The fastest growing auto loan balances in nearly a decade and record loan dollar volumes? Check.
The lowest second-quarter 30-day delinquency rate in five years? Check.
Strong auto sales? Check.
Oh, and there’s balanced portfolio distribution amongst the credit tiers.
“The automotive loan market is working the way it’s supposed to, with loans being made, vehicles purchased and payments made on time,” said Melinda Zabritski, Experian’s senior director of automotive finance.
“The automotive loan market is gaining momentum while maintaining remarkable stability,” Zabritski added. “It’s a good sign for the economy overall.”
Experian Automotive lays out those signs in its latest State of the Automotive Finance Market report released Wednesday.
At the top of Experian’s list: the second-quarter’s $92 million year-over-year growth in total dollar volume for outstanding car loan balances This represented the steepest climb in dollar volume since 2006, the company said.
Total loan balances were at $932 billion Q2, an all-time high, Experian said. A year ago, they were at $840 billion.
Meanwhile, the National Consumer Credit Trends Report from Equifax released Monday said the total outstanding balance on car loans and leases combined as of June was at $1.021 trillion, which beats the year-ago sum by 10.5 percent. It says there are 73.7 million outstanding accounts, which is up 8 percent.
“Strong sales numbers in both the new-car and used-car markets, coupled with the availability of quality financing for consumers are a few of the main reasons the industry has reached the one trillion dollar mark," said Dennis Carlson, deputy chief economist at Equifax. “It clearly reflects that the improving economy has provided the impetus for consumers to replace their aging vehicles and begin to satisfy their pent-up auto demand.
Payments made on time
Looking at Experian's data, here’s another thing that make the current environment all the more impressive: the market has great stability these days when it comes to borrowers making payments.
In fact, the 30-day delinquency rate for the period was 2.32 percent, which was the best Q2 reading in five years, Experian said. A year ago, it was at 2.37 percent.
The 60-day level nudged up slightly, reaching 0.607 percent after coming in at 0.603 percent a year ago.
Not to mention, there appears to be a great deal of balance when it comes to the credit-tier distribution, Experian found.
Granted, the combined Q2 market share for subprime and deep-subprime loans climbed from 19.92 percent to 20.02 percent in the past year, but super prime’s share was up as well, growing from 20.68 percent to 20.99 percent.
“Overall, lenders are taking a balanced approach to their portfolios, with slight growth in subprime and deep subprime balanced by the uptick in loans to the super-prime risk tier,” Zabritski continued. “There really is nothing alarming about the growth seen in subprime loans, provided consumers continue to make timely payments.”
More on auto loan growth
Going back to Equifax’s data, the company said banks were seeing 10.1 percent growth in auto loan balances through June, with finance companies seeing similar patterns at 10.2-percent growth.
However, when it comes to the leasing segment, finance companies are way ahead; in fact, their leasing portfolios are seven times as big as those from the banks, Equifax found.
What’s more, the company notes that, “Finance companies are also growing originations faster than banks with 54.2 percent of all new auto accounts and 51.8 percent of dollar originations through April 2015 coming through finance companies.”
Offering additional context, Carlson noted: “The captive auto finance companies are supporting sales for the manufacturers, and dealers continue to work with independent auto finance companies to find the right loans for their customers, particularly in the non-prime space.
“This combination has led to finance companies growing slightly faster than the commercial bank segment.”
With finance companies evidently thirsty for any reliable data and analysis about millennials that’s available, Experian and the National Automobile Dealers Association both chimed in on the topic of consumers born after 1980.
Earlier this week, NADA chief economist Steven Szakaly offered a cautious assessment of how millennials are going to impact the market, especially since he projected new-vehicle sales could reach an all-time high of 17.46 million units in 2016.
Szakaly explained that in part millennials “could present challenges to long-term growth in auto retailing.” The factor prompted him to note that after the industry potentially posts a record new-vehicle sales mark next year, the retailing of new models might soften back to 16.65 million units in 2017.
The NADA expert offered his assessment of millennials and made these predictions at the Center for Automotive Research's Management Briefing Seminars earlier this week in Traverse City, Mich.
“It will take four Millennials to replace the spending power of one Baby Boomer in the automotive retailing marketplace,” Szakaly said. “There’s also a wage gap between baby boomers and millennials, and stagnating wages for millennials, along with increasing vehicle-transaction prices, will pose challenges in the long run.”
