Automotive Personnel chief executive officer Don Jasensky acknowledged one of the most difficult challenges during the candidate-evaluation process is to determine whether the individual seeking the position at your firm actually can handle all of the demands and responsibilities asked of the post.
Harkening back on nearly three decades of experience, Jasensky arrived at five suggestions hiring managers and other company decision-makers can use to decipher what the candidate might truly be like.
“In 28 years of executive search, no one has ever asked us for an average candidate,” Jasensky said in a recent note to SubPrime Auto Finance News. “Clients come to us when they are looking for a ‘high performer.’ The higher level the position the more important their competency is.
“As an example, a director of credit impacts a company much more than one credit underwriter,” he continued. “The higher up the food chain the more critical competency becomes.”
Jasensky insisted that the best indicator of future behavior is past behavior.
“Human behavior is fairly consistent throughout our adult lives,” he said. Winners show themselves early and consistently throughout their careers. Laggards do, too.
While learning about competency is part of the interview, evaluation and reference-checking process, Jasensky noted that companies should keep these five factors in mind:
1. What are your performance standards with your current position?
2. How are they measured?
3. How are you doing with them?
4. Show me: awards, commission checks, reference letters, etc.
5. References: trust but verify
“Knowing what you are looking for at the start of your search will add direction and confidence in your decision making,” Jasensky said.
Jasensky plans to discuss this topic and more during a presentation during the National Automotive Finance Association’s 21st annual Non-Prime Auto Financing Conference.
This year’s event, which carries the theme, “Optimizing NonPrime Performance,” is scheduled to run from May 31 through June 2. The event again is to unfold in Plano, Texas, but at a new facility — the Hilton Dallas/Plano Granite Park.
Some of the conference sessions include the release of the 2017 Non-Prime Auto Financing Survey as well as a discussion about how finance companies can raise capital. Another segment has the title, “CFPB in Their Own Words.”
Among some of the notable conference speakers scheduled to appear are:
■ Rep. Jeb Hensarling, a Texas Republican and chairman of U.S. House Financial Services Committee
■ Tom Webb, retiring chief economist at Cox Automotive
■ Amy Martin, senior director of the structured finance ratings group at Standard & Poor’s
Complete registration details for the 21st annual NonPrime Auto Financing Conference can be found at www.nafassociation.com.
Even as TransUnion noted that auto finance origination volume appears to be losing a little steam, the Federal Reserve Bank of New York’s Household Debt and Credit Report released on Wednesday showed how the balances consumers are absorbing for their vehicles helped to push total consumer debt above the highest level ever recorded.
The report indicated that total household debt reached $12.73 trillion in the first quarter, surpassing the peak of $12.68 trillion reached during the recession in 2008.
“Almost nine years later, household debt has finally exceeded its 2008 peak but the debt and its borrowers look quite different today. This record debt level is neither a reason to celebrate nor a cause for alarm. But it does provide an opportune moment to consider debt performance,” said Donghoon Lee, research officer at the New York Fed.
“While most delinquency flows have improved markedly since the Great Recession and remain low overall, there are divergent trends among debt types,” Lee continued. “Auto loan and credit card delinquency flows are now trending upwards, and those for student loans remain stubbornly high.”
TransUnion put the latest delinquency rate at 1.30 percent, up from 1.16 percent in Q1 of last year, driven in part by poorer payment performance in the subprime and near-prime segments.
The New York Fed noted that the outstanding auto finance balance stood at $1.17 trillion, up by $96 billion compared to the first quarter of last year and $10 billion higher on a sequential basis.
However, Brian Landau, senior vice president for financial services and automotive business leader for TransUnion, didn’t make any projections about the auto finance industry approaching $2 trillion any time soon during a phone conversation with SubPrime Auto Finance News. After TransUnion’s Industry Insights Report offered clear evidence that auto finance originations are slowing, especially in the subprime space, Landau mentioned that he’s been answering lots of questions filled with ominous tones.
“I don’t think we feel like the sky is falling. In other conversations I’ve had with other reporters, that’s what they think. But I think and many of us at (TransUnion) think this is just a reset of the market,” Landau said.
The credit bureau’s report, powered by Prama analytics, indicated that auto finance originations, viewed one quarter in arrears, declined to 6.66 million to end 2016, down 0.2 percent relative to fourth quarter of 2015. This movement marks the second consecutive quarter in which total originations were down year-over-year.
Analysts found that subprime originations posted the steepest decline in originations, dropping by 5 percent.
