Experts from Equifax, Fiserv and J.D. Power all agree: Technology is going to be the catalyst to keeping the financing cog in the automotive retail machine humming in 2017 at least near the level dealerships, finance companies and other service and product providers enjoyed this past year.
Equifax auto finance leader Lou Loquasto said technology discussions simply can’t be missed whether it was back in November during Used Car Week or when the American Financial Service Association and the National Automobile Dealers Association gather for their annual events in New Orleans later this month.
“Anybody that went to (Used Car Week) or is going to NADA or AFSA — I’ve been going to these conferences for 20 years — they can see how much innovation is going on,” Loquasto told SubPrime Auto Finance News before 2016 closed. “I think because margins are going to continue to be tough to get to the levels post-recession, growth isn’t going to be where it was. So I think 2017 is going to be the year of innovation in our industry.
“When we talk about innovation in our industry, it’s not just about technology. It’s data and analytics, too,” he continued. “In 2017, I think you’re going to see more innovation coming out of our industry because you’re going to have to if you want to keep good margins and continue to grow.”
While most dealerships and finance companies aren’t strangers to technology, the advancements these constituencies have made in the past 15 years evidently still lags consumers’ expectations. According to the Expectations & Experiences quarterly consumer research from Fiserv, the company learned that 53 percent of borrowers had negative feelings about the financing process, including 33 percent who said it made them anxious.
In a phone conversation last month with SubPrime Auto Finance News, Fiserv’s Scott Hendriks added that within the contingent that had negative feelings, 78 percent of those respondents said there needed to be greater efficiencies in the finance process.
“It’s still a very dealer-driven model, going back into the F&I office to determine what rates and programs are available. What’s my payment going to be on a lease or what’s going to be my rate on a retail deal? I think that part of it is still very much in dealer control. I think consumers are looking to have more transparency and take that process online,” said Hendriks, who is director of product management at Fiserv Lending Solutions.
Since joining Fiserv in 2002, Hendriks has been very involved in the development of the company’s auto loan origination system product.
“I think what we’re going to see over the next period of time is that evolution where that very dealer-driven model we have today for finance is going to go the way of the sales process, which is more to a consumer model where they’re able to determine those things up front and arrange financing online. So it is when they go to the dealership a one-stop delivery. It meets the borrower’s expectation of their time as well as their experience,” he said.
“Technology is really at the forefront of how that’s going to happen. Lenders need to have technology assets that allow them give the customer that experience and be able to engage with them online at the point of decision on the purchase as opposed to waiting until they go to the dealership,” Hendriks went on to say.
More of the same sentiment came from the 2016 U.S. Consumer Financing Satisfaction Study produced by J.D. Power. The firm made its assertions in light of expectations of new-vehicle sales to plateau this year, prompting Jim Houston, senior director of auto finance at J.D. Power to say, the marketplace “is making for a very competitive auto lending market, which means dealers and lenders in many ways need to get back to the basics to satisfy customers.
“Lenders need to move beyond a transactional relationship and create a customer-centric culture that helps them build a relationship with their customers. The lenders — and dealers — that are able to do that are the ones most likely to excel,” Houston added.
The J.D. Power study highlighted what analysts called five fundamental “musts” that a dealer or finance should keep in mind as means to improving customer satisfaction. That collection included:
— Understanding the Deal: In the luxury brand segment, overall satisfaction is 49 points higher (on a 1,000-point scale) among customers whose dealer or finance manager explained account features, services, or benefits of their financing than among those whose dealer or finance manager did not (880 versus 831, respectively).
— Reference Guide: A finance company welcome package that answers basic loan servicing questions (such as how to make payments and how to sign up for automatic payments) can reduce the number of contacts the customer needs to make. Specifically, among luxury brand customers who say they “completely” understand all of the servicing information, problem incidence drops to 8 percent, compared with the overall luxury problem incidence of 10 percent.
— Accessible Self-Help Tools: When email customer service is available, satisfaction improves by 42 points among customers of luxury brand vehicles and 61 points among customers of mass market brand vehicles. When online bill pay is available, satisfaction improves by 53 points in the luxury segment and by 86 points in the mass market segment.
—One and Done: Satisfaction declines significantly when a customer has to contact their finance company more than once to resolve a problem. Overall satisfaction among luxury brand customers resolving a problem with one call is 875 points but declines to 821 among those whose resolution requires two calls.