Not long before Szakaly shared his perspective, Experian released key findings from a recent study meant to provide a glimpse into the credit management habits of millennials and show how coming of age in a challenging economy has had an effect on this generation’s credit profile.
Experian’s study showed that millennials appear to favor vehicle loans over leases, as there were 13.4 auto loans per one lease in the bureau’s analysis. Experian indicated this ratio is 9.3 to 1 for Generation X — individuals ages 35 to 49 — and 8.3 to 1 for baby boomers — consumers age 50 and older.
However, Experian also determined vehicle leases tend to be a product that may attract older consumers because they tend to have higher and more established credit. Consequently, Experian said its findings from the analysis showed that the older millennials were, the more likely they were to have a vehicle lease, rather than their younger counterparts.
That segment of Experian’s study slightly differed with a recent analysis generated by Edmunds.com, which reviewed registration data provided by Polk and determined that leasing has accounted for 28.9 percent of all new-vehicle purchases so far this year by millennials who range in age from 18 to 34.
Even with millennials taking a little longer to establish some forms of credit compared with previous generations, Experian insisted their sheer numbers make them an important and growing market segment. When comparing credit usage of a more youthful generation X population, Experian found that there appears to be some interesting trends in origination patterns.
Auto loans make up 14 percent of all recently opened accounts for millennials, compared to 1 percent for their generation X counterparts at the same age in 1998.
“We’re seeing that millennials are purchasing cars at a much earlier point in life, which is giving them the opportunity to build credit a little differently than previous generations,” said Rod Griffin, Experian's director of public education.
“This is a critical time for members of this generation as they are learning to use credit as a tool,” Griffin continued. “With so many financial education resources available to help them, we believe that members of this generation are more empowered and informed than members of other generations and are starting their adult lives off by building strong credit as they set out on their own.”
Similarly, Experian indicated student loans make up 24 percent of all new accounts for millennials, compared to 20 percent for their generation X counterparts at a comparable age.
Experian’s study also shows that fewer millennials are using bankcards, with only 27 percent of their recently opened accounts being bankcards, compared to 46 percent for their generation X counterparts at the same age.
“Given the significance millennials play in financial services and the credit marketplace, it is crucial to understand this influential consumer segment and how they use credit as a tool," said Michele Raneri, vice president of analytics and business development at Experian.
“While this generation may not look like they are on the right track financially, it’s important to keep in mind that credit scores are built on credit experiences, and while this generation has been slower to use credit, they have plenty of opportunities to build a positive credit history,” Raneri went on to say. “The best way to do that is to understand credit before using it.”
FactorTrust chief executive officer Greg Rable regularly receives questions from finance companies that are seeking more information about millennials, and for good reason. FactorTrust indicated that millennials — individuals born after 1980 — make up the largest percentage of non-prime auto applicants at 43 percent.
“If you look at millennials overall and their position today within auto, then you fast forward 10 to 15 years,” Rable said, “it will be the segment of their customer base that will be the difference between (finance companies) being successful and not. They want to know as much as possible about them.”
Not only do millennials constitute a larger segment of the potential vehicle installment contract applicants finance companies might see, but they also might have a better capacity to remain current on those deals.
Non-prime auto loan applicants make more money than other underbanked consumer loan applicants, according to FactorTrust’s special auto edition of the Underbanked Index. In fact, millennial non-prime auto applicants have incomes comparable to Baby Boomer consumer loan applicants.
FactorTrust reported non-prime auto applicants make more on average than underbanked consumer loan applicants. Overall, non-prime auto applicants make $3,287 per month, while consumer loan applicants — individuals who used those funds for other personal expenses and purchases — make an average of $2,937 per month.
When SubPrime Auto Finance News recently asked Rable to examine why so many millennials end up being classified as non-prime, he replied, “It could have been something in their past where they may have not managed their credit obligations in a way that allowed them to maintain a prime credit score. But then it’s also market driven.
“As everybody knows over the last five or six years, as the economy has recovered there was a big period of time there between 2008 and to a certain extent even 2011, there were a lot of people right at the prime line or just above the prime who struggled mightily and ended up moving below that prime line,” Rable continued.
“What we’ve seen in the data is a lot of consumers who were historically above the prime line are now below,” he went on to say. “They still have the same needs as everybody else. They still have a need for an auto loan. They’re employed so they need to get to work. They need as many credit options as other people have. They’ve just found that over time maybe the non-prime lenders were the better option for them based on their score at that time.”