“You have to take things in the proper context. We’ve had seven consecutive years of growth,” Landau said. “We have not witnessed that probably since the dawn of the auto industry. A lot of that was due is there was a great buildup of pent-up demand stemming from the financial crisis.
“You’re seeing right now that the industry is resetting and recalibrating to account for the slight uptick in subprime and near-prime delinquencies,” he continued.
In a separate blog post, Lee described how analysts are reviewing the financial crisis from a different perspective in light of what the recent data is showing.
“The Great Recession led to a household borrowing situation in America that was very different from what we’d seen historically, but in 2007 when the financial crisis began to unfold, there was much less data available to economists on the state of household balance sheets,” Lee wrote.
“With better information now, we will continue to share new developments and analysis in the area of household debt,” he continued.
And the team over at TransUnion is watching the credit world closely, too, especially in the auto finance space, where Landau considered what strategy providers could leverage as part of a pullback in originations.
“One of the levers that can pull immediately is a pullback on extended terms,” Landau said. “We’ve seen terms on average ticking up over the last several years; 84 months was never something you heard about in the normal state of auto lending. Now, it’s becoming more of a common term used.
“Another lever is asking customers to put down a higher down payment on their vehicle purchase. That would improve loan-to-value ratios going forward,” he went on to say.
So far this year, a wide array of investment analysts are asking finance companies that bring in any non-prime or subprime paper about their current risk appetite. Another occasion came when Santander Consumer USA hosted its quarterly conference call recently, in which the finance provider reported a total year-over-year origination volume drop of 21 percent in the first quarter.
While SCUSA originations came in at $5.4 billion, the company took action to compensate itself for risk since the average FICO score of the contract holder attached to the originated paper it retained ticked down to 593 from 601 a year earlier. As a result, SCUSA pushed the average APR on those contracts up to 17.0 percent, up from 15.3 percent.
President and chief executive officer Jason Kulas explained during his opening remarks that SCUSA Q1 originations with FICO scores below 640 in its core and Chrysler Capital channels decreased 16 percent and 33 percent, respectively, versus the prior-year quarter.
Part of what triggered concern from Wall Street was SCUSA’s nearly $26 million regulatory punishments involving the attorneys general in Massachusetts and Delaware. Kulas referenced the company’s presentation that mentioned more than 800 dealerships have been terminated for performance-related issues.
The company went on to say it “further enhanced dealer oversight to include qualitative metrics such as negative media, false documents and consumer complaints. If dealers breach any of the qualitative or quantitative metrics and performance does not improve, SC may terminate the dealership.”
Kulas added, “As the industry continues to focus on this area, we are committed to be leaders in dealer management, moving beyond the traditional methods of monitoring credit performance.”
Furthermore, Kulas was asked to explain if the paper SCUSA is now accepting — especially in the lower credit tiers — should perform better than what the company originated in 2015 within similar credit segments. Multiple conference call participants made the comparison, insinuating how that 2015 vintage isn’t performing up to expectations.
The company did acknowledge that its net charge-off and delinquency ratio for its retail installment contracts increased to 8.8 percent and 3.9 percent, respectively, for the first quarter of 2017 from 7.6 percent and 3.1 percent, respectively, a year earlier. SCUSA noted the increases in the net charge-off and delinquency ratios, and in troubled debt restructurings (TDR) balances, were driven by the aging of the more non-prime 2015 vintage and slower portfolio growth since the prior year first quarter.
“We always want to maximize our capture with all applications that we get. The issue we always have is that many times at different parts of the credit spectrum at different times what we think is the right pricing structure, the market may have a different view so we get less,” Kulas said when asked about those metrics during the call.
“Our cash rate to non-prime, even though they’re up sequentially, are still in the high single digits, which historically is the range we’ve been and that’s the range that has served us well through several cycles,” he continued. “So, for us, we track competitive factors, we track market share, we look at volume, but what we really want is the right risk adjusted return for every single asset we book, and that’s where we’re going to be focused; not on doing more or less of any certain part of the credit spectrum.”
Kulas then addressed the specificity of the newest vintage against what came into its portfolio so far this year.
“I will say, being specific about comparing 2015 to what we’ve originated so far in 2017, there are some very key differences,” Kulas said. “We feel like our — going back to the other comments about the trade-off in risk adjusted yield versus loss — we feel like there’s a much better trade-off in our early 2017 vintages on those two factors than what we had in 2015. There are certain pockets of what we originated in 2015 that we are no longer originating. So, just by definition in terms of our approach to the market, it’d be different.