—Satisfaction Equals Loyalty: Highly satisfied luxury and mass market brand customers (overall satisfaction scores above 900) can have a significant effect on dealers and lenders, as they are nearly twice as likely to return to a particular dealership and are more than twice as likely to lease or purchase the same brand again as those who are less satisfied (scores range between 801 and 900).
“In the seemingly complicated environment of vehicle financing, it’s the sometimes-overlooked customer handling steps that can bring clarity to the customer and give dealers and lenders a unique competitive advantage,” Houston said.
“Working together on the steps that clearly affect satisfaction levels can enable dealers and lenders to turn first-time customers into repeat customers,” he added.
Regardless of which way the subprime breezes are blowing, GWC Warranty explained there are certain steps dealers can take to ensure their own subprime business doesn’t fluctuate with the annual ebbs and flows of the subprime market.
The company that specializes in used-vehicle service contracts and related finance and insurance products sold through dealers pinpointed three specific strategies stores could use.
1. The right Inventory.
GWC Warranty emphasized that it starts with selection of inventory and moves on to the inventory dealers present to each individual customer.
“Head to auction with the subprime customer in mind,” the company said in a recent blog post. “Do some research with your lenders beforehand to see which vehicles they’ve had subprime success with and target a few of those each time you’re acquiring inventory.
“And then once they’re on your lot, present them to customers who pre-screen with subprime credit,” GWC Warranty continued. “Once you engage with the customer, try something along these lines: ‘Thanks for reaching out Mr. Smith. I have three great vehicles here that match what you’re looking for and they’re vehicles I know we can get financed for you.’”
2. The right finance companies
GWC Warranty insisted that part of being able to select, present and finance the right vehicle for a subprime customer is having strong contract-purchasing partnerships.
“Seek out lenders who know the subprime space well and operate in it frequently,” GWC Warranty said. “Many can be local providers so finding lenders who know your area well will help too.
“Lenders that meet this criteria will more consistent with their decisions and help you get more subprime deals approved on a regular basis,” the provider added.
3. The right protection.
GWC Warranty acknowledged that a common struggle on a subprime deal can be adding a vehicle service contract on the back end with a limited subprime advance.
“This is an obstacle you can certainly overcome — especially if you’ve worked on the first two points we’ve discussed,” the provider said. “It’s a simpler solution than you’d might think too. Just ask. And you might have to ask more than once, but good subprime lenders will understand the value of a service contract on a vehicle. Remind them of that if you need to.
“A service contract will keep a car on the road, protect a customer’s monthly budget and, in turn, lower the likelihood of a default,” GWC Warranty went on to say.
Editor’s note: This blog post and others from GWC Warranty can be found here.
Dealer Marketing Services, the makers of ProMax Unlimited, recently released Employment and Income Verification Service (EIVS); a tool that can enable dealerships to access valuable data provided by Equifax in order to verify a customer’s employment history and income early in the vehicle buying process.
EIVS will be available to ProMax’s dealer customers this month.
“It is so important for dealers to have accurate employment and income data early in the sale,” said John Palmer, president and chief executive officer of ProMax Unlimited.
Palmer has more than a decade’s experience managing dealerships in addition to his 20-plus years in the automotive software industry. “Offering the customer appropriate financing early in the process is a key factor in getting the deal done, and EIVS helps immensely with that,” he said.
EIVS utilizes information from The Work Number, a robust database maintained by Equifax Workforce Solutions. This database contains employer-provided payroll records from more than 6,000 businesses nationwide, including a large majority of Fortune 500 companies and federal government civilian employers.
More than just standard employment and income information, The Work Number also boasts job tenure data, an invaluable component in measuring a customer’s financial situation.
Equifax research underlines the importance of accurate job tenure data, finding that consumers who have been at a job for less than a year are almost twice as likely to go delinquent on an auto loan as consumers with 10 or more years at a job.
Additionally, Equifax research indicates that significant percentages of credit applicants overstate their income, but surprisingly, the inverse is also true. Approximately 20 percent of applicants understate their income by 10 percent.
“In the car business, there is no substitute for accurate credit information early in the buying process,” Palmer said. “It saves time and money, and leads to more deals at higher grosses.
"This solution improves the entire buying process — for the dealer, the customer and the lender as well. We’re thrilled to be one of the first-to-market with this phenomenal tool," he went on to say.