And that credit score doesn't just play a role in underwriting; Rable mentioned the consumer stability component, too. FactorTrust’s latest index report showed non-prime auto applicants are more likely to change addresses than consumer loan applicants, while consumer loan applicants are more likely to change phone numbers than auto applicants.
Rable explained that millennials are more open to move from place to place but keep their phone number — likely connected to a mobile device — since “they use it for everything.”
He added that FactorTrust’s 10 years of experience in the alternative data space shows, “consumer stability has been a pretty substantial predictor of credit risk for underbanked and non-prime consumers from the get-go when we started looking at risk. Having all of our customers contribute their data to us allows us to continue to see who that changes over time.”
FactorTrust’s latest analysis also touched on employment.
The company found that most non-prime auto and consumer loan applicants are employed in the retail segment, but employment segments split after that, with the second most-common employment segment for auto applicants being government, and quick-serve restaurants for the consumer loan segment.
The largest employer segment of underbanked millennials is retail, with quick-serve restaurants as the second-largest employer.
FactorTrust brought all of this material to the attention of finance companies because Rable insisted that alternative credit data can enhance their underwriting process. FactorTrust boasts a study that determined a finance company can reduce default rates by up to 48 percent by integrating alternative data into its process.
Rable acknowledged that finance companies changing their protocol from traditional underwriting processes is the hurdle the entire industry has yet to clear when it comes to leveraging alternative data.
“We don’t ever say replace a big three bureau with us. We always say our data augments big three data in the auto space,” Rable said. “It’s really valuable to see everything about this consumer. Today the big three don’t work with a lot of alternative financial services companies. We have a lot of tradelines on these consumers that the big three bureaus don’t have.
“Once lenders understand that aspect and are willing to say that these guys might not have all of the data, once they get over the hump of taking a look at alternative data and understand what it can do for them either by reducing credit risk to helping them fund more loans at scores that maybe they wouldn’t have funded in the past and seeing the value of doing that, the actual implementation in a risk model or whatever their underwriting decision process is can be pretty easy and straightforward,” he went on to say.
FactorTrust also emphasized that the pool of consumers — especially millennials — using alternative financial services likely isn’t going to diminish.
“Based on their age and the time in which they grew up, there is a much larger open view to alternative financial services than older generations,” Rable said. “Those older generations grew up saying you had to have a banking relationship for a checking account and a savings account.
“Younger consumers have a more openness to trying new things and looking at alternative financial services as an opportunity because to a certain extent they like the convenience. They like the speed,” he went on to say. “They recognize that in some cases the products might be priced differently than the more traditional products. But they like what they get in return.”
More key findings outlined in the auto edition of the FactorTrust Underbanked Index can be found by clicking the link below.
The Federal Reserve of New York reported an uptick in consumers who expect to apply for vehicle financing during the next 12 months, but two economists, including Cox Automotive’s Tom Webb, discussed the potential headwinds that might arrive within the employment market as well as consumer confidence.
First, the New York Fed indicated its Survey of Consumer Expectations for June revealed that 12.9 percent of individuals expressed a likelihood of applying for auto financing within the upcoming year. That figure is up from 10.8 percent of individuals who told officials their intentions a year earlier.
However, the survey also showed that 26.5 percent of those consumers believed they likely would be rejected for that financing, up from 23.6 percent recorded in June of last year. What’s interesting is the New York Fed noted that its pool of respondents for the June survey contained more individuals with credit scores of 680 or below (15.8 percent) than the one a year earlier (8.3 percent). Also, consumers with sterling credit (scores of 760 and higher) made up the largest demographic in last year’s survey pool, constituting 14.4 percent a year ago but only 12.2 percent earlier this summer.
Then, Cox Automotive’s Webb revisited a topic he discusses regularly in order to give finance company executives some guidance on how the economy is behaving and how originations might develop.
In the July edition of the Manheim Consulting Auto Industry Brief, Webb acknowledged that a lack of productivity is dimming prospects for wage growth, which, of course, is a key component to vehicle affordability.
In 2014, Webb pointed out that the U.S. economy had a net increase of 3.1 million jobs, a rate that was the fastest pace in 15 years. Webb also mentioned an additional 1.25 million jobs were added in the first half of this year.
“And, of vital importance to the auto lending industry, initial jobless claims (adjusted for employment) are at an all-time low,” Webb said. “Yet, legitimate concerns about the robustness of the labor market remain.”
Although total employment is now 3.5 million higher than the previous peak reached in January 2008, Webb indicated full-time employment is still 822,000 shy of its all-time high.
