To borrow a term often used now that it’s election season, the soundbite version of what TransUnion discovered about auto delinquencies might sound ominous. TransUnion determined 2015 closed with the high fourth-quarter delinquency rate since 2010.
But instead of frothing like an overzealous campaign staffer, Jason Laky, senior vice president and TransUnion’s auto and consumer lending business leader, tried to offer some explanation for what happened, discussing the likely “shock” that triggered a 6.9 percent year-over-year rise.
First, the numbers that were released on Wednesday. TransUnion’s Q4 2015 Industry Insights Report indicated the auto loan delinquency rate — the reading of borrowers 60 days or more past due on their vehicle installment contracts — increased from 1.16 percent in Q4 2014 to 1.24 percent in Q4 2015.
As of Q4 2015, analysts acknowledged the auto delinquency rate reached its highest level since Q4 2010 when the reading hit 1.22 percent.
“When we look at trends in the auto market, I think we expected to end the year a little bit lower so this increase came as a bit of surprise,” Laky said during a conversation with SubPrime Auto Finance News in advance of the data being released.
However, when we go back and talk about the rather larger rise in delinquencies we’ve seen in the energy space, that says there’s a shock that happened in certain parts of the U.S. economy — particularly if you’re in oil, gas or coal — that is causing job loss and other displacement and causing delinquencies to rise in those certain places. We believe that’s pulling up the overall U.S. delinquency,” Laky said.
TransUnion noted that states in which energy plays a major role in the economy showed an impact in the delinquency rates for the first time in the fourth quarter. In 2015, both credit card and auto loan delinquency rates experienced double-digit increases in energy-rich states such as Louisiana, Oklahoma, North Dakota, Texas and West Virginia. The year-over-year auto loan delinquency rise during Q4 was a follows in those five states:
— Louisiana: up 14.3 percent
— Oklahoma: up 15.3 percent
— North Dakota: up 42.3 percent
— Texas: up 14.9 percent
— West Virginia: up 14.3 percent
“Clearly if you’re in one of those markets, you want to take a close look at what’s going on there and make sure your account management practices are in line,” Laky said.
“Certainly as a subprime lender whatever is happening in the state of Texas is of concern because you’re likely to have a fair number of accounts there,” he continued. “I wouldn’t be too worried about North Dakota because even though it’s a big increase, it’s coming off of a very low base.”
Also impacting delinquencies is the sheer number of subprime contracts in finance company portfolios.
TransUnion data showed that at the conclusion of 2015 there were 1.26 million more subprime borrowers with credit card accounts showing a balance, and 1.21 million additional subprime consumers with auto loan accounts, compared to the end of 2014. The share of subprime accounts compared to other risk tiers also rose slightly in the last year.
“If you look at the broader U.S. economy, even in in the context of lots of stock market volatility, the overall consumer metrics that matter to auto finance — employment, consumer spending — we’ve had a couple of good reports on job creation and consumer spending in December and January that I think bode well for sales and consequently auto financing,” Laky said.
“When employment remain strong, it means that consumers outside of these energy effected areas are going to stay employed and make payments on their auto loans,” he continued. “This delinquency increase we hope will be short-lived as certain areas of the country work through the changes that have gone on in the oil market and that the rest of the economy will remain strong and pick up some of the slack.”
Laky was hesitant to give any specifics about what level of delinquency would trigger industry-wide concern.
“The challenge is that the alarm part is really a function of each lender’s risk management strategy,” Laky said. “As a subprime lender, you have a different tolerance for overall delinquency than if you’re a prime-focused lender.
“What I will say from our perspective when we look at things that might cause an alarm, we look at the distribution of balances of consumers from the different tiers,” he continued, pointing out that TransUnion data has subprime contract constituting about 19 percent of outstanding balances. That’s down from the recent high point of 24 percent back in 2009.
“That quells my concerns about whether this increase is something that we should really be worried about at this point,” Laky went on to say.
More Q4 auto metrics
In Q4 2015, TransUnion determined 75.6 million consumers had an auto loan, up 7.8 percent from 70.1 million in Q4 2014. This is the largest year-over-year auto loan account growth observed by TransUnion.
New auto loan and lease originations, viewed one quarter in arrears (to ensure all accounts are reported and included in the data), exceeded 7.5 million for the first time in Q3 2015. Originations increased 8 percent from 7.0 million in Q3 2014.
“Loan and lease originations and balance growth are outpacing auto sales, as more consumers choose to finance rather than pay cash for their vehicle,” Laky said. “Growth was observed across all risk tiers, a promising sign for the auto industry as we head into 2016.”
