While enhancements in auto financing certainly have been made over the years, a pair of surveys orchestrated by Inovatec Systems Corp., revealed areas where improvements still could be made for the benefit of finance companies and consumers.
This week, Inovatec began with the results from its latest survey that touched on consumer pain points associated with finance companies when financing a vehicle.
When asked about the biggest complaint associated with financing their last vehicle, 56.8% of consumers said that finding a bank or finance company that would approve the purchase of the vehicle was their biggest complaint.
An additional 37.8% of those respondents said there were too many steps involved, and 30.6% said the processing time was their biggest complaint.
In a separate survey, Inovatec recapped that finance companies were asked to identify issues and challenges with their current processes in their organization. More than 35.6% of participants reported operational issues were a struggle, while 28.1% reported issues in lack of efficiency.
“The findings show a clear discrepancy between lender processing systems and customer needs,” Inovatec said in a news release. “Consumers today desire quick outcomes, yet also expect personalized customer experience.
“Companies are searching for (artificial intelligence) tools that allow them to increase customer satisfaction through digital retailing,” the company continued.
Furthermore, consumers were also asked what factors would make the buying process easier in the future. More than 62.2% said that quicker, more simplified processes were top of mind.
Another 29.7% of consumers reported that in-real-time access to updates on the status of their application would simplify the process, and 24.3% said that access to pre-qualification tools would improve their experience.
When consumers were asked about their level of understanding on the terms of their loan, Inovatec found that only 34% reported they fully understood their financing contract. Meanwhile, 66% of consumers reported they either do not understand the terms of their loan at all, or somewhat understand but do not know every detail.
Bryan Smith, head of consumer growth and partnerships at Inovatec, emphasized this particular statistic should be concerning to finance companies, specifically as the misunderstanding of contract terms can significantly affect default.
“The survey shows a clear divide between lender process system efficiency and customer needs that affect the overall customer experience,” Smith said. “Lenders need access to updated systems that integrate artificial intelligence to improve their processes, which has a trickle-down effect to customers over time.”
Trust Science wants more details about the key pain points facing credit underwriters nowadays, so the provider of credit-scoring solutions powered by artificial intelligence recently launched its annual survey.
Along with the chance to win a $750 gift certificate for Dick’s Sporting Goods, finance companies can share a variety of experiences through the survey that runs until 10:59 p.m. PT on Oct. 31.
Trust Science president and chief executive officer Evan Chrapko acknowledged there has been a lack of innovation directed at the underwriting space. Chrapko added that underwriters are faced with changing market dynamics and the inability to adjust their loan underwriting process.
Conversely, Chrapko pointed out credit invisibles and thin-file applicants are left without the means to obtain loans.
“Lenders haven’t been empowered with digital services and offerings that would automate processes or adapt to changing market dynamics,” Chrapko said. “Archaic models and systems are unable to score borrowers who aren’t a credit risk but don’t fit into old methods.
“And the world requires speed, predictability and real-time responsiveness. That’s part of what we aim to reflect with our survey results,” he went on to say.
Findings will be published in a report and shared with respondents as well as the entire industry, according to Trust Science.
Finance companies can complete the survey on this website.
Trust Science gained important branding privileges this week.
The company obtained official, exclusive registration over the use of “Credit Bureau 2.0” as a trademark from the U.S. Patent & Trademark Office. According to a news release, Trust Science and its sister companies around the world now are licensed to use the mark.
Trust Science said it has invested many years and millions of dollars into building its AI-powered Credit Bureau 2.0 Software as a Service.
Trust Science acquires consented consumer data and alternative data about people and runs its patent-protected tools fueled by artificial intelligence and machine learning on that data to help finance companies.
In practical terms, the company said its products can help finance companies profitably increase originations, decrease defaults, and lower operating expenses courtesy of more automation of underwriting in a risk-reduced manner.
As a universal credit scoring service, Trust Science insisted Credit Bureau 2.0 can help generate financial inclusion for the nearly 75 million American adult consumers with an old, conventional subprime credit score, as well as the 3 billion other consumers in the world who have no proper scoring available at all.
“The trademark Credit Bureau 2.0 over which we now enjoy exclusive use announces to the world that Trust Science is leading a modernization drive toward the next generation of credit scoring and data-driven marketing services in the financial sector,” Trust Science founder and chief executive officer Evan Chrapko said.