Before the year closed, Reynolds and Reynolds added to its collection of libraries of standardized, legally reviewed finance and insurance (F&I) documents for dealers while a subprime finance company serving the Midwest — U Drive Acceptance — moved into new offices.
Furthermore, FICO is looking to help finance companies begin 2017 successfully by dissecting alternative deal structures through a free webinar.
In late December, Reynolds released the Reynolds LAW Montana F&I Library. That announcement came on the heels of the company rolling out the Reynolds LAW Oklahoma F&I Library as well as the Reynolds LAW New York F&I Library.
“The documents in the (libraries) are designed to help dealers meet compliance obligations and manage risk,” said Jerry Kirwan, senior vice president and general manager of Reynolds Document Services. “At the same time, because the documents in the library are written in consumer-friendly language, they can help dealers to establish a clearer, more efficient F&I process. A more efficient F&I process can help lead to a better overall customer experience with the dealership.
"Since regulatory scrutiny is an ongoing concern for automotive retailers, the (library) is a tool to help dealers better meet compliance obligations and manage risk,” Kirwan continued. “Using standard documents written in consumer-friendly language can help to create a clearer, more consistent, and more efficient F&I process for the F&I manager and for the consumer.”
Kirwan also noted that the documents in the library are regularly reviewed for legal sufficiency with the latest automotive regulations by Reynolds’ forms specialists alongside Reynolds’ outside legal partners.
The printed documents in the resources for Montana, Oklahoma and New York also are available in a digital format, which can help facilitate the conversion to laser-printed transactions and e-contracting. Reynolds Document Services maintains licensing agreements with all major providers of electronic F&I (e-F&I) solutions.
Steven Rankin, president of the Oklahoma Automobile Dealers Association, added, “The Oklahoma Automobile Dealers Association aims to protect and support the business interests of Oklahoma car and truck dealers.
“We are happy to share the LAW Oklahoma F&I Library with our dealers because it is designed to help them maintain compliance, improve day-to-day F&I operations, and improve the experience of buying a car or truck for their customers,” Rankin went on to say.
Now with Montana, Oklahoma and New York in the offering portfolio, other states where Reynolds resources are available include: Alabama, Arizona, Arkansas, California, Colorado, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Missouri, Nevada, New Jersey, New Mexico, North Carolina, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia and Wyoming.
U Drive Acceptance moves into new space
U Drive Acceptance (UDAC) recently shifted its operation into a new office at 1119 Historic Fourth in downtown Sioux City, Iowa. UDAC is a subprime finance company founded by president Brian Berkenpas and specializes in providing financial solutions to independent and franchised dealers and their customers.
UDAC currently operates in Iowa, South Dakota, Minnesota and Missouri with plans to expand into other Midwest states in the near future.
Since 2013, UDAC has been sharing office space with its affiliated dealership, Big Deal Auto Plaza.
“Our growth has been beyond what had been forecasted. With all of the new technology we have implemented, it was time to make the separation,” UDAC vice president Neil Evans said.
UDAC leverages the technology provided by Creditsmarts to facilitate originations. UDAC chief financial officer Jeremy Bennett explained the importance.
“Our new LOS (loan origination system) has allowed us to go from working three different platforms to only one, which increases our efficiencies dramatically,” Bennett said. “We have been able to stream line our approval process through automation which allows our dealers to get approvals in a matter of seconds on one out of every four applications.”
Creditsmarts national lender sales manager Chad Simmons added, “When U Drive made the move to become an indirect lender, we were very pleased that they selected us for their LOS services. It has been our pleasure to work with Jeremy and Neil as well their team. We are excited to be a part of their growth and bright future.”
For more information, visit www.udriveac.com.
FICO webinar on alternative deal structures
FICO is offering a free educational webinar focused on how to use predictive analytics and optimization to generate alternative deal structures.
The session set for 1 p.m. ET on Jan. 19 will be orchestrated by FICO global analytic segment leader Matt Stanley and Ken Kertz, FICO’s practice leader, auto and motorized.
Stanley and Kertz intend to elaborate about how this approach can eliminate “rehashing” while facilitating regulatory compliance as well as increasing profitability by reducing the perceived need to underprice the competition along with enhanced customer satisfaction.