TransUnion also mentioned average auto loan debt per borrower grew to $17,999 by the end of 2015, a 3.1 percent increase from $17,453 spotted at the close of 2014.
Trends in the Auto Market
|
Auto Lending Metric
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Q4 2015
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Q4 2014
|
Q4 2013
|
Q4 2012
|
|
Delinquency Rate (60+ DPD) Per Borrower
|
1.24%
|
1.16%
|
1.14%
|
1.09%
|
|
Average Debt Per Borrower
|
$17,999
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$17,453
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$16,771
|
$16,064
|
|
Originations*
|
7.54 million
|
6.99 Million
|
6.64 Million
|
5.99 Million
|
*Note: Originations are viewed one quarter in arrears, reflecting data for the prior quarter (Q3).
Overall credit market analysis
As more consumers — and more non-prime consumers — are gaining auto loan and credit card access, TransUnion reiterated delinquency levels for these credit products have only risen slightly and remain at relatively low levels. Both mortgages and personal loans experienced yearly drops in their delinquency levels, with mortgages dropping nearly 30 percent in the last year.
“Overall, the consumer credit markets are performing well. It is a positive sign that delinquency levels have remained relatively low despite more borrowers receiving credit,” said Ezra Becker, vice president of research and consulting in TransUnion’s financial services business unit.
“We have seen a continued rise in the proportion of non-prime borrowers in both the auto loan and credit card industries, and that is a likely driver for the uptick in delinquency among recently originated cohorts in those sectors,” Becker continued.
“We also believe lower energy prices and the resulting job losses in energy-dependent markets have played some role in delinquency rates. Even so, that impact appears at this point to be localized, and mild in terms of national effect,” he went on to say.
Clarity Services’ research division, nonPrime101, published a new report this week based on a unique five-year data set of more than 100 million payday loans representing 20 percent of the storefront payday market.
Because of the unique size and duration of the data set, nonPrime101 set out to replicate statistical analyses used by the Consumer Financial Protection Bureau to build its case to radically regulate the storefront payday sector whose customers often fall into the subprime auto financing market, too.
Clarity’s report suggested that a significant number of consumers are unlikely to be harmed by the bureau’s own test, possibly meaning that more consumers may be actually harmed by the CFPB action that bans the product than will be harmed by continued availability of the product.
Because nonPrime101 noticed that extreme outliers impacting the bureau’s statistics showing CFPB harm, Clarity recommended that the bureau cut off the outliers, but not the entire industry. The company went into more detail in the report titled, Searching for Harm in Storefront Payday Lending.
“This report finds that the CFPB’s one-year snapshot is too short to discern the extent of ‘harms’ caused by the product and roughly 40 percent of storefront consumers are not likely to meet the CFPB’s cost-based definition of ‘harm.’ Independent data suggests many who do incur that cost-based ‘harm’ still benefit from the loan,” said Rick Hackett, former assistant director at the CFPB and current partner at Hudson Cook. Hackett is now part of nonPrime101’s small-dollar markets research team, who conducted the research and wrote the report.
Hackett and his team also found that the data results closely replicate reported CFPB findings such as the number of loan sequences per borrower in a 12-month period. However, when the same questions were applied to a more complete history of borrower behavior, over the entire market life cycle of borrower use, significant differences in outcomes and in the effect of biases of the CFPB testing methods were found.
“With more than half of consumers likely benefitting from the product, regulators’ plan to ban it goes too far, and this report suggests a more tailored intervention that would curtail extreme usage but retain credit access,” Hackett said.
The entire report can be downloaded here. Also on that page, Hackett shares a 40-minute video presentation explaining the report findings.
Within hours of Santander Consumer USA stating Jason Grubb and Brad Martin left high-level posts at the company, Exeter Finance Corp. announced the pair as two of its top executives.
Exeter indicated on Tuesday afternoon that the company appointed Grubb as chief executive officer and Martin as chief operating officer, effective immediately.
Meanwhile, Exeter said Steve Zemaitis, who currently holds the position of COO, will assume the role of president at the company.
Grubb replaces interim CEO Mark Floyd, a member of Exeter's board of directors who served as Exeter CEO from July 2010 until his retirement in October 2014. Floyd came back again in December upon the departure of CEO Tom Anderson.
Both Grubb and Martin are seasoned auto finance executives. Grubb's most recent experience includes 11 years at Santander Consumer USA, where he served in leadership roles including president and COO of originations.