“Combining our AI/ML and our Explainable AI (xAI) technology with truly unique data that we source in a proprietary way results in a highly predictive score (Six°Score) about the creditworthiness of people anywhere in the world,” Chrapko continued.
“Now that Trust Science has over 30 patents granted to it by 12 different countries — with many more patents pending — the ‘Credit Bureau 2.0’ trademark will help Trust Science to brand its leadership position,” he went on to say.
Trust Science recently hosted a webinar about what it called the “top five myths in data-driven underwriting.” A recording of the session is available on this website.
S&P Global Ratings senior director Amy Martin recently assembled a report with a title that concisely summarized the current state of auto financing.
Martin’s analysis titled, “Speed Bump Ahead: As Auto Loans Accelerate Toward 84 Months, Caution Is Warranted,” reviewed data from Experian as well as a sample of six providers — a mix of captives and commercial banks — to arrive at a conclusion that might come as a relief to risk managers and other company executives.
Martin began with a noticeable, growing trend. The rising popularity of larger, more expensive vehicles and new vehicle technology has driven growth in the average transaction price and amount financed of new vehicles. She explained higher financed amounts coupled with increased borrowing costs are fueling upward pressure on monthly payments, creating an affordability issue for consumers.
As a result, auto finance companies have been addressing this concern by lengthening contract terms, which serve to lower monthly payments. Experian’s second-quarter information showed terms lasting 61 to 72 months remain the most common (40% of new and 44% of used-vehicle contracts). However, Experian also determined contracts with an original term of 73 to 84 months have grown to approximately 31% and 19% of all new and used vehicle contracts, respectively.
S&P Global Ratings also discovered this year marked the first time a U.S. captive finance company securitized 84-month loans in a public U.S. ABS term transaction.
“These longer-term loans pose additional risk to investors and can lead to higher cumulative net losses (CNLs),” Martin said in the report shared with SubPrime Auto Finance News. “As loan terms lengthen, their principal balances amortize more slowly, and loss severity escalates.
To measure the degree to which longer-term loans have higher losses than their shorter-term counterparts, Martin and S&P Global Ratings analyzed the origination static pool net loss data of three prime auto issuers from 2008 through 2014 and found that, on average, CNLs were more than four times higher for contracts with terms in the 73-month to 84-month range than those with terms of less than or equal to 60 months.
As the presence of longer-term loans increases in U.S. auto loan securitizations, S&P Global Ratings acknowledged that it may adjust its expected CNL levels upward, which could result in higher credit enhancement levels.
Martin wrapped up her analysts by emphasizing the lengthening of contract terms, while a risk, is a manageable one that can be addressed in a number of ways.
“First, the portion of longer-term loans can be limited, especially if the issuer has a short track record of making these loans,” Martin said in the report. “We saw this when 72-month loans became the industry standard. In general, lenders slowly added these to their pools, many keeping the percentage in a range of 10%-15%.
“In addition, credit enhancement can address the higher risk associated with these loans,” she continued. “Finally, today's environment is similar to the early 1990s when loan terms lengthened to 60 months from 48 months, and 2001 when they started to stretch to 72 months. At the same time, vehicles are lasting longer than they did 20-25 years ago, with many still on the road after 10 years.
“The auto finance and auto loan ABS market survived the earlier lengthening of loan terms, and we believe it will weather the evolution to 84 months, although it’s not a welcomed trend,” Martin concluded.
The entire report can be downloaded here.
The auto-finance industry went to two of the most readily accessible tools it has to complete new-vehicle deliveries in September as transaction prices for new metal continue to stretch buyers’ purchasing capabilities.
As J.D. Power spotted incentives climbing to within $28 of an all-time high, Edmunds indicated the average interest rate for a new-vehicle retail installment contract fell for the sixth month in a row and stayed below 6% for the third month in a row in September.
Edmunds reported the annual percentage rate (APR) on new financed vehicles averaged 5.7% in September, compared to 5.8% in September of last year.