“We saw that same thing, by the way, when we went through 2006 and 2007,” he continued. “When you go through those types of situations, you learn from them. You leverage your data, you make decisions based on what you’re seeing and some things you never do again and some things you just make sure you price for.
“For us, it’s a little bit of both. That’s what we’re doing,” Kulas went on to say. “We’re learning from what we see. We’re factoring it into the new originations and we would expect that, for example, if we were sitting here on our second quarter call talking about incremental growth in non-prime originations, that we would be getting more than paid for those originations and we’d feel very good about them, or we won’t do them.”
All of the Q1 activity left SCUSA with $143 million in net income, down from $208 million a year earlier.
“We believe there’s a direct connection between strong consumer practices, a culture of compliance and the creation of shareholder value,” Kulas said near the end of his opening remarks. “Simply stated, the companies that embrace and execute on these concepts will be more successful than those who do not.
“In 2017, SC will drive value through enhancing compliance controls and consumer practices, continued credit discipline, diverse and stable sources of liquidity, industry leading efficiency and technology, a focus on recognizing upside in Chrysler Capital through dealer VIP, floorplan and the Santander flow program, and finally, being simple, personal and fair with our customers, employees in all constituencies,” he went on to say.
Credit Acceptance Corp. appears well aware of the risk the finance company is taking as installment contract dollar amounts as well as terms keep growing.
But that risk is certainly paying off — literally — as the company’s first quarter consolidated net income jumped by nearly $20 million year-over-year.
Credit Acceptance reported that Q1 consolidated net income came in at $93.3 million, or $4.72 per diluted share, up from $74.4 million, or $3.63 per diluted share, in the year-ago quarter.
The company added that adjusted net income, a non-GAAP financial measure, for the three months that ended March 31 totaled $92.3 million, or $4.67 per diluted share, compared to $82.3 million, or $4.02 per diluted share, for the same period in 2016.
Credit Acceptance indicated its origination unit volume declined 6.6 percent as the finance company added 94,809 installment contracts. Driven by multiple factors, Credit Acceptance mentioned dollar volume associated with those originations grew 6.4 percent during the first quarter.
Management reported the number of active dealers in its network rose by 4.8 percent to 7,851, but the company acknowledged average volume per active dealer declined 11.0 percent.
“Dollar volume grew while unit volume declined during the first quarter of 2017 due to an increase in the average advance paid per unit,” Credit Acceptance said. “This increase was the result of an increase in the average size of the consumer loans assigned primarily due to an increase in the average initial loan term and an increase in purchased loans as a percentage of total unit volume, partially offset by a decrease in the average advance rate due to a decrease in the average initial forecast of the consumer loans assigned.
“Our progress in growing unit volumes has slowed considerably over the last five quarters,” the company continued. “For the most recent two quarters, unit volumes declined as compared to the same periods of the prior year. This trend reflects the difficulty of growing the number of active dealers fast enough to offset the impact of the competitive environment on attrition and per dealer volumes.
“In addition, in response to the decline in forecasted collection rates experienced in 2016, we adjusted our initial collection forecasts downward during 2016. While the adjustments have been modest, we believe these adjustments have had an adverse impact on unit volumes,” Credit Acceptance went on to say.
During the company’s conference call with investment analysts, Credit Acceptance chief executive officer Brett Roberts mentioned that the finance provider average term for contracts written in Q1 averaged 54 months. However, Roberts declined to give loan-to-value metrics when asked about the company’s risk appetite and mitigation.
“The loan term is disclosed. You can see we’ve got a little bit longer this quarter. We don’t disclose loan-to-value. But as we’ve talked about with the term, it’s a mix issue,” Roberts said.
“We write loans with terms of 24 months up to 72 months. For about 80 percent of the loans we write, we have a full amortization period behind us. We’ve got a full history on how those loans will perform,” he continued. “And for the 66-month and 72-month loans, we don’t have a full history. I think we’re about 75 percent of the way through the 66 months. So, we have 48 to 50 months of history there. And on the 72, we have about between 24 and 30 months of history on those. So, we feel like for most loans we write, we’ve got good data to back it up.
“For the 72-month loans, we have to do a little bit of estimation, so there’s a little bit more risk there,” Roberts added. “But because we’ve got a lot of 60s and lot of 66-month loans on which to base it, we don’t think it’s a stretch to be able to forecast those with a high degree of accuracy.”
Securitization update
The last securitzation Credit Acceptance finalized came back on Feb. 23 when the company announced the completion of a $350.0 million asset-backed non-recourse secured financing. Pursuant to that transaction, Credit Acceptance contributed contracts having a net book value of approximately $437.8 million to a wholly-owned special purpose entity that issued three classes of notes.