Prior to Santander, Grubb served as servicing senior vice president at WFS Financial, and also held leadership positions with Commercial Financial Services, CFS International and Nissan Motor Acceptance Corp.
Martin served for the last two years as COO of servicing with SCUSA, and previously held an executive vice president role at Santander during his 11-year tenure with the company. Martin also functioned in leadership positions within AmeriCredit, and served as a Third Class Petty Officer in the United States Navy.
“I could not be more pleased to join Exeter at such an exciting time in its history,” Grubb said. “I recognize that this company has positioned itself as a prominent player within the industry, and as such, has tremendous opportunities ahead.”
Martin agreed, stating, “I look forward to helping Exeter service its dealer customers in the most effective and efficient manner possible. I am committed to helping the team deliver outstanding results.”
Exeter board of directors chairman Martin Brand shared his assessment now that the company has its new leadership in place.
“As Exeter builds upon its strong foundation, we are pleased to welcome two respected auto finance veterans, Jason Grubb and Brad Martin, to the Exeter team,” Brand said. “Their combined knowledge and expertise will help drive Exeter's continued ability to deliver best-in-class execution and prudent underwriting.
“I also want to thank Mark on behalf of the entire board for stepping in and providing steady leadership for the company as interim CEO,” Brand added about Floyd leadership, which included a commitment to serve the finance company’s network of dealerships.
Coming on the heels of brokering an expanded relationship with Ally Financial for its floor-plan financing, Carvana recently teamed up with Delta Community Credit Union, one of Georgia's largest credit unions.
By working with online vehicle retailer Carvana, Delta Community can offer its members access to Carvana's nationwide inventory of certified pre-owned vehicles coupled with the credit union's low-rate vehicle loans. Delta Community members can also work with Carvana's Delta Community in-branch member service representatives to source new cars exclusively across metro Atlanta.
“We are thrilled to work with Delta Community to offer its members an enhanced car buying solution,” Carvana founder chief executive officer Ernie Garcia.
“Our process gives car buyers an alternative to their local dealer by allowing them to browse an inventory of vehicles, set customized financial terms and coordinate delivery method and timing best suited to their needs,” Garcia added
Delta Community members seeking to make vehicle purchases can access Carvana's inventory by visiting www.carvana.com/DeltaCommunity or one of Delta Community's 26 branches.
“Our members look to us to help them get more out of their finances throughout their lives," said Bob Walsh, Delta Community’s chief lending officer.
“By working with Carvana, we are now saving our members money when they purchase their vehicles as well as their time when they browse inventory and complete the process from the comfort of their homes,” Walsh went on to say.
A recent TransUnion survey found that three in four lenders said it is increasingly difficult to find and acquire new customers.
Meanwhile, nearly 75 percent of respondents acknowledged they are challenged by a continued low interest rate environment, which is spurring more competition for a pool of consumers who receive multiple credit offers.
Analysts explained the survey results are in line with TransUnion data that show there were more than 26 million additional auto, credit card and personal loan accounts in 2015 compared to 2014.
Yet, according to the Consumer Financial Protection Bureau, at least 45 million U.S. consumers are still not able to access credit because they either have no credit report or have insufficient credit histories.
“Competition for new borrowers has not been this fierce in the lending space since prior to the recession,” said Steve Chaouki, executive vice president and the head of TransUnion's financial services business unit.
“Our survey results and core performance data point to a new lending environment,” Chaouki continued. “Millions of previously unscorable consumers — now scorable by way of alternative data, which is not traditionally found on a credit file — could have access to new loans.
“Importantly, many of these borrowers are expected to be good risks and welcome additions into lender portfolios,” he went on to say.
TransUnion’s survey of 317 lenders, conducted by third-party research firm Versta Research, showed how alternative data may be leveraged to better assess risk and price offerings appropriate both for unbanked, unscored consumers and for traditionally prime borrowers.
According to TransUnion’s survey, which can be downloaded here, 87 percent of lenders say they decline some credit applicants because they cannot be scored. Yet 83 percent of those using alternative data to score credit applicants report seeing tangible benefits.
TransUnion noted that nearly two in three lenders (64 percent) say they have seen tangible benefits within the first year of using alternative data.
The survey also pointed out that three in four survey respondents said they expect alternative data will bring about positive economic changes.
Other key benefits derived from alternative data, according to survey respondents, include:
—66 percent of lenders using alternative data say it is helping them reach more creditworthy consumers in their current markets.