“Automakers are in full sell-down mode, which means that car shoppers got to take advantage of some decent promotional offers in September,” Edmunds’ executive director of industry analysis Jessica Caldwell said in a news release. “The cost of purchasing a new vehicle is still a lot higher than it was a few years ago, so it’s a positive sign that automakers and dealers are making the right moves to keep buyers coming back into the fold.”
Meanwhile, J.D. Power explained what might seem like the right moves are coming with a cost as analysts noticed record levels of spending.
Incentive spending is projected to reach $4,159 (up 6% or $246), the highest level ever for the third quarter, according to J.D. Power, and just $28 short of the all-time quarter high set in Q4 2017. Analysts explained the increase is being driven by the ongoing sell-down of old model-year vehicles, which account for more than 90% of sales in the quarter and represents the slowest sell-down on record.
J.D. Power also mentioned transaction prices are expected to set another record for the quarter, with the average new-vehicle sales price projected to reach $33,321, up 4% or $1,229 from last year. The average price for cars is up 4% to $26,736 and trucks/SUVs are up 3% to $35,725.
Analysts said continued growth in prices combined with flat retail sales, means that consumers are expected to spend a record $120.7 billion on new vehicles in Q3. J.D. Power noted this development represents the highest level for any quarter, edging out the previous high set in Q4 2018 by more than $500 million.
Kelley Blue Book also chimed in on the subject as its analysts reported the estimated average transaction price for a light vehicle in the United States was $37,590 in September. KBB computed new-vehicle prices increased $262 or 0.6% from September 2018, while increasing $215 0.7% from the previous month.
“Transaction prices are still strong, but the growth has almost stalled, as retail demand is weakening,” Kelley Blue Book analyst Tim Fleming said. “Despite automakers pulling back their production this year, it may not be fast enough.
“Incentives are rising, averaging about 10.5% of average transaction prices and nearing levels from 2017 when industry sales saw their first decline since the recession. SUVs and trucks are still performing well, as recent model launches are pushing sales and average prices up. This is even better news in that these units are usually more profitable for automakers,” Fleming continued.
Although average interest rates on new-vehicle financing have seen a decline in recent months, Edmunds experts said this drop is driven by incentives and is not indicative of a return to post-recession market conditions.
“Shoppers who are thinking about buying a new car may want to take advantage of the model-year sell-down over the next couple of months before the majority of these incentives dry up,” Caldwell said.
So how might the rest of 2019 unfold? Thomas King, senior vice president of the data and analytics division at J.D. Power, offered these figures and thoughts.
King’s data showed the average interest rate on a finance deal has fallen to 5.5% in Q3, more than 60 basis points lower than the first quarter this year. For a $30,000 vehicle with a 60-month loan, King computed these components equate to reduction in payment of nearly $10.
“The big questions for the industry are how quickly manufacturers can transition to the new model year and will we see a return to the incentive discipline observed in Q1 and Q2,” King said.
“As manufacturers clear their inventories of heavily discounted 2019 model year vehicles, lower discounts on new 2020 model year vehicles could result in a slower sales pace than we saw this quarter,” he went on to say.
New-Car Finance Data
|
|
September 2019
|
September 2018
|
September 2014
|
|
Term
|
69.7
|
68.7
|
67.0
|
|
Monthly Payment
|
$559
|
$537
|
$478
|
|
Amount Financed
|
$32,928
|
$31,062
|
$28,120
|
|
APR
|
5.7
|
5.8
|
4.2
|
|
Down Payment
|
$4,050
|
$4,198
|
$3,367
|
|
Average Transaction Price
|
$37,051
|
$36,369
|
$32,606
|
Used-Car Finance Data
|
|
September 2019
|
September 2018
|
September 2014
|
|
Term
|
67.5
|
66.9
|
65.5
|
|
Monthly Payment
|
$416
|
$401
|
$371
|
|
Amount Financed
|
$22,623
|
$21,697
|
$20,090
|
|
APR
|
8.4
|
8.4
|
7.7
|
|
Down Payment
|
$2,660
|
$2,657
|
$2,164
|
Source: Edmunds
Investors love growth, and as we approach the longest sustained period of growth in the history of the United States, the business climate has been almost unprecedented. The Dow Jones Industrial Average is hovering around record highs and unemployment is at its lowest level in nearly two decades.
