department or even a gathering with state and federal regulators.
“That’s really what Prama is,” said Chaouki, who is executive vice president of TransUnion's financial services business unit. “We’re trying to build it up as a knowledge and delivery hub. It’s a place where our customers can go to tap into knowledge and information and work with that knowledge and information to further their understanding of their business and act on their business.”
The Prama portfolio will start with two flagship solutions in 2016 — Prama Insights and Prama Studio.
TransUnion explained Prama Insights includes anonymized information on virtually every credit active consumer in the U.S. The data set leverages the power of CreditVision and a seven-year historical view of data, providing finance companies with what TransUnion calls “dynamic” insights that can translate into “clear” benefits at every touchpoint.
During a conversation with SubPrime Auto Finance News in advance of Thursday’s initial launch, Chaouki explained why players in the subprime space are often “heavy” users of analytics.
“They want the resources and capabilities of Prama but don’t want to build it all out themselves. Now it will be all available to them in a turn-key kind of way,” he said.
Chaouki touched on why the release of Prama is so timely since “fear” is starting to bubble up in the industry as delinquencies are starting to rise. In fact earlier this week, Fitch Ratings discussed how analysts are seeing delinquencies and their impact at levels not spotted in almost 20 years.
“If I were a subprime auto lender, I would want to know how I stack up and look by different regions to understand my exposure so I can manage it,” Chaouki said. “What Prama will allow you to do is to go into specific states, look at your risk ranges, the kind of loans you’re underwriting by score and dig into that.
“Then you can see how your loans are performing versus the other loans in that space within that state by vintage,” he continued. “How are the loans you made last month doing versus those from a month before and going back in time up to 84 months? You can look at the trends of how your originations are flowing. You can look at it by region and compare it to the benchmarks and begin to understand if you have something to worry about or if your portfolio is holding up well.”
“It’s a really timely for subprime lenders as we’re talking about these things,” Chaouki went on to say. “You can dig in and ask if there’s a problem in the oil states — North Dakota, South Dakota, Oklahoma, Texas. You can drill into those states and look at how your vintages are performing versus other states. You can begin to segment your population and understand your risk.
“Then as you engage with your regulators, with your board, as you think about your strategy, you can begin to inform them based on how you’re performing relative to the market and relative to your own expectations,” he added.
What’s going to be available soon
The first two modules of Prama Insights are Vintage Analysis and Market Insights.
The Vintage Analysis module leverages TransUnion’s detailed anonymized tradeline history of more than 200 million consumers, allowing users to view seven years of performance data on a cohort basis so they can:
— Monitor underwriting policy: View delinquency trends across various timeframes and origination cohorts, which can help risk managers adjust application scorecards and underwriting strategy to acquire accounts of acceptable risk.
— Forecast losses: Use vintage curves to project charge-offs and estimate loan loss reserves; this is valuable in general business as well as when engaging with regulators or investors.
— Calculate loan profitability: Leverage vintage performance insights to help calculate loan profitability by risk tier, determine the most appropriate credit terms and determine pricing strategy.
— Define marketing strategy: Influence market segmentation, acquisition channel definition and more via vintage performance analysis.
The Market Insights module can provide quarterly views of key lending metrics at a state, regional and national level — enabling customers to access relevant benchmark trends in seconds.
The module includes nine quarters of anonymized data and a more granular understanding of delinquency rate changes by credit tier, geography, line of business and product. Customers using this information can better measure their own performance against their competition in the industry.
“Prama Insights allows lenders to gain real and timely market intelligence that can be used for a wide variety of purposes, such as adapting risk and product strategies,” Chaouki said in TransUnion's release about the suite. “Studio, the second phase of Prama, will allow users to upload their own data, conduct detailed analyses and test strategy changes across a number of dimensions.
“The next phases of Prama will actually allow customers to seamlessly execute new strategies, or changes to existing strategies, in an automated manner that minimizes manual intervention,” he continued. “In short, Prama will fundamentally change the way lenders develop and deploy their strategies, with enormous benefits for them and their customers alike.”
The first Prama Studio modules will be offered to TransUnion customers in mid-2016.
“The tool is only possible because we have spent a better part of three years now upgrading the entire systems of TransUnion,” Chaouki told SubPrime Auto Finance News. “It’s a huge investment for us in bringing our systems up to the most modern systems available at this time. … It’s one of the largest databases that’s out there at this point.