—56 percent of lenders using alternative data say the data has opened up new markets.
—87 percent of lenders using alternative data do so to evaluate thin-file or no-file consumers.
—67 percent use alternative data to evaluate non-prime borrowers.
Last October, TransUnion released CreditVision Link, a score that combines both trended credit bureau data and alternative data sources. TransUnion insisted CreditVision Link can enable finance companies to score up to 95 percent of the U.S. adult population.
The tool also can allow more than 60 million traditional “no-hits” and unscorable records to be scored.
“TransUnion is the first single source of scores with both trended credit and alternative data, and in just the last few months, we have seen immense interest from lenders in reaching consumers who may not have been traditional prospects,” said Mike Mondelli, TransUnion’s senior vice president of alternative data services.
CreditVision Link’s alternative databases include more than 3 billion non-traditional data records collected on more than 260 million adult Americans. The score’s alternative data assets include property, tax and deed records, checking/debit account and payday lending information, among other sources.
Whereas a traditional credit report offers a glimpse of a consumer at a snapshot in time, Mondelli explained trended data assets can leverage an expanded view of credit data with up to 30 months of historical information. These details include information on each loan account, including payment history, such as dollars paid, amount paid versus minimum due and the total amount borrowed over time.
“This is especially important because a traditional credit report may tell you a consumer has $5,000 in credit card debt, but one using trended data will show you whether they have built up or paid down that balance over time,” Mondelli added.
Continuing a three-decade relationship of supporting the auto financing endeavors of its credit union partners, Enterprise Car Sales calculated that it generated close to $500 million in loan volume to nearly 28,000 credit union members during 2015.
Officials highlighted recent reports that show credit unions are steadily gaining market share in auto financing. They added that credit union membership is on the rise across the country, and used-vehicle auto loans at credit unions have seen an almost 14 percent increase compared to a year ago.
Enterprise Car Sales said it is further supporting this growth through tailored used-vehicle buying programs that are meant to create opportunities for credit unions to increase their used-vehicle loan portfolio and optimize member loyalty.
In fact, Enterprise Car Sales determined that it has helped generate almost $10 billion in loan volume during the last 30 years with more than a thousand credit union partners nationwide.
"We are very appreciative of the mutually beneficial relationships we have built with credit unions in our local communities," said Beth Wheeler, corporate director of business development at Enterprise Car Sales.
“We gain increased exposure to new customers through their referrals, and in return, we refer their members back to them for financing,” Wheeler continued. “With more consumers turning to credit unions for their auto loans, we expect these partnerships to continue to flourish in the coming year.”
Strong credit union partnerships are a driving force behind the overall growth of the Enterprise Car Sales network.
In 2015, Enterprise Car Sales made a significant investment in its facilities, including opening three new locations in Burnsville, Minn., East Syracuse, N.Y., and Cranberry Township, Pa. The company also relocated six locations to enhanced facilities.
“Enterprise's integrity in sales and service has made them a great partner for us," said Darin Woinarowicz, chief executive officer of Arrowhead Credit Union in southern California.
“Our team looks forward to referring our members to Enterprise because we know they are going to have a great experience. It’s a great way to do business,” Woinarowicz went on to say.
For more information about how Enterprise Car Sales partners with credit unions, visit www.enterprisecarsales.com/perfectpartnership.
Finance and insurance product provider Wise F&I integrated with Dealertrack Technologies this week in an effort to provide dealerships real-time access to Wise F&I products for price quotes and the electronic contracting of aftermarket products through the Dealertrack Aftermarket Network.
Through the Dealertrack Aftermarket Network, officials explained the F&I sales and submission processes are all handled online providing a more accurate and streamlined contract rating process. The integration is designed to support a range of Wise F&I products including GAP, appearance care, vehicle service contracts and theft deterrent programs.
Wise F&I products are set to be presented through Dealertrack eMenu, ensuring up-to-date pricing and information to their customers.
“The Dealertrack Aftermarket Network will extend the Wise F&I product reach to more dealers and customers nationwide,” Wise F&I president Matt Croak said.
“We continue to strive to expand our technology solutions and provide the best in product offerings and contract processing,” Croak continued. “Being part of the Dealertrack Aftermarket Network will help to improve efficiencies and customer satisfaction.”
For more details about Wise F&I’s suite of products including GAPWise, WiseCARE, THEFTWise, WiseTVP and KEYWise, go to www.wisefandi.com.
White Clarke Group cautioned auto finance companies that they will face “enormous” changes in the way they operate in 2016.