These robust economic conditions have supported and stimulated lending activity as well as an explosion of interest in the financial technology arena. Venture capital-backed financial technology companies disrupting traditional banking by effectively unbundling products and services have raised a record $40 billion from investors globally in 2018, up 120% from the previous year, according to research by data provider CB Insights.
However, as we enter the last three months of 2019, signals suggest that economic and regulatory changes could expose fundamental weaknesses of many consumer lenders. This is exacerbated by growing fears of a prediction recession arriving before 2021; concerns compounded by the most recent trade war with China and slow wage growth that has been largely offset by inflation.
In addition, major new accounting standards are set to be imposed on all financial institutions which could challenge the way investors assess lenders’ financial health. Set to go into effect at the end of 2019, the Current Expected Credit Loss Model (CECL) utilizes a life of loan concept to establish loan loss allowances and requires that lenders hold reserves that cover losses for the life of a loan. CECL is effectively converting a general reserve application to a rules-based application, bringing consistency to allowance methodology. This change stems from the 2008 global financial crisis, which amplified the need to improve existing financial reporting standards. In its October 2018 report on CECL impact, based upon its coverage of 43 banks and speciality finance companies, UBS estimates this change will lead to an average increase of 35% in allowance for loan losses for lenders.
Given the magnitude of the imminent change in the macroeconomic and regulatory environment, these five key fundamentals will define consumer lending models as sustainable, defensible, and in turn, profitable over the long term.
Sustainability cannot depend on growth
Growth can conceal weaknesses. Lending constitutes a meaningful segment of the financial technology industry, and the unsecured personal loan market, which hit an all-time high last year surged 17% year over year to $138 billion. According to TransUnion, was most of this growth occurred in the subprime tier. In order to effectively remove the impact of growth when measuring performance, sustainable consumer lending models must incorporate a rigorous approach to static pool analysis. In periods of rapid growth, key metrics such as delinquency and default can appear low, because the overall portfolio growth may be accelerating — this is a phenomenon known as “speedboating.”
Differentiation matters
While disruption has been the most prominent buzzword used to describe the dramatic rise of fintech, differentiation may be more impactful. As it relates to lending, differentiation is commonly achieved by targeting a specific borrower profile, particularly one which is underserved or possesses a unique set of attributes which potentially correlate to better than average loan performance. In the case of Tricolor, our focus on low-income Hispanic auto buyers with little or no credit history clearly differentiates us from other lenders in the space. That differentiation results in defensibility. Smart data science alone will not sustain disruption in the financial services industry; this essential non-technological factor plays a significant role in determining success.
Take the long view
For a lender, cash flow ultimately drives value creation, and successful lenders will pivot to focus on maximizing the present value of future cash flow streams originated through loans. This can be managed by embracing vintage analysis, which informs the most precise view possible on how a lender can expect originations from a certain period (or vintage) to perform over the life of that vintage. A vintage strategy involves an ongoing cycle of testing, learning and pivoting to optimize the key inputs that drive loan performance: credit grade (which in turn, provides expected lifetime credit losses and average life) and deal terms (which consist of loan to value, origination APR, down payment, term, and payment amount).
Recognize the elephant in the room
For many businesses, CECL will expose the vulnerability in their lending model. On average, specialty finance companies are worse positioned than banks given their high loss content and so have the largest estimated reserve increases. According to Moody’s, CECL changes could cause loss allowances for U.S. auto lenders to increase by as much as 1.5 to 2.5 times the current allowances. The impact on unsecured lending will likely be even more dramatic. Overall, UBS estimates that the specialty finance companies in its survey will require an average 64% increase in their allowance.
The test of time is the real test
Technology is creating disruption across industries faster than ever. Since 2000, 52% of companies in the Fortune 500 have either gone bankrupt, been acquired, or ceased to exist as a result of digital disruption. The collision between the physical and digital worlds has become increasingly profound in financial services. There are many elements to a sustainable and successful business model — a great culture, great customer experience, great quality, great processes—but for a consumer lending business, a defensible model requires a strategic approach which must be continually measured and optimized. For many lenders which have increased market share and capitalized on a robust economic environment, 2020 may provide formidable headwinds with the combined impact of a potential recession and regulatory change in the form of CECL implementation.