“One of the things we really wanted to do with this software is make it user friendly and easy to integrate,” he went on to say. “You don’t want to create something like this and have it be a huge technological job to allow the customers to access it. We built it as a portal for the customers to come in and engage with TransUnion. The modules are all sitting on the portal and they can select what they want to use and engage with it.”
A video further highlighting Prama can be seen at the top of this page.
Jason Grubb conveyed a similar message not only to the board of directors that hired him to be the chief executive officer of Exeter Finance, but also the workforce of nearly 1,000 employees that he became entrusted with overseeing about a month ago.
During an exclusive phone conversation with SubPrime Auto Finance News on Tuesday, Grubb explained that he focused on three main points, including:
— His experience with a wide array of finance companies that spans more than 25 years
— Where he sees Exeter currently standing in terms of growth and development
— The value in Exeter’s relationship with Blackstone, the investment firm that purchased the company nearly five years ago
“I truly believe Exeter is in a prime position to become one of the premier subprime lenders in the industry,” Grubb said. “One thing I’ve emphasized that we definitely need to continue is to access our organization and areas of opportunity. We have to become scalable.
“At the same time given the regulatory environment we have to make sure we mitigate our regulatory risk as well as our reputational risk,” he continued. “I believe we have a strong capital structure in place. We have an extremely high level of talent within our workforce.
“I also told everyone I was excited to be a part of the Exeter family and that I look forward to our journey together,” Grubb went on to say.
Grubb’s journey to this point included stops with Nissan Motor Acceptance Corp., WFS Financial and most recently with Santander Consumer USA where he departed after 11 years and served in leadership roles including president and chief operating officer of originations.
“I’ve been very fortunate to work for successful companies throughout my career,” Grubb said. “They were all very different companies structurally as well as culturally. I really believe that diversity of experience is going to benefit me greatly as CEO of Exeter.”
Grubb made special mention of Thomas Dundon, who was CEO of SCUSA for nine years before departing last summer.
“The education I got from Tom definitely was invaluable. He’s quite a unique individual,” Grubb said.
A month ago, Exeter chose Grubb to lead the company and replace Mark Floyd, who returned on an interim basis to be CEO for the second time. With Grubb in place, Floyd went back to his position as a member of Exeter’s board.
“He continues to impart his experience and knowledge. He has a real passion for Exeter. He exited retirement twice to help build this company through amazing growth,” Grubb said about Floyd leadership that helped Exeter build a $3 billion portfolio and become the third-largest subprime auto ABS issuer.
“Personally I’m eternally grateful that through Mark’s accomplishments while at Exeter, he set the table nicely for me,” Grubb said. “He definitely made the transition easy. He was very gracious during the meetings we had. I couldn’t be more pleased and honored to know the man.”
Now at the controls of Exeter, Grubb explained that his attention turns to what he described as the company’s two primary constituents — its network of dealerships and the consumers who hold vehicle installment contracts.
“If we’re able to take care of both of those groups, I believe the rest will take care of itself,” Grubb said.
“On a higher level as far as reputation, I’d want us to be known for a company that strives to have exemplary customer service for both the dealers and customers,” he continued. “I also believe it’s important for the organization to be known for its consistency as well as transparency.”
Along with being named CEO at Exeter, Grubb also was chosen to be on the board of directors for the American Financial Services Association, which will host its 20th annual Vehicle Finance Conference later this month in Las Vegas.
When participating in industry-wide endeavors such as what AFSA looks to accomplish, Grubb said, “I treat everything as a learning experience.
“Obviously the individuals who are on the board and the constituents of AFSA are accomplished,” he continued. “As a participant, I will definitely go in listening first and talking second. I would love to hear others’ opinions about what they’re seeing. Then hopefully I would be able to convey some of my experiences and hopefully they would find value in that so we can learn together and collaborate on solutions that will impact the industry.
“AFSA is vital to the auto industry,” he added. “There’s a lot going on and I know people look to AFSA for knowledge and education. I’m just honored to be a part of it.”
When SubPrime Auto Finance News asked Grubb to project the situation when he reaches his first anniversary with Exeter, he focused the finance company’s dealer network similar to what Floyd did when he took the CEO reins just before 2015 closed.