Why?
Analysts said this week that finance companies will see challenges that are driven by an explosion of innovation resulting from the emergence of new technologies and an exponential growth in FinTech start-ups.
The White Clarke Group 2016 Global Tech Report identified six key commercial and technology trends that will impact auto finance this year. Those trends included:
— Innovation explosion
— Artificial intelligence
— Rise of the millennials
— Connected services
— Big data
— Data security
“It is clear that the industry is divided between those who believe that the industry faces revolutionary change affecting all aspects of auto finance business and those who expect the industry to be able to incorporate and evolve online within their existing traditional auto finance framework,” White Clarke Group vice president Brendan Gleeson said.
“The paper and presentations together are part of a wider industry debate which is seeking to help finance providers understand and respond to the opportunities and threats from the ongoing industry digitalization,” continued Gleeson, who orchestrated the report that can be downloaded here.
White Clarke Group also discussed its findings in the video available at the top of this page.
GWC Warranty introduced a new, modern and refreshed version of its website this week aimed to help dealerships sell more vehicle service contracts and related finance and insurance products.
Highlighted by a renewed design that is designed to be easy to navigate with helpful interactive content and intuitive contact tools, GWC Warranty explained its new site was revamped with dealers and their customers in mind.
Most notably, the new GWCWarranty.com boasts new tools to find a local dealer consultant, locate a nearby service facility and look up coverage, as well as a more dynamic and responsive design optimized for desktop, mobile and tablet browsing.
“At GWC, we realize that our website is heavily relied upon by our dealers and their customers across the country as a source for information about our business,” GWC chief executive officer and president Rob Glander said.
“This new website helps our online visitors more easily locate the information they need when they need it. It is a true reflection of the best-in-class service we commit to delivering each and every day,” Glander continued.
In addition to more interactive content that provides visitors a fresh look what GWC Warranty provides, users clicking through the new GWCWarranty.com can enjoy easier access to helpful information and avenues to communicate with GWC.
Informational videos and concise FAQs can help visitors learn how to file a claim, request a duplicate ID card and renew, upgrade or transfer a contract. Meanwhile, simple, direct contact forms allow users to request more information or submit feedback with the click of a mouse.
Also receiving a facelift through this process was GWC Warranty’s blog, Accelerate. Winner of the 2015 Automotive Communication Award for Best Business-to-Business Blog, Accelerate has delivered helpful news and know-how to nearly 6,500 visitors since its inception last April.
The new format is designed to allow more seamless browsing so dealers can scan historical blog articles for topics, tips and best practices most useful to them.
“In the past two years, a significant increase in traffic to GWCWarranty.com brought about the need to simplify and improve the GWC Warranty online experience,” GWC vice president of marketing Kate Eltringham said.
“We are confident that this new website is constructed in a way that makes vital everyday information about GWC more readily accessible for dealers and drivers alike,” Eltringham added.
To learn more, visit the new website at www.GWCWarranty.com.
Online retailer Carvana now has more capacity to secure inventory for the company's unique vehicle vending machines.
Ally Financial on Monday extended its financing relationship with Carvana, increasing the retailer’s floor plan credit line from $60 million to $125 million. Executives calculated the increase represents financing for approximately 7,100 vehicles, up from 3,400 vehicles.
The companies highlighted the credit line is to support floor plan financing as Carvana pursues expansion plans this year.
"The way consumers shop, buy and finance vehicles continues to evolve as the industry responds to consumer preferences toward a digital experience. As a leading finance provider in the industry, Ally is positioned to support this evolution and is pleased to expand our relationship with an innovative company like Carvana," said Ally president of auto finance Tim Russi.
Carvana, which launched in 2013, offers a unique online vehicle buying experience that lets customers browse a large selection of used vehicles, secure financing and complete a purchase, all from its easy-to-use website.
After purchase, customers can opt for home delivery, or pick up their vehicle from one of the company’s vending machine locations in Atlanta or Nashville, Tenn.
“Our goal is to create a better way to buy a car by putting the consumer back in control of the buying process,” Carvana founder and chief executive officer Ernie Garcia.
“We’re using technology and transparency to revolutionize car buying and as we look to expand to new markets this year, our relationship with Ally will help to provide us with the resources and financial flexibility that we need to continue with our exciting, rapid growth,” Garcia went on to say.
Executives added that Ally and Carvana are also exploring other opportunities to expand their relationship since Ally offers a full spectrum of financial products and services, such as retail financing, leasing, insurance and remarketing.