Wall Street observers asked the company for its current impression of the auto ABS market.
“Well, speaking relative to conditions in the capital markets, certainly nothing that we’re seeing at this point that would indicate that the ABS market is less available to the industry than it has been,” Credit Acceptance senior vice president and treasurer Doug Busk said.
“Spreads were very attractive in Q1. They have widened a bit since then, but are still at relatively attractive levels. So, certainly, nothing on the funding side,” Busk continued.
When Busk mentioned spreads, it triggered more inquires during the call as one investment analyst wondered about another finance company posting a “pretty widening spread in the bottom tranches” of its offering.
The call participant asked, “Do you think that’s a one-off situation with the placement of that deal or do you think that’s a trend that we might actually see investors place lower demand on bottom tranches of ABS deals?”
Busk replied, “It’s a good question, and it’s a little bit tough to say because there hasn’t been a lot of subprime auto issuance real deep in the capital stack over the last few weeks. Certainly, spreads have widened out in general a little bit, but the widening has been much more extreme on the BB and BBB tranches than it has on the higher-rated tranches.
“So I think at this point it’s a little bit premature to conclude on that point. We’ll just have to watch subsequent issuances and see what happens,” he added.
Rising cost of doing business
Elsewhere in Credit Acceptance’s Q1 financial report, the company mentioned an increase in salaries and wages expense of $4.2 million, or 13.4 percent. Credit Acceptance also had an increase in sales and marketing expense of $3.5 million, or 30.2 percent, primarily as a result of “an increase in sales commissions driven by higher consumer loan assignment unit volume related to seasonality and an increase in the size of our sales force.”
The company said it also had an increase in general and administrative expense of $1.4 million, or 11.2 percent, stemming mostly from of an increase in “legal fees.”
“We’re in the process of expanding the numbers of salespeople that we have,” Roberts said. “The number at the end of Q1 was higher than the start of Q1 but a lot of those salespeople are new so we haven’t seen much of an impact yet in terms of the unit volume numbers.
“But hopefully as they become more seasoned, we’ll see a positive impact from that,” he added.
TransUnion’s Industry Insights Report offered clear evidence that auto finance originations are slowing, especially in the subprime space.
The credit bureau’s report, powered by Prama analytics and released on Tuesday, indicated that auto finance originations, viewed one quarter in arrears, declined to 6.66 million to end 2016, down 0.2 percent relative to fourth quarter of 2015. This movement marks the second consecutive quarter in which total originations were down year-over-year.
Analysts found that subprime originations posted the steepest decline in originations, dropping by 5 percent.
The latest Industry Insights Report also highlighted that outstanding auto finance balances continued to grow at a more moderate pace in the first quarter of 2017. Total auto finance balances reached $1.12 trillion, up from $1.05 trillion in Q1 2016.
The year-over-year growth rate in Q1 2017 was 7.3 percent, the lowest level TransUnion has observed since Q2 2012.
Analysts determined the average auto finance balance per consumer rose to $18,386, up 1.8 percent from $18,065.
TransUnion reported the auto finance delinquency rate increased from 1.16 percent in Q1 2016 to 1.30 percent in Q1 2017, driven by poorer payment performance in the subprime and near prime segments.
“Serious auto loan delinquency rates are approaching levels not seen since the recession, but it’s important to understand that delinquencies in the auto market never elevated to levels observed for other key credit products such as credit cards and mortgages,” said Brian Landau, senior vice president for financial services and automotive business leader for TransUnion.
“Regardless, with flatter sales volumes and higher delinquencies, we anticipate lenders will evaluate their credit policies for subprime and near prime borrowers to calibrate for the uptick in delinquencies,” Landau continued.
As Landau referenced, similar trends are appearing in other credit segments that TransUnion watches as analysts mentioned personal loan balances grew while subprime originations slowed.
TransUnion said the total balance for unsecured personal loans grew 9.7 percent to $102 billion in Q1 2017. One year prior, personal loan balances were $93 million. The year-over-year growth rate slowed compared to prior first quarters, when the yearly growth rate averaged 19.9 percent between 2013 and 2016.
Analysts calculated the average personal loan balance was $7,603 in the first quarter, a slight increase from $7,544 in Q1 2016. In the last five years, personal loan balances have grown by $1,709 from $5,893 in Q1 2012.
“Personal loan balances have increased rapidly in the last five years, but we observed a slowdown in the growth of both total balances and average balances in the first quarter,” said Jason Laky, senior vice president and consumer lending business leader at TransUnion.