“If we’re talking specifically to our dealer base, I’d want them to recognize the value that Exeter provides as a subprime lender by funding incremental loans and that they hopefully enjoy conducting business with us due to our transparency and consistency,” Grubb said.
“A year from now, I would want there to be ample evidence that we value our dealer feedback,” he went on to say. “I believe that by working together with our dealers to continually improve our program, we both prosper.”
The past week represented a busy time of relationship building and integrations for F&I Express, which highlighted developments with Dominion Dealer Solutions, Pearl Technology Holdings and Capital Companies.
The string aimed at helping dealership finance managers and other store personnel included Dominion DMS, a division of Dominion Dealer Solutions, which indicated its ACCESS Dealer Management System completed its integration with the F&I Express aftermarket data solution. The companies explained this new collaboration is geared to streamline the F&I process, providing time savings for dealership customers nationwide through DominionACCESS DMS.
Through DominionACCESS’ seamless integration with F&I Express, dealers partner with a leading provider of digital F&I aftermarket product solutions. Dealers nationwide can rate more than 120 different aftermarket vendors per vehicle.
Products can then be selected, added to the menu and signed. F&I Express can eliminate the need for programmable forms since laser forms are included within the F&I Express eContracting platform. They can be printed for the selected aftermarket products, letting vendors receive the product selections directly through F&I Express.
“F&I Express’ eContracting for aftermarket products completes the transition from impact printing to our new laser printing solution,” Dominion DMS president Van Koppersmith said. “Our customers now have the option of using the ACCESS menu or one of many that F&I Express offers to accurately rate, contract and register a wide variety of aftermarket products.”
Dealers using DominionACCESS now have access to eRating, eContracting, eRegistering and remittance right at their fingertips. With more than 100 providers, the companies explained this integration is designed to guarantee access to one of the largest aftermarket network in the automotive industry, saving dealers’ time and improving efficiencies.
“As we continue to advance digital contracting, companies must co-innovate to solve tough problems for their customers,” F&I Express president and chief executive officer Brian Reed said. “This integration represents a combination of Dominion’s expertise in improving business performance and F&I Express’ vision of simplifying the F&I process with innovative technology solutions.”
Dominion Dealer Solutions offers two DMS solutions — DominionACCESS and the Microsoft DynamicsAX-based DominionDMX. For more information on how DominionACCESS can supply F&I Express aftermarket product solutions to your dealership, call (877) 421.1040 or contact the company’s support staff.
F&I Express relationship with Pearl Technology Holdings
Pearl Technology Holdings partnered with F&I Express to enable both consumers and dealership sales personnel to seamlessly add aftermarket products to the vehicle purchase.
Pearl’s ShowroomXpress (SRX) is a “clicks to bricks” express retail platform that can allow vehicle shoppers to buy online, or in-store, in what the company says is a “fraction” of the normal time. By leveraging Experian’s pre-screen technology, ShowroomXpress can calculate auto loan payments to the dollar in 10 seconds.
Pearl claims to be the first platform to pre-qualify customers without a Social Security number and provide instant and exact payment calculations from every U.S auto finance company.
“We are thrilled to be working with F&I Express. No vehicle purchase is complete without aftermarket add-ons including extended warranties, tire and wheel protection, GAP insurance, etc. We wanted a solution we could integrate into our SRX platform so our users have a dynamic and efficient way to add aftermarket products to their vehicle purchase,” Pearl CEO and founder Bruce Thompson said.
“F&I Express was the obvious choice and allows us to tap over 110 aftermarket providers through a single partner. The system is both transparent and informative and enables the user to select pre-determined packages, or mix and match products that are a better fit for their individual needs,” Thompson continued.
Thompson mentioned SRX will utilize custom educational videos for each product. The videos are produced at the Pearl studios in Dallas.
The SRX platform can allow the customer to make selections on their own from the dealership’s website, or the customer can be assisted by a salesperson at the dealership, and view the educational videos as needed. The company claims the system is fast, flexible and transparent, allowing the retail transaction to be completed in a “fraction” of the transitional time.
Once selections are made, Pearl pointed out the products are instantly calculated into the customer’s monthly payment and passed to the dealer for contracting.