“When car dealerships have interested customers who are ready to purchase vehicles, nothing is more frustrating than struggling to structure the right deals — ones that maximize profitability, fit the risk parameters of the lender and satisfy buyers,” FICO said.
“Lenders can spend a significant amount of time manually reviewing and restructuring each deal before customers sign on the dotted line. But manual deal restructuring is inefficient and leads to inconsistent origination strategies, credit and regulatory risk exposure and deals lost to the competition,” FICO continued.
Most lenders know that using predictive analytics can help them make better lending decisions. Optimization takes it a step further by identifying the best possible options given a set of variables, constraints and objectives,” FICO went on to say.
Registration for the free webinar can be completed here.
With the staff at SubPrime Auto Finance News fresh for 2017, we gathered up some noteworthy announcements that arrived while we celebrated the close of a great year with family and friends.
Among some of the highlights that came during the past few days included an update on defaults, an acquisition by RouteOne and TransUnion settling with the Consumer Financial Protection Bureau in an agreement set to cost the credit bureau nearly $20 million.
First, here is the latest default information stemming out of the S&P/Experian Consumer Credit Default Indices generated by S&P Dow Jones Indices and Experian.
Data through November indicated auto financing defaults recorded a 1.00 percent default rate in November, down 8 basis points from October.
The auto finance default rate hasn’t been that low since last July when S&P and Experian pegged it at 0.93 percent.
Analysts determined the latest composite rate — a comprehensive measure of changes in consumer credit defaults — remained unchanged on a sequential basis as both the October and November readings stood at 0.87 percent.
First mortgages also came in flat in November, holding at 0.70 percent. S&P and Experian added the bank card default rate rose 5 basis points in November compared with from the previous month to settle at 2.81 percent.
S&P and Experian noticed three of the five major cities saw their default rates decrease in the month of November.
Dallas posted the largest decrease, reporting in at 0.66 percent, which was down 10 basis points from October.
New York saw its default rate decrease by 2 basis points to 0.91 percent in November, and Chicago reported a decrease to 0.96 percent, down 1 basis point from the previous month.
Los Angeles watched its default rate increase, up 8 basis points to 0.70 percent.
Miami's default rate spiked to 1.44 percent, up 38 basis points in November and setting a 12 month high. The default rate increase of 38 basis points is unmatched in Miami since January 2013.
David Blitzer, managing director and chairman of the index committee at S&P Dow Jones Indices. explained a historical review of Miami's basis points movement in November shows increases since 2005, suggesting a seasonal up-trend in defaults for the month of November.
“Recent data paint a picture of a strong economy, and lower consumer credit defaults reflect this,” Blitzer said. “Default rates are modestly lower than a year ago, even as continued strength in home sales, auto sales and retail sales are supporting expanded use of consumer credit.
“Money market rates rose after Election Day, the Fed raised the target range for the Fed funds rate (in December) and has indicated that further increases lie ahead. The favorable default trends are likely to be tested in 2017 as interest rates rise,” he continued.
Among the five cities regularly tracked in this report, Blitzer reiterated Miami has consistently shown the highest default rate.
“One factor may be that home prices rising in Miami and mortgages are the largest portion of the city composite rate,” he said. “While Dallas home prices are rising faster than Miami, Dallas prices fell far less in the housing bust and have rebounded to new all-time highs.
“Miami home prices remain more than 20 percent below the highs set in 2006,” Blitzer went on to say.
Jointly developed by S&P Indices and Experian, analysts noted the S&P/Experian Consumer Credit Default Indices are published monthly with the intent to accurately track the default experience of consumer balances in four key loan categories: auto, bankcard, first mortgage lien and second mortgage lien.
The indices are calculated based on data extracted from Experian’s consumer credit database. This database is populated with individual consumer loan and payment data submitted by lenders to Experian every month.
Experian’s base of data contributors includes leading banks and mortgage companies and covers approximately $11 trillion in outstanding loans sourced from 11,500 lenders.
TransUnion’s CFPB settlement tops $15M
TransUnion said in a filing with the Securities and Exchange Commission that the credit bureau agreed to settle with the CFPB stemming from a civil investigative demand (CID) the regulator delivered back on Sept. 14, 2015.
TransUnion explained in the filing posted on Dec. 29 that that the CID was focused on common industry practices relating to the advertising, marketing and sale of consumer reports, credit scores or credit monitoring products to consumers by the company’s consumer interactive segment.