“This partly explains the weakness in wage growth during the recovery,” he said. “But there is also a more troubling force holding down paychecks — productivity.”
After what Webb described as a “natural bounce back” coming out of the recession, Webb cited federal data that showed annual labor force productivity never exceeded 1 percent between 2011 and 2014.
And in the first quarter of this year, the Bureau of Labor Statistics (BLS) determined productivity was up only 0.3 percent from its year-ago level.
“The drivers of productivity growth are complex,” Webb said. “And, although policies to reverse the secular decline will be difficult to enact and slow-acting, they are the only way to promote real wage growth over the long term.
“Minimum wage laws, overtime pay regulations and guidelines for executive pay are all a sideshow,” Webb continued.
With wages evidently not on a significant upward track, the situation makes the monthly payment component of the vehicle installment contract all the most crucial to the completing of a contract. As Experian Automotive highlighted in the latest State of the Automotive Finance Market report, the average loan term for new and used vehicles originated during the first-quarter increased by one month, reaching new all-time highs of 67 and 62 months, respectively.
Then in an interview with Bloomberg earlier this month, former Santander Consumer USA chief executive officer Thomas Dundon maintained that rising contract terms aren’t necessarily bad for the industry, especially in the subprime space.
“The data would tell you that as long as the payment is affordable and quality of the vehicles is improving, the math says you’d rather give more term so the customer can get a better car,” Dundon told Bloomberg in this report, adding that 72-month contracts may soon be the standard term for prime contracts, too.
Equifax deputy chief economist Dennis Carlson didn’t disagree with Dundon’s thinking, especially when considering the BLS data that Webb referenced.
“The issue is the cost of cars absolutely has gone up. If you look at the price of a new car today versus five or six years ago, it’s certainly gone up faster than wages,” Carlson said.
“I think many people when they purchase a car, whether it’s new or used, they’re really looking at a number they can afford to pay on a monthly basis,” he continued. “If a car costs a certain amount and you’re able to pay X, then your loan is going to require you to reach terms that meet that number. One way we have been seeing that is through the prevalence of longer loans.
“I certainly think that it’s a factor, but I don’t know if it’s the driving factor,” Carlson went on to say. “I certainly would agree that as discretionary income continues to increase, as wages increase, perhaps those longer term loans will be less necessary. I think time will bear out the truth of that statement.”
Whether consumers take out vehicle notes that last 36 months, 72 months or even longer, the confidence in their finances, employment and more likely will impact what kind of financing they take — if any at all.
Stifel, Nicolaus & Co. Fixed Income chief economist Lindsey Piegza recapped the latest report from the Conference Board and Haver Analytics that showed consumer confidence fell from 99.8 to 90.9 in July, the lowest reading since September of last year.
In the details, Piegza noted consumers’ assessment of current conditions fell from 110.3 to 107.4, a three-month low. She added consumers’ expectations, meanwhile, plummeted nearly 13 points from 92.8 to 79.9, the weakest reading in more than a year.
“Consumer confidence was expected to decline slightly at the start of Q3. It was not, however, expected to plunge as it did in the latest report, falling to a multi-quarter low,” Piegza said in her latest economic commentary.
“Consumers are clearly losing confidence in a more robust outlook for the U.S. economy amid growing concerns over stagnant business conditions, fewer jobs and declining income,” she continued. “As consumers lose confidence, they are more likely to tighten their purse strings, further restraining household spending.”
Piegza recapped that June retail sales fell 0.3 percent compared to an anticipated rise of 0.3 percent.
“Coupled with downward revisions to the previous two months, the miss for retail spending in the second quarter totaled a full 1 percent,” she said.
“As a consumer based economy, without the consumer happy and healthy, we have little hope of stability, let alone momentum, as we head further into the second half of the year,” she went on to say.
Equifax deputy chief economist Dennis Carlson used imagery of the plumbing that might be in your home to describe the industry surpassing $1 trillion in outstanding auto loan balances in June.
The credit bureau’s data showed total outstanding balances on vehicle installment contracts and leases increased 10.5 percent year-over-year to come in at $1.021 trillion last month. Equifax also reported the number of outstanding accounts rose 8.0 percent from a year ago to 73.7 million.
During phone interview when Equifax shared this data exclusively with SubPrime Auto Finance News, Carlson explained, “Essentially if you think of the total dollar value of loans outstanding, it’s like a bathtub and there’s a spigot and a drain. Right now, the spigot is filling the tub faster than the drain of people paying off their car.