Currently, F&I Express works with a large volume of auto retailers across North America and several international companies to improve F&I processes. The company has aggregated a network of more than 110 automotive aftermarket insurance providers in an online portal accessible by its dealers.
“We are proud to be the F&I product and digital content integration partner for ShowroomXpress,” Reed said. “Not only will SRX have access to dealer specific rates from our network of over 110 F&I providers, they will also have full access to F&I provider specific content through our new Express Digital Media solution.”
Express Digital Media can allow customer access to the dealers’ aftermarket product providers’ content and dealer pricing information during the online shopping process. Launched last September, the Express Digital Media product is designed to deliver dynamic F&I provider content attached to dealer specific rates.
ShowroomXpress will be officially unveiled at Booth No. 2323C during the 2016 NADA Expo and Convention that begins on March 31 in Las Vegas.
For more information, call (888) 339-1116, or to sign up for a demonstration, go to www.showroomXpress.com.
F&I Express and Capital Companies integration
F&I Express and Capital Companies, specialists in product administration, marketing and support, recently formed a partnership to better serve their dealership clients by fully integrating their eContracting capabilities.
“Since 2001, Capital Companies has provided proven solutions and services that can help any dealership increase profit margins, brand recognition and customer loyalty,” Reed said. “We are excited to create a symbiotic relationship that thrives on mutual success.”
Capital Companies chairman Thomas Hughes added, “At Capital Companies, our vision is to offer the best products and services that match every need and many desires of our client partners We cherish our relationship with F&I Express and look forward to the continued vertical integration of our products for our clients.”
Along with the renewal of an $11 billion credit facility, Ally Financial recently announced that it has commenced a consent solicitation from holders of record of its 8.000 percent notes due 2031.
The move is being made to terminate the replacement capital covenant entered into by Ally (as successor to GMAC) dated as of Nov. 30, 2006 in connection with the issuance by Ally of 1,555,000 preferred membership interests that were subsequently converted into Ally’s Fixed Rate/Floating Rate Perpetual Preferred Stock, Series A of which there are currently 27,870,560 shares outstanding.
The solicitation impact the valid holders as of 5 p.m. EDT this past Thursday.
Ally explained the proposed termination of the replacement capital covenant requires, among other conditions, the consent of the holders of notes representing at least 51percent in aggregate principal amount outstanding. The complete terms and conditions of the consent solicitation are as set forth in Ally's Consent Solicitation Statement dated March 11 and the related letter of consent to be distributed to holders of the notes for their consideration.
“Holders are urged to read the solicitation documents carefully,” the company said.
Under the terms of the replacement capital covenant, Ally indicated that it may only redeem the Series A Preferred Shares if a specified amount of the funds used are proceeds from the sale of equity or certain equity-like securities and if such sale took place within a specified time period prior to such redemption.
If the proposed termination becomes effective, Ally said it will not be subject to such restrictions with respect to a redemption of any or all of the Series A Preferred Shares.
The company pointed out the consent solicitation will expire at 5 p.m. EDT on March 22 unless extended or earlier terminated by Ally.
“If Ally accepts the valid consents of holders of at least 51 percent in aggregate principal amount outstanding of the notes and the conditions to the consent solicitation described in the consent solicitation statement are satisfied or waived, holders who validly deliver their consent by the expiration time in the manner described in the solicitation documents will be eligible to receive a consent fee of $10 in cash per $1,000 in principal amount of the notes as to which such consent was validly delivered,” the company said.
“Consents may be revoked at any time prior to the earlier of the date on which the requisite consents are obtained and the expiration time, which is referred to as the revocation deadline, but not thereafter,” the company continued.
“If the proposed termination of the replacement capital covenant is approved, the termination will be binding on all holders of the notes, including those that did not deliver their consent, and only holders validly delivering their consent on or prior to the expiration time will be eligible to receive the consent fee,” the company went on to say.
With respect to any consent accepted by Ally, the company explained that it will also pay the relevant soliciting broker a fee of $5 in cash per $1,000 in principal amount of the notes, provided that such fee will only be paid with respect to the first $250,000 aggregate principal amount of notes for which a consent is provided for any individual holder of the notes.
“The payment of such soliciting broker fee and the consent fee is subject to receipt by Ally of the requisite consents and satisfaction of the other conditions to the consent solicitation,” it noted.