In connection with the agreed settlement, TransUnion indicated that it has executed and delivered a “stipulation and consent to the issuance of a consent order,” pursuant to which TransUnion will accept the issuance of a consent order by the CFPB requiring TransUnion to:
• Implement certain agreed practice changes in the way TransUnion advertises, markets and sells products and services offered directly to consumers, including more robust disclosures regarding the nature of the credit score being provided as well as confirming consumer consent if the product or service is being sold through the use of a negative option feature (such as a trial period becomes a recurring paid subscription unless the consumer affirmatively cancels their registration).
• Develop and submit to the CFPB for approval a comprehensive compliance plan detailing the steps for addressing each action required by the terms of the consent order and specific time frames and deadlines for implementation.
TransUnion acknowledged that it will incur a one-time charge of approximately $19.4 million in the fourth quarter of 2016, consisting of the following:
— Approximately $13.9 million for redress to eligible consumers.
— A civil money penalty to be paid to the CFPB in the amount of $3.0 million.
— Current estimate of $2.5 million for additional administrative, legal and compliance costs we will incur in connection with the settlement.
“The CFPB is expected to recommend the aforementioned settlement to the director for final approval,” TransUnion said in the filing signed by senior vice president Mick Forde about the agreement reached on Dec. 22.
RouteOne acquires MaximTrak
In a deal effective as of Dec. 20, RouteOne acquired the assets of MaximTrak and its related business in a move that means MaximTrak will operate through its wholly-owned subsidiary RouteOne Holdings.
The company insisted the acquisition will bring together two long-time partners to deliver a seamless vehicle F&I sales process.
Executives explained the vehicle purchase process has undergone fundamental changes in recent years, and will continue to do so with increasingly rapid speed. Consumers and dealers alike expect consistency and seamless transition across all physical and digital sales channels.
As a result, both RouteOne and MaximTrak have been pursuing aggressive strategies to innovate the sales process on behalf of their respective customers. RouteOne and MaximTrak’s complementary strategies have now come together to deliver on the vision of a complete sales and F&I solution that meets OEM, dealer and consumer needs — any time, any place, and on any device.
While reiterating MaximTrak will be operated by RouteOne Holdings, a wholly-owned subsidiary of RouteOne, officials mentioned MaximTrak leadership and team members remain in place and continue to operate from the MaximTrak offices in Pennsylvania.
RouteOne and MaximTrak employ approximately 400 people with offices in Michigan, Pennsylvania and Canada, as well as local staff in major markets. Directly and through partnerships, RouteOne and MaximTrak have customers in the U.S., Canada, Puerto Rico and Mexico.
“RouteOne has had a long and successful relationship with MaximTrak, and we share very similar cultures, values and DNA,” said RouteOne chief executive officer Justin Oesterle. “We are excited to have made this acquisition happen as we believe it creates significant value for all our customers at the OEM, finance source, provider, and dealer levels.
“It also creates strategic and economic value for RouteOne’s owners: Ally, Ford Credit, TD and Toyota Financial, all of whom supported the investment,” Oesterle continued.
“I, and the entire RouteOne team welcome MaximTrak to the family. We look forward to doing great things together for the industry,” he went on to say.
The companies added RouteOne and MaximTrak product integration began prior to the acquisition and will now be further developed and strengthened on an expedited basis.
MaximTrak was founded in 2003 by the Maxim family.
“The entire MaximTrak team is excited and energized by the growth opportunities that this transaction represents for our customers, employees and key stakeholders. Like RouteOne, MaximTrak is an established, innovative leader in the F&I space,” MaximTrak president Jim Maxim Jr. said.
“Where RouteOne excels in the finance elements of F&I, we excel in the “I” side of the equation and in developing technologies that optimize the dealership process and ultimately dealer profitability through F&I product sales,” Maxim continued. “Together, with our combined scale, talents and product line-ups, we will be able to provide a complete digital workflow from initial customer contact and first pencil to finance, aftermarket and eContracting across online, mobile and in-store channels.
“With that, our emphasis will be on helping our customers deliver a buying experience they control and one that consumers actually want,” he added.
Equifax announced on Thursday that it is powering a new solution designed to help dealerships to verify a potential buyer’s stated income and employment.
The solution is fueled by accessing The Work Number, a database of employer-provided income and employment information from Equifax Workforce Solutions, a business unit of Equifax. It is anticipated that the solution will be available in select dealer service finance platforms this month.