Daniel Chu currently serves as founder and chief executive of Tricolor Auto Group and Ganas Holdings. Chu has distinguished himself as a successful entrepreneur, having founded six companies over the past 25 years, including two which became public. Chu currently serves as the founder and chief executive of Ganas Holdings, a national used vehicle retailer focusing on the integrated sale and financing of vehicles to Hispanic consumers. The branded chain of thirty dealerships across twelve metropolitan markets operates in Texas as Tricolor Auto Group, and in California as Ganas Auto Group. The company has been recognized by Inc. magazine for five consecutive years as one of the fastest growing companies in America, while also receiving distinctions as one of the 10 fastest growing privately held companies in the greater Dallas-Fort Worth area.
Verifying income can be an expensive process for finance companies; one where the cost can become even steeper if the contract holder falls into delinquency and is eventually charged-off because the individual didn’t have steady enough money to support monthly payments.
PointPredictive is looking to help finance companies avoid both of those scenarios with its latest tool as the Emerging 8 firm recently announced the general availability of IncomePASS.
The company explained the solution can offer a real-time assessment of an applicant’s stated income to allow highly accurate clearing of validated incomes. PointPredictive believes its tool can enable finance companies using costly paycheck stub manual reviews across their portfolio to drastically reduce their expenses while improving the overall accuracy of their income validation efforts to stop defaults.
“Traditional legacy tools are expensive and provide incomplete coverage,” PointPredictive chief executive officer Tim Grace said in a news release. “Employer-based database verification checks can typically verify income on less than 30% of the applicant submissions, leaving 70% of stated incomes to be confirmed by paycheck reviews, many of which are fake paycheck submissions.
“Replacing these solutions with IncomePASS will enable 100% coverage across a lender’s portfolio and enable significantly less friction between consumers, lenders and dealers in funding loans,” Grace continued.
“We encourage lenders to do a head-to-head comparison between IncomePASS and The Work Number and measure how many inflated incomes are identified by each solution in total and how many accurate incomes are validated in total and at what cost,” he went on to say.
IncomePASS can analyze a borrower’s stated income against millions of reported incomes and salaries from seven diverse sources. Then, using the applicant’s employer, occupation, job title, residence, and estimated years of experience, a sophisticated machine-learning model can predict the borrower’s likely income.
When the borrower’s stated income is within 15% of the model’s prediction, the finance company is alerted and can allow the application to proceed to underwriting without additional manual income checks using paychecks or bank statements.
The solution also can provide a likelihood of default prediction and a misrepresentation indicator to allow finance comapnies to assess when additional characteristics of the applications are likely to lead to loss.
Furthermore, PointPredictive highlighted its solution can allow lenders not only to reduce costs of other solutions and reduce errors associated with manually reviewing thousands of paychecks, but also can enable finance companies to book more quality paper due to the reduced friction in the process.
“Results from lenders testing our models in IncomePASS have been extremely impressive,” said Mike Kennedy, vice president and head of the analytic scientists at PointPredictive. “We have consistently seen in lender tests that 75% of applications can be cleared as valid incomes using our scoring solution with 90 to 97% accuracy rates.
“The vast sets of data and the millions of income reports in our data sets have enabled our team to significantly change the game in terms of machine learning techniques we have applied and predictive technology that we have created,” Kennedy went on to say.
PointPredictive also mentioned results of testing at various lenders are showing that, on average, 75% of applications can be cleared as valid income reports at an accuracy rate of greater than 90%.
Additionally, IncomePASS is alerting finance companies to income inflation and finding up to 40% of inflated incomes in less than 3% of the application population, leaving far fewer applications to review manually while simultaneously reducing the risk of inflated incomes appearing in the population being reviewed, and catching more suspected inflated incomes than existing legacy solutions.
IncomePASS is available to all financial services providers needing to verify stated income on applications. The service is available for real-time integration into loan origination and underwriting workflows.
For the next 60 days, tests comparing identification of total number of valid incomes and total number of overstated incomes with IncomePASS to the totals identified with The Work Number will be available at no charge from PointPredictive.
For more information on IncomePASS from PointPredictive, send a message to [email protected].
Affordability continues to remain top-of-mind for most participants in and observers of the automotive industry. However, Experian explained consumers appear to be making due even as some industry pundits continue to be concerned that consumers can’t handle larger payments.