Ally mentioned copies of the solicitation documents may be obtained by holders of the notes from the information and tabulation agent for the consent solicitation, global bondholder services corporation at (866) 807-2200.
Citigroup and Morgan Stanley are the solicitation agents for the consent solicitation. Questions regarding the consent solicitation may be directed to Citigroup at (800) 558-3745 or (212) 723-6106 or Morgan Stanley at (800) 624-1808 or (212) 761-1057.
“None of Ally, the information and tabulation agent, the solicitation agents or any of their respective affiliates makes any recommendation as to whether holders of the notes should deliver their consent to the proposed termination of the replacement capital covenants pursuant to the consent solicitation, and no one has been authorized by any of them to make such recommendation,” the company said. “Each holder of the notes must make its own decision as to whether to give its consent.”
Ally’s renewal of $11 billion in credit facilities
In other company news, Ally highlighted that it has completed the renewal of $11 billion in credit facilities to fund consumer and commercial automotive assets at both the parent company and at its banking subsidiary, Ally Bank, with a syndicate of 16 lenders.
Executives noted the decrease in the total size of the facilities of $1.5 billion compared to the prior year is a result of Ally's continued strong retail deposit growth.
“A diversified funding strategy remains a key priority to effectively support the needs of Ally's business,” Ally corporate treasurer Bradley Brown said. “These facilities were renewed with improved structural terms that accommodate the continued evolution and growth of our auto finance business.”
Brown added the $11 billion funding capacity is comprised of two facilities both maturing in March 2018; an $8 billion facility, which is available to the parent company, and a $3 billion facility available to Ally Bank.
Less than a month after announcing an investment by CUNA Mutual Group, direct-to-consumer auto loan platform SpringboardAuto.com formed a partnership this week to enhance its position in the credit union space.
SpringboardAuto.com created a relationship with MeridianLink — the developer of a multi-channel account opening and loan origination platform — to provide its credit union clients with additional opportunities to fund members’ auto loans. The site has developed a technology solution that can provide a direct auto loan platform, so credit unions can offer financing to members with credit below typical prime borrower policies, without assuming additional credit or operational risk.
“Our platform enables MeridianLink clients to better meet the needs of today’s auto loan applicants, who don’t meet regulatory or stated loan policy restrictions of a credit union,” SpringboardAuto.com chief executive officer Jim Landy said.
“Consumers, especially those with less than perfect credit, are extremely dissatisfied with the opaque and frustrating car-financing process, and our platform gives financial institutions the ability to better serve these members,” Landy added.
Landy explained the new partnership seamlessly integrates MeridianLink and SpringboardAuto.com’s platforms, eliminating duplicate member declinations and hard inquiries on consumer bureaus, which have traditionally plagued second look programs.
“Approximately one-third of the U.S. auto market’s applications for credit fall outside of most credit unions’ buying parameters,” Landy said. “This new platform and process enables credit unions to provide a ‘best of’ loan product and experience to members that are being declined today, creating a win-win for the credit union and the consumer.”
MeridianLink’s Tim Nguyen added, “We’re pleased to partner with SpringboardAuto.com to securely and easily provide our credit unions with a ‘best-of-breed’ solution.
“This will enable credit unions to serve members who have less than perfect credit with an exceptional and dignified auto buying experience,” Nguyen went on to say.
RSM partner Ronnie Lee and his accounting team recently conducted research among specialty finance firms regarding fraud.
After sharing some of the details of the company’s research findings, Lee also spelled out four ways finance company managers can deter and detect fraud.
“Overall, we found that roughly half of all firms we contacted had experienced fraud,” Lee said in a post on the company’s website. “While fraud losses tended to be relatively low, they are almost never recovered.
“We looked at both internal and external fraud. Interestingly, half of the companies that experienced one form of fraud also experienced the other, which seems to indicate a relatively lax internal control environment at those companies and underscores the importance of effective controls,” Lee continued.
When it comes to external fraud, companies reported their experiences to RMS that included seven general characteristics
— Fraud is discovered by internal controls or management roughly two-thirds of the time and by internal audit on most other occasions.
— Frauds are usually discovered within six months.
— In the majority of cases, fraud is not reported to an insurer, and there is no recovery.