“While the first quarter is usually lighter volume for personal loans, as consumers use tax returns or bonuses for purchases and to pay down debts, the beginning of 2017 experienced a larger than normal decline,” Laky added.
At the end of 2016, personal loan originations, viewed one quarter in arrears, declined 10.8 percent from 4.10 million in Q1 2016 to 3.66 million in Q1 2017. Subprime (down 12.6 percent) and near-prime (down 13.5 percent) originations experienced the sharpest year-over-year drops in originations.
TransUnion went on to note the personal loan delinquency rate also ticked up slightly to open 2017. The delinquency rate was 3.72 percent, a 3.6-percent increase from the year-ago reading of 3.59 percent.
The metrics and performance of General Motors Financial are showing more distinct characteristics of a traditional captive finance company and less of a provider that used to book a significant amount of subprime paper.
In fact, GM Financial reported that its penetration of originations associated with retail deliveries by the parent automaker reached an all-time high during the first quarter, climbing to 50.4 percent. The level smashed the previous all-time record established a year earlier, which was 37.5 percent.
“GM had some down payment assistance promotions in the market during the quarter, which drove increased penetration of standard loans,” GM Financial president and chief executive officer Dan Berce said.
However, the company didn’t abandon the subprime space completely. Berce pointed out during the company’s recent quarterly conference call that originations through its AmeriCredit channel — the division that works with non-GM dealers and typically takes the subprime paper — grew to $700 million during the second quarter, up by $200 million year-over-year.
All told, GM Financial reported that its retail originations totaled $6.5 billion for the quarter that ended March 31, compared to $4.7 billion for the quarter that closed Dec. 31 and $4.1 billion for the year-ago quarter.
“Credit trends remained stable, positively impacted by our mix shift to prime credit quality assets in U.S.,” Berce said. “And our primary headwind remains used-car values, U.S. disposition proceeds on returned leased vehicles compared to estimates at origination continued to moderate during the quarter.
“We do expect used vehicle prices to decline about 7 percent year-over-year throughout 2017,” he continued.
GM Financial indicated its outstanding balance of retail finance receivables was $36.0 billion as of March 31.
Chief financial officer and executive vice president Chris Choate explained the subprime segment of the company’s portfolio represented approximately 12 percent of its ending earning assets when the second quarter finished, down from 17 percent a year earlier.
“The composition of those earning assets continues to shift to a more prime light credit profile, consistent with some of the mix trends Dan has already discussed,” Choate said.
That additional prime paper helped to improve other GM Financial metrics.
The company reported its retail finance receivables 31 to 60 days delinquent constituted 2.8 percent of the portfolio at the close of the first quarter. A year earlier, it was 3.1 percent.
GM Financial noted accounts more than 60 days delinquent improved to 1.2 percent of the portfolio from 1.4 percent a year ago.
The company added its annualized net charge-offs remained flat year-over-year, holding at 1.9 percent of average retail finance receivables.
Berce also mentioned recovery rates stood at 52 percent for the quarter, down from 54 percent a year ago. He said the rates were “up a bit sequentially due to seasonal reasons, but we do expect recovery rates to continue to trend down year-over-year throughout 2017.”
Looking more positively, customers maintaining their payments helped GM Financial to post net income of $202 million for the quarter, up from $164 million a year earlier.
A few other notable elements to GM Financial’s Q1 report included the call out of its outstanding balance of commercial finance receivables ticking up to $11.8 billion as of March 31.
The company also highlighted total available liquidity of $12.4 billion as of March 31, consisting of $2.7 billion of cash and cash equivalents, $8.3 billion of borrowing capacity on unpledged eligible assets, $0.4 billion of borrowing capacity on committed unsecured lines of credit and $1.0 billion of borrowing capacity on a Junior Subordinated Revolving Credit Facility from GM.
“Our funding platform continued successful execution on many fronts,” Berce said. “We issued $5.5 billion in public secured and unsecured debt securities in the quarter. And subsequent to quarter end, we closed our first U.S. prime loan securitization, which we call GMCAR, for a total of $1 billion.”
Elaborating about securitizations, Choate later added, “Also, as a reminder, we have numerous securitization platforms segregated by asset type and geography. This list is very similar to a list from prior quarters, with the exception, again, that we have now executed our first U.S. prime retail loan securitization under the GMCAR platform.
“Our global senior notes platform funds our operations in the U.S., Canada, Europe and Mexico, where we expect to do five to eight issuances per year,” Choate went on to say. “And our total issuance in 2017 will be increasing this year, most notably because of the launch of our GMCAR securitization program. Otherwise, we expect our cadence to be reasonably similar to 2016.”