Recent Equifax research revealed approximately 27 percent of applicants overstate their income by more than 15 percent, while approximately 15 percent of applicants overestimate it by 50 percent or more.
The credit bureau’s research also showed that approximately 20 percent of applicants understate income by 10 percent or more.
“Time is money for dealerships and it is difficult to ensure an efficient buying process when some shoppers do not accurately report their income on the loan application,” said Bill Thompson, senior vice president, automotive vertical leader and general manager at Equifax.
“It’s critical to understand a buyer’s financial capacity early in the sale, and dealers can now instantly verify a customer’s income and employment data,” Thompson continued. “This allows them to confidently offer financing options to their customer, and ultimately provide their lending partners with higher quality financing opportunities.”
In addition to confirming basic income and employment information, dealers can use verifications to view job tenure, which can provides additional insight into repayment risk beyond what a credit score alone reveals.
Equifax research showed that consumers whose job tenure is one year or less are almost twice as likely to go delinquent on a vehicle installment contract than consumers who have a job tenure of 10 or more years.
“Instant income and employment verifications can also help dealers acquire the information they need to offer their customer appropriate financing options,” Thompson said. “With these tools in hand, dealers can build strong customer relationships and more profitable partnerships with their lenders.”
For more information about instant income and employment verifications, visit www.equifax.com/business/automotive or contact your Equifax sales representative.
Imagine you’re trying to complete a “first pencil” with a customer who is either in the showroom or communicating through the chat function on your website. The customer has a trade, and better yet, it’s a model you know will turn in 30 days or less.
But then you learn there’s negative equity associated with that vehicle, a record figure in the thousands that Edmunds.com recently discovered to be the average on nearly a third of trades so far this year. What happens next likely determines whether the finance company will buy that deal or if the situation will deteriorate into a slog of trying to get a larger down payment.
“I would certainly say that (negative equity) wouldn’t help in the negotiating at the dealership,” Autotrader senior analyst Michelle Krebs said during a conference call with the media last week.
According to Edmunds data, an estimated 32 percent of all trade-ins toward the purchase of a new model through the first three quarters of 2016 were underwater. This is the highest rate on record, and it’s up from 30 percent of all trade-ins toward new-vehicle purchases from January to September of last year. These “upside down” shoppers had an average of $4,832 of negative equity at the time of trade-in, also a record.
The phenomenon of upside down trade-ins is not limited to new-model purchases. According to Edmunds’ Q3 Used Vehicle Market Report, a record 25 percent of all trade-ins toward a used-car purchase in the third quarter had negative equity. These shoppers had an average of $3,635 of negative equity at the time of trade-in, also a Q3 record in the used market.
“It’s curious to see just how many of today’s car shoppers are undeterred by how much they owe on their trade-ins,” Edmunds senior analyst Ivan Drury said. “With today’s strong economic conditions at their back, these shoppers are willing to absorb a significant financial hit to get into a newer vehicle.”
As Drury indicated perhaps negative equity isn’t posing a problem nowadays since contract terms continue to stretch. Experian Automotive indicated in its latest State of the Automotive Finance Market report released this week that 30.7 percent of all new-vehicle financing in the third quarter stretched to 73 months to 84 months, up from 27.5 percent a year earlier. Analysts even added a new segment to its collection of bar charts since now nearly 1 percent of all new-model financing (0.98 percent to be exact) has terms lasting 85 months and longer.
On the used side, analysts didn’t mention terms stretching beyond 85 months, but Experian did point out that contracts lasting between 73 and 84 months represented 17.7 percent of deals in Q3, up from 16.2 percent during the same quarter in 2015.
So if finance companies decide they just won’t stretch the terms any longer, when does all that negative equity start to short-circuit deals?
“Just thinking about it, it’s a great question,” Kelley Blue Book analyst Tim Fleming said during the recent media conference call. “It’s going to be perhaps a growing issue in the next couple of years. But I don’t know that it’s a significant problem right now.”
Stay tuned.
Part of the dialogue happening at the recent SubPrime Forum during Used Car Week stemmed from whether or not finance companies — especially ones that specialize in subprime paper — were tightening their underwriting.
Furthermore, companies such as Consumer Portfolio Services had just discussed why their originations dipped during the third quarter.