— Losses were generally less than $25,000.
— Fraudulent loans and check fraud were the most common types of external fraud.
— Perpetrators were almost always male.
— About half of the companies revised their policies and procedures or improved their internal controls as a result of the external fraud.
When discussing internal fraud, companies told RMS about these incidents that had three general similarities, including:
— Losses were generally less than $10,000, though companies reported an increase in losses between $10,000 and $25,000 as compared to the prior year.
— Theft of cash cases decreased compared to the prior year, but fraudulent loans and vendor or billing schemes increased. This likely accounts for the increase in loss amounts in the $10,000-$25,000 range, as vendor and billing schemes tend to involve more significant amounts than theft of cash frauds, due to limited amounts of cash on hand.
— Perpetrators were predominately female, likely due to the employment demographics in the industry.
With all of those characteristics of fraud in mind, Lee delved into a quartet of suggestions to deter and detect fraud. Lee — who spent part of his professional career in law enforcement before entering the accounting world — pointed out that the overall types of internal and external frauds most commonly experienced by companies RSM contacted demonstrate a lack of controls and insufficient segregation of duties at branch locations.
“The types of fraud most commonly committed help underscore this point,” Lee said. “For example, fraudulent loan schemes often involve someone at the branch office recording a fraudulent loan on the books, using misrepresentations by a third party or collusion between internal and external perpetrators and then writing the loan off.
“By ensuring those duties are performed by separate parties and verifying the information provided during underwriting and funding, this type of fraud could be largely avoided,” he continued.
Next, Lee recommended that finance companies should ensure that branch locations have strong internal controls on-site and not rely exclusively on controls at the home office.
“While the reported fraud losses were relatively small and generally caught quickly, stronger controls at the branch locations could help prevent or deter many of these instances from occurring in the first place,” Lee said.
“Improved systems that would allow real-time reporting between branches and the home office could play a key role in improving controls and providing real-time oversight of operations,” he continued. “Even if real-time reporting is not possible, more comprehensive and timely reporting will help deter and detect fraud.”
Lee also mentioned “weak or poorly documented” operating policies and procedures, including formal fraud policies, play a role in increasing the likelihood of fraud.
“By making it clear to all employees exactly what your operating procedures are, deviations from those procedures are more immediately obvious to everyone,” he said.
Finally, Lee noted that finance company can consider educating their employees on common types of fraud.
“This would help honest employees spot malfeasance by co-workers,” Lee said. “In addition, it would also underscore to employees who might be considering fraudulent behavior how small the gains from those frauds generally are, how quickly they are usually discovered, the company’s zero tolerance policy and the consequences they could face.”
Lee closed the series of recommendations with one last thought.
“Many specialty lenders are relatively small compared to more traditional lenders, especially at the branch level,” Lee said. “They often have less formal policies and, in some instances, closer personal ties to their employees.
“But it is a mistake to rely on this more familial atmosphere as an effective control,” he went on to say. “Improved segregation of duties, real-time oversight, stronger, more formal operating and fraud policies and effective employee education can go a long way to deterring fraud at your organization.”
About 14 months ago, the merger of Flagship Credit Acceptance and CarFinance Capital became finalized, leaving Michael Ritter as the chief executive officer of the finance company that specializes in filling its portfolio with subprime paper.
During that span, Flagship Credit Acceptance navigated through all the changes to write what Ritter called “a remarkable story.” Flagship Credit Acceptance now operates with a streamlined branding strategy to cater to its dealership and consumer customers. The company also is tapping the ABS market to position it for even more growth.
“Whenever two entities of a similar size come together, you’re going to have challenges. Challenges emerge. Our merger was not unique in that respect,” Ritter told SubPrime Auto Finance News during a recent phone conversation.
“However, in hindsight, we accomplished so much in such a short period of time that it’s really impossible to recount them all. But the most noteworthy is the combination of our sales team and the introduction of individual product and originations platform across all Flagship territories,” he continued.
“Our sales leadership did a magnificent job integrating the two sales teams without any deterioration in volume. We actually exceeded our sales goals for the first half of the year and the year as a whole. It’s really a remarkable story what we were able to do,” Ritter went on to say.