Machine learning and fraud solutions provider PointPredictive recently orchestrated a gathering of six of the nation’s Top 10 and nine of the nation’s Top 20 aimed at tackling the problem of auto finance fraud through collaboration.
As a part of launching what PointPredictive is calling its Automotive Lending Fraud Consortium, officials highlighted a total of 13 different finance companies — representing more than a third of U.S. auto financing originations — participated in the discussions during their Automotive Fraud Roundtable to expand consortium participation.
The event happened last month in Dallas and was hosted by Santander Consumer USA.
PointPredictive chief executive officer Tim Grace reiterated that the firm launched the consortium in response to historically high origination volumes that are fueling an estimated $6 billion in annual fraud losses to finance companies.
Grace explained finance companies that join the consortium agree to share the patterns of fraud in their data and meet on a quarterly basis to share fraud experiences.
“All the lenders in attendance reported that auto lending fraud is a growing concern in their organizations and that they are bolstering their defenses in response,” Grace said. “We are providing a critical missing piece to those lenders’ fraud defenses.
“With the consortium, we’re enabling lenders to share their patterns of auto lending fraud through predictive application risk scores and dealer risk scores — just like other industries have been doing for years,” he continued. “It’s almost impossible for a lender to make a big dent in their fraud losses working in isolation.”
To kick off this next phase of consortium growth, PointPredictive indicated the finance companies in attendance set in motion a plan for enhanced industry collaboration. They established guidelines and a working plan to move forward aggressively to respond to fraud.
“The best way to stop fraud is together as an industry,” said Rich Morrin, chief operating officer for Santander Consumer USA. “We know that individuals and criminal rings work to defraud banks and financial institutions; it’s time we work together to stop them.”
To support the fraud consortium, PointPredictive noted that it will play a critical and active role through ways such as:
• Collect finance company data
• Build machine-learning predictive application risk scoring and dealer scoring
• Provide Ph.D. scientists and fraud experts to continuously analyze contributed data for patterns of risk and emerging trends across lenders
• Organize quarterly consortium meetings
“Ten years ago, members of the team at PointPredictive established the Mortgage Fraud Consortium,” says Frank McKenna, chief fraud strategist of PointPredictive. “That helped cut fraud in half in that industry within 24 months of adoption.
“It’s an enormously powerful technique because it not only reduces fraud and early payment default losses, where fraud is often mistakenly classified, but it can detect more fraud while reducing false positives — compared to currently-used tools like bureau alerts,” McKenna continued.
PointPredictive added that the Automotive Lending Fraud Consortium is open to all U.S. auto finance companies.
“We are hopeful that many other lenders will reach out and join the consortium, and that attendance at the next meeting doubles or triples,” Grace said.
For more information about the Automotive Lending Fraud Consortium, contact Kathleen Waid at kwaid@pointpredictive.com.
The National Automotive Finance Association is organizing the 21st annual Non-Prime Auto Financing Conference with the same mandate organization leadership has held for more than two decades.
“This is the industry event where all the non-prime auto financing company executives gather for information on the most relevant issues affecting non-prime financing, where vendors servicing the industry gather and where 21 years of networking continues,” NAF Association executive director Jack Tracey said in a message to SubPrime Auto Finance News.
“It’s exciting to see how this conference over the past 21 years has grown in prominence,” Tracey continued. “It’s where everyone comes. Nonprime auto financing leaders attend the conference because they know they’ll see the rest of the industry there.
“We strive each year to pull together a conference program that addresses issues facing nonprime auto industry and to provide education and solutions on the problems confronting the industry,” he went on to say. “Our objective is to have everyone go home with a least one good idea for improving their business.”
This year’s event, which carries the theme, “Optimizing NonPrime Performance,” is scheduled to run from May 31 through June 2. The event again is to unfold in Plano, Texas, but at a new facility — the Hilton Dallas/Plano Granite Park.
Some of the conference sessions includes the release of the 2017 Non-Prime Auto Financing Survey as well as a discussion about how finance companies can raise capital. Another segment has the title, “CFPB in Their Own Words.”
Among some of the notable conference speakers scheduled to appear are:
■ Rep. Jeb Hensarling, a Texas Republican and chairman of U.S. House Financial Services Committee
■ Tom Webb, retiring chief economist at Cox Automotive
■ Amy Martin, senior director of the structured finance ratings group at Standard & Poor’s
Complete registration details for the 21st annual Non-Prime Auto Financing Conference can be found at www.nafassociation.com.