Well, Experian’s latest State of the Automotive Finance Market report showed that perhaps underwriting in the subprime space is, in fact, tightening.
Experian’s Q3 data released on Monday indicated that financing extended to consumers in the subprime tier fell 4.5 percent from the previous year, and contracts to deep-subprime consumers dropped 2.8 percent to the lowest level on record since 2011.
Looking specifically at used-vehicle loans, analysts noticed that the subprime sectors saw an even larger decrease.
Financing to consumers with deep-subprime credit dropped by 5.3 percent to 5.11 percent; the lowest Experian has seen on record since tracking began in 2007.
Meanwhile, Experian senior director of automotive finance Melinda Zabritski — who discussed some of the Q3 data during the SubPrime Forum — pointed out that newly originated financing to prime borrowers jumped 2 percent to encompass nearly 60 percent of contracts financed in Q3.
“For anyone making doomsday predictions about a subprime bubble in the auto industry, Q3 2016 provides a stark reality check,” Zabritski said in a news release issued on Monday.
“This quarter’s report shows that lenders are reducing the percentage of loans to the subprime and deep-subprime risk tiers while increasing the percentage to consumers with good credit,” she continued. “The most important takeaway here is to understand the market reality and not to be led astray by rumors or unsubstantiated facts.
“By doing so, lenders, dealers and consumers are able to make smarter decisions and more easily explore financing programs and other opportunities available to them,” Zabritski went on to say.
The report also determined that average credit scores for both new and used vehicle loans are on the rise.
For new-vehicle contracts, the average credit score climbed two points to 712 in Q3, marking the first time average credit scores for new-vehicle loans rose since hitting a record high of 723 in Q2 2012.
For used-vehicle contracts, the average credit score jumped five points to 655.
Experian reported that 30-day delinquencies were flat year-over-year, at 2.36 percent. However, 60-day loan delinquencies were up slightly, moving from 0.67 percent in Q3 2015 to 0.74 percent in Q3 2016.
Beyond the subprime data, Experian highlighted that credit unions continued to gain market share as consumers search for low interest rates
Perhaps the biggest shift from Q3 2015 to Q3 2016 was the growth in market share for credit unions. Credit unions grew their share of the total loan market from 17.6 percent in Q3 2015 to 19.6 percent in Q3 2016.
For new-vehicle contracts, credit unions grew their share by 22 percent, going from 9.9 percent in Q3 2015 to 12 percent in Q3 2016.
According to the report, interest rate increases played a key role in helping boost credit union share. Interest rates for the average new-vehicle loan went from 4.63 percent in Q3 2015 to 4.69 percent in Q3 2016.
“Credit unions typically have the most competitive interest rates, so any time rates jump overall, it’s a natural reaction for credit unions to see a rise in their market share,” Zabritski said. “With vehicle prices and loan dollar amounts rising, car shoppers are looking for any relief they can get. Credit unions’ traditionally lower rates are obviously an attractive option.”
Other key findings for Q3 2016 included:
• Total open automotive financing balances reached a record high of $1.055 billion.
• Used-vehicle contract amounts reached a record high of $19,227, up by $361.
• The average new-vehicle contract amount jumped to $30,022 from $28,936.
• Share of new-vehicle leasing jumped to 29.49 percent from 26.93 percent.
• The average monthly payment for a new-vehicle contract was $495, up from $482.
• The average new-vehicle lease payment was $405, up from $398.
• The average monthly payment for a used-vehicle contract was $362, up from $360.
• The average contract term for a new vehicle was 68 months.
On Tuesday, General Motors Financial announced the completion of a new addition to its Arlington Operations Center campus in Arlington, Texas, with a ribbon-cutting ceremony that featured remarks from state Sen. Brian Birdwell, state Rep. Chris Turner, city of Arlington mayor Jeff Williams and finance company president and chief executive officer Dan Berce.
The company highlighted the $35 million investment is GM Financial’s fourth office location in the city of Arlington, and will house 1,300 employees working in core functions such as loan services, customer experience, remarketing solutions and human resources.
GM Financial’s workforce has grown to approximately 4,500 team members across the state of Texas, with 75 percent of these employees based in the city of Arlington, where the company has nearly doubled in headcount since 2014.
GM Financial’s physical presence in the state of Texas represents integral parts of its business, including the company’s corporate headquarters in Fort Worth, operations center campus in Arlington, a servicing center in San Antonio that opens in 2017 and other operational facilities across the state.