“It speaks to the consumer pent-up demand and appetite for new-to-them automobiles,” he continued when elaborating about what eclipsing the $1 trillion mark means to the industry. “Obviously we’ve seen pretty strong new-car sales numbers, but the new-car sales don’t tell the whole story. Certainly used cars are being financed as well.
“It shows a lot of consumers feel they’re in a position to replace their older cars with a car that’s new to them,” Carlson added.
The flow from that spigot Carlson mentioned certainly hasn’t slowed, according to the origination information Equifax made available that recorded activity through April.
During the first four months of 2015, Equifax indicated more than 9 million auto loans filled portfolios, totaling $182.9 billion. These figures represented a 5.8-percent increase in the number of accounts and an 8.0-percent rise in balances compared to a year earlier.
Analysts also pointed out the figures marked the highest levels for the period since Equifax began tracking this data.
Overall, Equifax determined finance companies are growing originations more quickly than commercial banks with 54.2 percent of all new auto accounts and 51.8 percent of dollar originations through April were booked by finance companies.
The upward trends are notable in the subprime space, too.
Analysts reported 2.12 million auto loans were originated through April to consumers with an Equifax Risk Score below 620, what this credit bureau generally considers subprime accounts. The figure marked a 9.6-percent increase year-over-year. These newly issued contracts have a corresponding total balance of $37.2 billion, an 11.7 percent increase year-over-year.
Also noteworthy, Equifax mentioned that through April, 23.5 percent of auto loans were issued to consumers with a subprime credit score.
The average amount for all auto loans generated in April was $20,800, signifying a 3.65-percent increase year-over-year. Also according to Equifax, the average subprime loan amount booked in April came in at $18,200, a 3.74-percent rise year-over-year.
Editor’s note: Watch for a report coming in Friday’s edition of SubPrime News Update containing Carlson’s analysis of Equifax’s data regarding delinquency and write-offs.
Michael Buckingham, senior director of the auto finance practice at J.D. Power, acknowledged dealers and finance companies already know that trying to get a new-vehicle contract completed for a customers with a soft credit profile can be “tricky.”
So when J.D. Power released its 2015 U.S. Dealer Financing Satisfaction Study on Monday, Buckingham mentioned two points that helped finance companies that book non-prime paper to score higher marks.
Buckingham shared with SubPrime Auto Finance News that the first component is important no matter if it’s a deal for someone with sterling credit or if the individuals just had a bankruptcy discharged. That’s speed of funding and completion of the application process.
“It makes sense because you’ve got trickier credits. It’s not like just checking the box and saying no problems,” Buckingham said.
“There are so many more multiple franchises managed by general managers and principals,” he continued. “As these dealers are getting bigger, they’re sitting back and saying, ‘Cash flow is king for us. Let’s not hold out for a little bit of rate or a little bit lower lender fee or things like that.’ They’re looking at cash flow.”
Buckingham noted that study results showed the application process also can be improved when stipulations for funding are clearly known by store finance managers.
“It is really critical for the lender through their sales team to help the dealer understand exactly what their parameters are,” he said. “We see that really resonate where the lender has got to do a great job of making sure of what they’re looking for and what’s in the buy box is clearly articulated out there.
“We see a huge sway when that’s not being done. You can think about it and it’s just causing a lot of frustration and to a degree time wasters,” Buckingham added.
The other element that helped finance companies that cater to the non-prime space to score higher in J.D. Power’s study was improvements in the verification. For example, Buckingham mentioned that finance companies that have alliances with credit bureaus to validate residency or income made dealers more satisfied.
“They’re looking to see a lender that’s easy to work with. If they’re seeing a lender eliminate some of the stips, there’s definitely higher satisfaction,” Buckingham said.
Overall study results
In the highly competitive auto financing environment, J.D. Power determined the level of service provided, including technology and a collaborative and consultative staff, is more important than price, as dealers are willing to pay a premium for high-quality service.
The U.S. Dealer Financing Satisfaction Study measures dealer satisfaction with finance providers in four segments: prime retail credit; non-prime retail credit; retail leasing; and floor planning. Satisfaction is calculated on a 1,000-point scale.
Dealer satisfaction in the prime retail credit segment came in with an average score of 868. In the non-prime retail credit segment, satisfaction settled at 828.
Dealer satisfaction in the retail leasing segment stood at 894, while in the floor planning segment, satisfaction topped out at 943.