Consumer Portfolio Services chairman and chief executive officer Brad Bradley likes the position where the subprime auto finance company sits after the first quarter.
And it’s not just because CPS posted its 23rd consecutive quarter of positive earnings.
Bradley pointed to the difference where CPS stands with more than 25 years in the subprime business versus newer operations that might have only a fraction of that the portfolio seasoning.
During the company’s Q1 conference call conducted last week, Bradley touched on some similarities in the competitive landscape he’s seeing now that percolated back in 2008 and 2009.
“Both of those were some result of a recession. We haven't had a recession this time, but certainly feels a lot like there is going to be some consolidation in industry. We’re going to lose some of the competitors in the industry,” Bradley said.
“There is a lot of competitors in our industry struggling. Lots of small ones that came into the industry over the last couple of years are now having some real significant problems as the paper they’ve bought hasn’t performed,” Bradley continued a couple of moments later during his opening comments when he often shares his assessment of the entire subprime industry.
“They’re going to have more difficult access to the capital markets. And that also applies to some of the larger players in our industry who have grown real fast and haven’t really done as well as people might have expected. And so again many folks are waiting to see how that shakes out,” he said.
In terms of how the first quarter shook out for Consumer Portfolio Services, the company reported earnings of $4.5 million, or $0.16 per diluted share.
Meanwhile, revenue jumped 6.9 percent year-over-year to land at $107.6 million. However, the company’s Q1 operating expenses spiked 12.9 percent to $99.8 million; impacting in part on the year-over-year decline in net income.
A year earlier, CPS said, its net income came in at $7.2 million, or $0.24 per diluted share.
During the first quarter of 2017, CPS purchased $229.6 million of new contracts compared to $215.3 million during the fourth quarter of 2016 and $312.3 million during the first quarter of 2016. The company's managed receivables totaled $2.323 billion as of March 31, an increase from $2.308 billion as of Dec. 31 and $2.142 billion as of March 31 of last year.
“In terms of originations, as I mentioned, we haven't seen too much signs of tightening overall in the industry,” Bradley said. “I think some of the bigger folks, some of the larger banks have certainly talked about tightening, and you may be seeing a little bit of it there. Down in our end of the neck of woods, you really haven't seen too much of it lately.”
Bradley mentioned that CPS did tighten its loan-to-value ratio to the lowest point it has been since Q2 of 2014.
“We think LTV is one of the real indicators of what you're buying,” he said. “So, that would be an easy way to indicate that we certainly did do some tightening in the first quarter.
“I think other players will tighten as they go or maybe we’ll see more tightening, but at the moment certainly through the first quarter we haven’t seen too much other than sort of ourselves,” Bradley said.
Also noted in the company’s latest financial statement, CPS indicated annualized net charge-offs for the first quarter of 2017 stood at 7.91 percent of the average owned portfolio as compared to 7.57 percent for the first quarter of last year.
The company added its delinquencies greater than 30 days (including repossession inventory) involved 9.74 percent of the total owned portfolio as of March 31, as compared to 8.97 percent on the same date a year earlier.
CPS announces $225.2M securitization
In other company news, Consumer Portfolio Services also announced the closing of its second term securitization in 2017. The transaction is CPS’ 24th senior subordinate securitization since the beginning of 2011 and the seventh consecutive securitization to receive a triple-A rating on the senior class of notes from at least two rating agencies.
In the transaction, qualified institutional buyers purchased $225.17 million of asset-backed notes secured by $230.0 million in automobile receivables originated by CPS. The sold notes, issued by CPS Auto Receivables Trust 2017-B, consist of five classes.
Ratings of the notes were provided by Standard & Poor’s and Kroll Bond Rating Agency, and were based on the structure of the transaction, the historical performance of similar receivables and CPS’s experience as a servicer.
Note
Class |
Amount |
Interest
Rate |
Average
Life |
Price |
S&P
Rating |
KBRA
Rating |
| A |
$101.660 million |
1.75% |
.71 years |
99.99332% |
AAA |
AAA |
| B |
$38.985 million |
2.33% |
1.87 years |
99.99341% |
AA |
AA |
| C |
$34.155 million |
2.92% |
2.57 years |
99.98493% |
A |
A |
| D |
$27.715 million |
3.95% |
3.26 years |
99.97496% |
BBB |
BBB |
| E |
$22.655 million |
5.75% |
3.94 years |
99.98065% |
BB- |
BB- |
The company indicated the weighted average coupon on the notes is approximately 3.45 percent.