“GM Financial and the City of Arlington share a strong 18-year history together, and we are honored to expand our economic and employment footprint in this community with a new addition to our Arlington campus,” Berce said.
“This new facility underscores the significant growth we’ve experienced across our organization, as well as the impact Arlington’s talented workforce, spirit of collaboration and shared values have had, and will continue to have, on our success,” Berce continued.
Berce went on to mention GM Financial has also demonstrated a track record of community engagement in the city, as the company and its team members support many philanthropic organizations that benefit Arlington and its residents. GM Financial also offers each full-time team member 32 hours of paid time off each year to volunteer (part-time team members receive 16 hours per year), which equates to potentially thousands of volunteer hours in service to the Arlington community each year.
“GM Financial’s announcement in Arlington is another example of the economic growth we are seeing in the American Dream City,” Williams said. “In the last year we have seen major announcements like DR Horton moving its company headquarters to Arlington, incredible growth in our entertainment district, and General Motors investing $1.4 billion dollars in its assembly plant. Now, GM Financial is expanding with a $35 million investment.
“And perhaps even more importantly, all of these moves are bringing quality, high-paying jobs to our city. With a track record like that, it is clear dreams are getting done in Arlington,” Williams added.
Both Credit Acceptance Corp. and Prestige Financial Services each recently received honors for how great their workplaces are.
Credit Acceptance was among the 2016 Top Workplaces honored by The Detroit Free Press, having been named the No. 2 workplace in the large company category. This accolade marked the fifth year in a row that Credit Acceptance has won a Detroit Free Press Top Workplace honor.
Additionally, the finance company was one of five companies to receive a Circle of Excellence award for consistently ranking among the top workplaces in Michigan.
“Credit Acceptance was selected from among hundreds of companies vying for a place on the list,” the company said. “Our ranking was based solely on the results of a team member survey administered by WorkplaceDynamics, a leading research firm that specializes in organizational health and workplace improvement.
“Several aspects of our workplace culture were measured, including alignment, execution, and connection, just to name a few,” Credit Acceptance added.
Meanwhile, Prestige Financial Services was named a Top Workplace by the Salt Lake Tribune’s annual ranking of Utah businesses. Prestige placed No. 1 on the list of large companies in northern Utah. Nearly 100 businesses were surveyed with 20,624 employees completing anonymous questionnaires.
Prestige employees have rated it among the region’s best workplaces for three years in a row.
Prestige was founded in 1994 as an affiliate of the Larry H. Miller Group of Companies. Today, Prestige manages a portfolio of more than $1 billion contracts and does business with dealerships across the country.
In recent years, the Larry H. Miller Group has emphasized its founder’s vision of being the best place in town to work and the best place in town to do business. Prestige scored high marks as a happy, satisfying and rewarding place to work, according to an in-depth study conducted by WorkplaceDynamics.
“They treat you like family and really care about you and your personal growth,” one employee told WorkplaceDynamics pollsters. “I have been with this company for 15 years, and I could not imagine working anywhere else.”
Others at Prestige praised its caring environment, flexibility, sense of purpose and emphasis on learning — in an industry with a reputation of being hard-driving and focused only on results.
“The job is stressful; however, the atmosphere makes it easier to deal with the stress,” another Prestige employee said in the anonymous survey. “Managers care. You are treated like a human being, not just another employee.”
Prestige employees also stated they had the ability to work their way up in the company and were appreciative of special personal gestures by managers and its president, Bryant Henrie, a top executive with the Larry H. Miller Group of Companies.
“We try to live by the values exemplified in the lives of our founders, Larry and Gail Miller,” said Henrie, who tries to live and teach the company values are core to the group's culture which includes integrity, hard work, stewardship, service to others and enriching lives.
“We try to keep our focus on the individual, whether that's an employee or a customer," Henrie continued. “If our employees feel appreciated and valued, that translates directly to how our customers are treated.”
Prestige has grown to nearly 575 employees, up from 249 when Henrie took over Prestige at the request of chief executive officer Greg Miller in 2009. During the same period, turnover has dropped from 60 percent yearly to about 20 percent.
This spring, Prestige will relocate into a new 130,000-square-foot office in Draper, Utah, designed with employees in mind. The facility will include a fully equipped cafeteria and rooms devoted to wellness, games and quiet time.