While dealerships continue to seek ways to improve their margins, Buckingham reiterated that they also seek providers to speed customer throughput in the sale or lease of their vehicles and in many instances are willing to pay a premium for a higher-quality financing experience. He noted 63 percent of dealers are willing to pay an additional 0.50-0.60 basis points on their loan terms (down 4 percentage points from 2014) to receive good service from their lenders in the prime retail credit segment.
J.D. Power acknowledged that the industry works hard to establish high-value, one-on-one relationships with customers when it comes to the sales and service processes. The same principle applies to dealers when it comes to the relationship with their finance companies in all consumer-facing products — prime retail credit, non-prime retail credit and retail leasing.
“Auto lending continues to be a relationship business. Findings of the study show that assigning/aligning dedicated underwriters positively impacts dealer satisfaction by providing higher levels of service and collaboration,” J.D. Power said.
As Buckingham pointed out, the study showed a dealer-focused sales rep relationship has a positive effect on satisfaction and retail contract volume.
When a high level of sales rep service is provided, satisfaction is substantially higher than when there is no focused support (935 versus 754, respectively). Among dealers with a focused relationship in which all sales rep relationship key performance indicators (KPIs) are met, 68 percent said they “definitely will” increase the percentage of business they conduct with their provider.
“Speed of funding has become a critical differentiator in the eyes of the dealer as efficient cash flow is demanded by dealer management, not absolute finance and insurance income,” Buckingham said.
“Fast application processing allowing dealers to speed the customer delivery process is also critical. Auto dealers are willing to pay a price premium for these services,” he went on to say.
Buckingham added dealers don’t want loan processors, instead, stores want collaborative consultants who can support them every step of the way.
“High-performing lenders provide a range of services that resonates with dealers, which include helping them understand the variety of lending options available and how they can maximize profits, reduce expenses and retain customers,” J.D. Power said.
Other key findings
J.D. Power mentioned six other notable points stemming from this year’s study, including
— A majority (84 percent) of dealers indicate their lender provides a dedicated underwriter person and or team who contacts them frequently, providing valued-added communications.
— Overall satisfaction is highest when sales reps engage in discussions about customer retention (922), dealership performance consulting (916) and training and clarification of programs (916), compared with when they do not (831, 818 and 816, respectively).
— In the floor planning segment, 85 percent of dealers are assigned a primary support representative or team who can quickly respond to their needs and questions. Additionally, 75 percent of dealers indicate being able to immediately reach their support staff. When this occurs, satisfaction is 975. When dealers have to wait one hour to reach their support staff, satisfaction declines significantly to 938.
— eContracting, or finance company-provided technology that enables same-day contract funding, improves dealer satisfaction. When dealers use eContracting or a proprietary technology provided by their lender, overall satisfaction averages 913, compared with 856 when lenders do not use this service. Additionally, 56 percent of dealers indicate that faster funding time is the main reason to use eContracting. On average, there is a 39 percent increase in dealers’ business with their finance provider due to eContracting.
— The study found that dealerships retain 59 percent of their leasing customers through retention programs and consumer guidance provided by their lender.
— A total 75 percent of dealers indicate increasing retail business with their provider because of their floor planning relationship.
Dealer financing satisfaction rankings
Mercedes-Benz Financial Services ranked highest among finance companies in the prime retail credit segment with a score of 971. Following in the rankings were Mini Financial Services (962) and Alphera Financial Services (961).
Mercedes-Benz Financial Services also took the highest mark among finance companies in the retail leasing segment with a score of 978. Following in the rankings were BMW Financial Services (961) and Lincoln Automotive Financial Services (956).
Furthermore, Mercedes-Benz Financial Services ranked highest among floor planning providers for a fifth consecutive year with a score of 986. Following in the rankings were BMW Financial Services (974) and Ford Credit (961).
Satisfaction is measured across three factors in the prime and non-prime retail credit segments, including:
— Finance provider offerings
— Application and approval process
— Sales representative relationship.
Four factors are measured in the retail leasing segment, including:
— Finance provider offerings
— Application and approval process
— Sales representative relationship
— Vehicle return process.
Four factors are measured in the floor planning segment, including
— Finance provider credit line
— Floor plan support
— Sales representative relationship
— Floor plan portfolio management.
The study captures nearly 21,798 finance provider evaluations across the four segments. These evaluations were provided by roughly 3,934 franchised dealerships in the United States.
Westlake Financial Services and Equifax now have more data to support their argument that subprime auto financing can benefit individuals with soft credit histories, rather than create a negative situation some regulators and consumer advocates might believe.