CPS said the 2017-B transaction has initial credit enhancement consisting of a cash deposit equal to 1.00 percent of the original receivable pool balance and over-collateralization of 2.10 percent.
The final enhancement level requires accelerated payment of principal on the notes to reach overcollateralization of 7.45 percent of the then-outstanding receivable pool balance.
Officials went on to note the transaction utilizes a pre-funding structure, in which CPS sold approximately $145.7 million of receivables in April and plans to sell approximately $84.3 million of additional receivables during May.
“This further sale is intended to provide CPS with long-term financing for receivables purchased primarily in the month of April,” the company said.
A quartet of auto finance technology firms collaborated this week on a pair of relationships aimed at enhancing both originations and payments.
First, Payix and Nortridge Software announced they formed a strategic alliance to help finance companies connect with their borrowers and improve their ability to collect payments. The alliance is geared to allow Payix to offer real-time integration between its suite of collections tools and the Nortridge Loan System (NLS).
Then, AutoGravity announced a partnership with CarFinance.com, a direct to consumer online finance company that is an affiliate of Flagship Credit Acceptance. The partnership is designed to give qualified users access to even more financing options through the AutoGravity digital platform.
Both developments come at time when the latest report generated by the Federal Reserve Bank of New York declared that 2016 officially represented the year of the highest auto finance originations — at least in the 18-year history of the data officials obtained from Equifax.
Payix’s collections tools include its intuitive, engaging and affordable mobile collections application, as well as web, interactive voice response (IVR), text and collector portal applications. Nortridge explained that its clients can add the Payix solutions to their existing collections tools with virtually no IT work on their part and in just a few weeks’ time.
“Lenders are always striving for ways to improve collections,” Nortridge Software president and chief executive officer Greg Hindson said. “The integration between Nortridge and Payix makes it easy for borrowers to pay anywhere and anytime — benefiting both borrowers and lenders.”
Executives went on to mention the Nortridge and Payix teams collaborated in the development of the seamless web services interface between the Nortridge Loan System and the Payix payment system, ensuring that transactions could be carried out in real-time and without interruption.
“We are elated to partner with an organization as strong and well-respected as Nortridge Software,” Payix president Chris Chestnut said. “Their products are incredibly flexible and reliable, and their team of industry leaders is fantastic to work with. We both realize our organizations are stronger together, and we couldn’t be more pleased to be able to form this alliance with them.”
Payix’s collections tools are white-labeled to help finance companies promote their own brands with their borrowers, and they were specifically designed for any size lender to use easily and affordably. Chestnut elaborated about the tool in this report from SubPrime Auto Finance News.
So finance companies can have more contracts on which to collect, the team at AutoGravity contends its smartphone technology helps potential buyers get up to four personalized finance offers on the new or used vehicle of their choice — on average in under 10 minutes.
Designed with state-of-the-art security, AutoGravity protects user information with advanced bank-level encryption to ensure that sensitive information is processed securely. The tech company also recently confirmed that its network of partner dealerships has grown to more than 1,400 franchised dealers.
“AutoGravity transforms car financing by empowering car buyers with up to four binding finance offers in minutes,” AutoGravity founder and chief executive officer Andy Hinrichs said. “Growth in our network of partner lenders creates more options for our users, marking another great step forward in delivering a world-class digital car shopping and financing experience.”
CarFinance.com joins a growing list of automotive finance providers that have embraced proprietary AutoGravity technology to allow consumers to shop for vehicles and see personalized financing options, all from the convenience of their mobile phones. Users are empowered by a one-of-a-kind financing experience that delivers efficiency, transparency and freedom of choice.
“We are pleased to partner with AutoGravity, a rising star in the digital car financing market,” said Samuel López, senior vice president and general manager of CarFinance.com. “More consumers are using digital tools to shop for and finance their cars, as we have seen with our customers at CarFinance.com.
“Our partnership with AutoGravity will provide car buyers, particularly millennials, access to our suite of best-in-class online tools that make it easy to complete the entire loan process online,” López continued.
Finance offers from CarFinance.com are now available to shoppers on all versions of the AutoGravity auto financing platform.
“Our success at CarFinance.com is driven by our ability to offer a fantastic user experience as our customers secure financing for their next car,” said Gerry Quinn, vice president of business development at CarFinance.com.
“Through our partnership with AutoGravity, we are seizing the opportunity to expand our reach and serve new customer segments with a cutting-edge mobile solution that complements our own digital lending platform and seamless online journey,” Quinn went on to say.