The merging process intensified in the fall of 2014 when Perella Weinberg Partners combined companies into a single unit with total assets in excess of $2 billion. Last Jan. 1, Flagship Credit Acceptance carried on as the resulting finance company; one that operates in all by three states. Leadership has since retired the CarFinance Capital brand
“The company has really emphasized a broad dealership base through systematic geographic expansion. That’s been my philosophy for decades,” Ritter said. “We work hard to hire highly qualified area sales managers to manage the sales effort by territory. We continue to believe that in order to service our dealer customer that we need to have a consistent and direct interaction. We’ve embraced the concept of vertical integration and a transactional sales approach in every dealership and have put these strategies to use with really great success.
“In my opinion, indirect auto lending remains a service business,” he continued. “Our strategy is to always build a strong dealer base throughout the U.S. Once that base is established, we solidify that base and deepen it by providing what we refer to around here as expectation exceeding customer service — from our dealer service triangle of sales, credit and funding partners within the organization. To that extent, you can say I’m old school, but I think that’s what it takes to succeed.”
Ritter also touched on what feedback Flagship Credit Acceptance is receiving from its dealer network that currently stands at more than 8,700 stores.
“In terms of what the dealers ask for the most from Flagship, I would say would be a broader product mix. We have expanded some of our offerings, but we’re very careful and very cautious to stay with what we do best. We just think that’s the best long-term solution for not only Flagship, but also for our dealers,” Ritter said.
“I think what we do is good customer service with a good product. It has to be a competitive product because it’s a very competitive environment,” he added.
Besides originating contracts through its dealer network, Flagship Credit Acceptance also is active in the ABS market.
On Feb. 25, the company successfully completed its 14th term asset-backed securitization of $447 million of notes with Flagship Credit Auto Trust 2016-1. The development brought Flagship Credit Acceptance’s total issuance to more than $4 billion in notes.
Flagship Credit Acceptance mentioned the notes were assigned ratings by Standard & Poor’s Rating Services and Kroll Bond Rating Agency with Barclays, Citigroup and Deutsche Bank Securities acting as joint book-runners for the transaction.
“The current market seems to be more cautious. Spreads have clearly widened,” Ritter said during the interview with SubPrime Auto Finance News just before this ABS transaction finalized.
“I’m not an economist but that could be due to multiple factors whether it be China, the price of oil and its production and supply, and the Federal Reserve’s lack of clear direction,” he continued. “I think all of those factors have caused the markets to be wary and tightened significantly over the last six to nine months.
“In terms of importance to Flagship, it’s very important,” Ritter added about the ABS market. “What we have done is made sure is strategically positioned our company to have access to a significant amount of borrowing capacity and equity; enough to weather an economic crisis. Those are lessons learned from prior recessions and prior crises.”
Meanwhile, Ritter also mentioned Flagship Credit Acceptance also is keeping a close watch on another component of what finance companies must do nowadays. Ritter insisted that it’s important that finance companies place a “high value” on compliance; a practice he stressed Flagship Credit Acceptance does.
“We’re a consumer finance company and therefore subject to consumer finance laws of the country as well as the states which we do business. These are laws. They’re not suggestions. We treat them as such. It’s not an option to us,” Ritter said.
“Flagship wants to adhere not only to the law but the spirit of the law,” he continued. “We devote a significant amount of time and resources to training and developing our underwriters, collectors and funders to be great stewards of our compliance initiatives. At the end of the day, it’s really the front-end people that have the direct interaction.
“In addition, we developed sophisticated risk-based pricing and credit scorecard to ensure a consistent and fair lending environment here at Flagship. We literally strive for perfection every day,” Ritter went on to say.
Striving for perfect along with Ritter is a workforce that consists of approximately 800 professionals who specialize in funding, collections and other tasks.
“I believe that Flagship’s future looks very bright,” Ritter said. “Having said that, however, we choose to conduct business in a very competitive industry that requires the diligent management of our people, processes and plan. We need to be continuously improving at all times. Our pricing needs to be competitive, augmented by superior service.
“We’ve got a strong, growing portfolio. And growing a strong portfolio servicing group is of paramount importance so we have to make sure customer service, our servicing and our collections are superior. We need to collect those dollars we lend,” he continued.
“At Flagship, we’re going full speed ahead into 2016 and beyond. We feel pretty good,” Ritter concluded.