Equifax recognized Westlake Financial Services on Tuesday as the national finance company whose customers saw the highest credit score increase over the term of their loan. This development was a follow-up to a white paper Equifax released extolling the significant benefits that subprime customers can receive when they got a second chance by successfully paying their vehicle installment contract.
According to Equifax research data, when comparing a national sample of 125,000 customers with auto loans originated in the 2014 calendar year, Westlake Financial Services customers produced the highest average credit score increase over the term of their loan.
“We focus on a loan structure that works long term for the customer, which helps increase their credit rating as payments are made over time,” said Westlake Financial Services group president Ian Anderson, the recipient of last year’s SubPrime Auto Finance Executive of the Year Award who is expected to a panelist again during this year’s SubPrime Forum during Used Car Week.
“Westlake strives to make our customers’ lives better,” Anderson continued. “By helping our borrowers increase their credit scores, we make it easier for them to qualify for loans and purchases in the future.”
Two of the most recent Equifax white papers highlighted the positive elements of subprime auto financing.
Last summer, Equifax chief economist Amy Crews Cutts and deputy chief economist Dennis Carlson highlighted the position in a white paper titled, "Not Yesterday’s Subprime Auto Loan." They reiterated the importance subprime financing to the future of consumers who have damaged credit profiles. The Equifax economists noted the positive consumer ramifications well known to finance company executives at institutions that specialize in subprime contracts such as the importance of quality transportation to enhance employment opportunities and how steady payment performance can possibly lead to a rise toward prime status.
“If a borrower with subprime credit obtains a loan from a financial institution that reports the complete payment histories of their clients to the national credit reporting agencies, and that borrower makes timely payments on that loan and other credit obligations, then over time that borrower’s credit score will likely improve, possibly enough to qualify for prime credit terms,” Crews Cutts and Carlson said.
Then at the beginning of this year, Equifax again found data that clearly backed up the claim, which the company shared in a report titled, "Subprime Auto Loans: A Second Chance at Economic Opportunity."
Equifax determined that over a three-year time period, those consumers with deep subprime credit scores that originated a subprime auto loan showed, in aggregate, a significant increase in their credit score. In fact, analysts highlighted those consumers improved their credit score by a median of 52 points, which is a 62.5-percent improvement over the median score change of the group that did not take out a loan.
And now the industry has the performance of Westlake customers to refute naysayers’ claims about the possibility of finance companies taking advantage of subprime customers.
“Westlake’s interest in our original article prompted us to examine, at a lender level, where the improvements of subprime customers graduating to near-prime and prime standing was the greatest,” Equifax auto finance leader Lou Loquasto said.
“Westlake and other subprime lenders like them should be lauded for giving the right customers the right loan, and for enabling them to get back on their feet,” Loquasto went on to say.
Discussions and industry highlights are all on tap to be a part of this year’s SubPrime Forum, which is set for Nov. 16-18 at the Phoenician in Scottsdale, Ariz. Registrations are already open and sponsorships are also available. More details can be found at www.usedcarweek.biz.
FICO is offering finance companies strategy recommendations for those who fear that they’re reviewing too many applications for fraud, yet still finding fraudsters on the books. FICO also questioned whether finance companies have a clear definition of what is fraud and what is bad debt.
To answer those questions and more, FICO is hosting the hour-long webinar on Monday beginning at 1 p.m. ET.
“Application fraud is a growing and increasingly costly problem, FICO officials said. “Auto lenders are struggling to detect it while remaining responsive to their good customers and agile in making originations decisions.
“Meanwhile, organized criminals are becoming more sophisticated in their attacks,” they continued.
FICO highlighted this educational webinar is geared to give managers analytic strategies to authenticate genuine customers and detect fraudulent applications.
Among the specific topics on the agenda are:
• The current face of application fraud: What does it look like in 2015, and what unique challenges does it present to the auto industry?
• What are matching technologies, and how can you use them to detect application fraud?
• How can auto lenders use analytics to increase detection and lower the burden of maintaining rules?
• What kind of data — both internal and external — should you use to assess risk and combat application fraud?
• How can you leverage social network analysis to bust fraud rings?
• What are some case study examples of organizations that are winning the fight against application fraud?
Finance companies can register for the free FICO webinar here.
On Monday, F&I program provider RoadVantage added three industry veterans who have decades of dealership experience to its sales team, as well as a trio of new regional offices.
Joining the company leadership team is Dave Bouchat, who comes to RoadVantage from DCH Auto Group. A 30-year industry veteran who was with AutoNation prior to DCH, Bouchat now is with RoadVantage as vice president of business development.
Phil Mullen, an NADA Dealer Academy graduate with 30 years of retail experience, joined RoadVantage as national sales manager. Mullen has worked with dealerships as well as agencies, including Fidelity Dealer Services and JM&A.
Furthermore, Sue Ann Caruso, also with 30 years of dealership and agency experience including several years with Country Auto Group, now is a regional vice president with RoadVantage.
“RoadVantage is distinguished by its vision, its passion and its momentum,” Bouchat said. “These qualities are inimitable, and they’re what make RoadVantage the fastest-growing F&I provider in the market today.
“I’m pleased to be part of this team,” Bouchat added.
These additions come upon the completion of the company’s fourth consecutive year of rapid growth. RoadVantage added three regional offices on the East Coast, including Boston, Miami and Long Island, N.Y.
Amid this growth, RoadVantage insisted that the company still maintains its service levels with 97 percent of claims approved within eight minutes.
“With its innovative programs and commitment to service levels, RoadVantage is setting a new industry standard,” Mullen said. “I’m excited to join this team of seasoned industry leaders and to be part of the future in F&I.”
Earlier this year RoadVantage introduced True Coverage, an approach to F&I that’s aimed at reducing exclusions and simplifying contracts. More details can be found at www.roadvantage.com/true-coverage.
Also, RoadVantage recently rolled out what it pitched as a turnkey compliance management system to help dealers with compliance mandates from the Consumer Financial Protection Bureau. The company also boasts what it calls the Total Solution, a bundled product that can help drive profits for both retail sales and lease programs.
With those products in place, an enhanced leadership team and a larger office footprint, RoadVantage chief executive officer Garret Lacour described what all of the additions mean not only to the company but dealers, too.
“Dave, Phil and Sue Ann are valuable assets to the RoadVantage team as we continue our commitment to providing the best products and service in the industry,” Lacour said. “They bring almost 100 years of combined industry experience, insights and connections to our team, and we are thrilled to welcome them aboard.”
Spireon chief marketing officer Shawn Hansen gave dealers and subprime finance companies what he called the “bottom line” about the potential benefits of the company acquiring Inilex.
For operations that demand a GPS device be attached to a vehicle in order for the financing and installment contract to be finalized, Hansen highlighted that Spireon clients now can pivot the conversion to show that it’s not just about underwriting criteria. The device can open the door to a wide array of consumer applications, and more importantly for dealers and finance companies, the chance to generate more revenue.
“There is a whole range of consumer applications that can be layered once the GPS tracker is in place,” Hansen said during a conference call after Spireon announced the acquisition of Inilex earlier this week.
Hansen continued that during the past 20 years, “the IT industry in general has been totally turned on its head because of what’s happened with consumer applications.
“Because of consumer demand, companies have changed their IT policies in the way they give productivity apps to their users. We see that same thing happening with car dealerships in buy-here, pay-here and subprime,” he continued. “We see that users will benefit from additional applications they can use on their phones or get direct access to. This is a very complementary fit that give the dealer an opportunity to show where the value is to their customers.”
Through this acquisition, Spireon now has 2.3 million connected vehicles in its network.
“An auto finance company or dealership who already uses GPS technology and can offer the customer the chance to track their vehicle can now make more money. That’s the bottom line,” Hansen said.
“They can make more money by offering theft recovery services and additional consumer applications to the end user,” he continued. “It presents a way to increase their profits and to add another value proposition on top of the fact that their vehicle is being tracked and they’re getting a loan that they might not be able to get otherwise.”
While they might have been seen as industry competitors, Hansen indicated Spireon and Inilex have had “a long-standing relationship.” That situation led in part to the deal.
“Inilex has been a customer of Spireon in providing some of the underlying technology for them. It was a natural fit for the two companies to come together,” Hansen said.
“We’ve been discussing this for some time. I’m not in a position to say how long it was going on, but the business relationship has been in place for some time,” he continued.
Hansen noted Spireon did not face any antitrust or regulatory hurdles to complete the acquisition.
“This is a relatively straightforward integration of the two companies,” he said.
Hansen also mentioned a message to any dealers or finance companies that were solely Inilex customers prior to this week’s developments.
“Integration is happening right now. Sales and marketing channels are already integrating,” Hansen said. “As far as the technology is concerned, we’re kicking off those efforts. We’re going to out to all of our different dealer channels to let them know this work is being done and will be completely relatively shortly.”