To reinforce its point that the data tells a different story, Experian released its Q2 2019 State of the Automotive Finance Market report on Thursday morning.
Analysts acknowledged consumers are exploring all available options to make costs more manageable, including extending contract terms and deciding between new or used vehicles.
Experian pointed out that one of the more notable ways consumers have managed to make their monthly payments more affordable is to opt for used vehicles. In fact, the report showed prime and super prime consumers financed used vehicles at record levels. Experian determined these borrowers comprised more than 57 percent of used vehicle financing during the second quarter.
“In previous years, it was common for most prime borrowers to opt for new vehicles. These vehicles tend to have better warranties and require less upfront maintenance,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions.
“But with loan amounts for new and used vehicles on the rise, and a higher volume of vehicles coming off-lease, there are late-model options available that borrowers can consider,” Zabritski continued in a news release.
“It’s important for the industry to keep an eye on these trends to help inform future business decisions,” she went on to say.
Experian also mentioned the shift to used vehicles comes as the average amounts financed continue to rise.
Based on the report, the average amount financed on a new-vehicle contract came in at $32,119, while the average amount for a used-vehicle deal hit $20,156.
Additionally, the average monthly payments were $550 and $392 for new and used, respectively.
Furthermore, the report showed consumers appear to be managing payments by extending contract terms. The average loan terms for new and used vehicles reached record highs.
For new vehicles, the average term came in at 69.17 months, while the average term was 64.82 months for used vehicles. The extension of terms come as interest rates continue to remain more than 6% for new vehicles and more than 10% for used.
“There are many factors that can impact vehicles costs and car-buying decisions, but —perhaps the factor that is most critical is a car shopper’s credit score — it can impact interest rates and loan terms, which impacts monthly payments,” Zabritski said.
“Prior to heading into the dealership, car shoppers should explore ways to improve their credit standing, such as leveraging new tools and resources available to them, like Experian Boost, that can help increase their score and potentially arrange better terms,” she continued.
Despite all of the elements in play, Experian pointed out that contract holders predominantly are maintaining their monthly commitments as delinquencies remained stable in Q2.
Analysts determined 30-day delinquencies dropped to 2.11 percent, from 2.12 percent in Q2 2018, while 60-day delinquencies saw a slight increase from 0.64 percent to 0.65 percent in the same time frame.
A few other additional findings for Q2 included:
—Outstanding automotive loan balances totaled $1.197 billion.
—The percentage of outstanding loan balances held by subprime and deep-subprime consumers saw slight growth YOY (from 18.81 percent in Q2 2018 to 18.95 percent in Q2 2019) but remained below 19 percent.
—New-vehicle leasing saw a slight decrease from 30.41 percent in Q2 2019 to 30.04 percent in Q2 2019.
—Credit scores saw a two-point increase for new vehicle financing (from 715 to 717) while used saw a 1-point increase (655 to 656) year-over-year.
—The average price difference in monthly payments between loans and leases is $92.
To watch a webinar when Experian experts plan to discuss the entire Q2 2019 State of the Automotive Finance Market report, visit this website.
The latest data from Edmunds confirmed that finance companies are trying to hold firm on term, down payment and total amount financed in an effort to remain within their underwriting parameters and mitigate risk.
Edmunds’ August data did show some marginal rises in term and total amount financed year-over-year for used-vehicle and new-vehicle financing, but the average down payment did not soften tremendously.
However, analysts acknowledged the average down payment for a new vehicle dropped below $4,000 for the first time in more than a year.
Analysts determined the average interest rate for a new-vehicle retail installment contract originated in August stayed below 6% for the second month in a row. The annual percentage rate (APR) on new financed vehicles averaged 5.8% in August, compared to 5.8% in July and 6% in June.
Edmunds data revealed that the share of sales with zero percent finance deals saw a slight lift in August, constituting 6.1% of financed purchases in August compared to 5.8% in July.
“Shoppers who made it to the dealership this Labor Day weekend got to take advantage of slightly more generous offers than we’ve been seeing all year, but this shouldn’t be taken as a sign of a dramatic turnaround in the market,” Edmunds executive director of industry analysis Jessica Caldwell said in a news release.
“The model-year sell-down is still in full swing, and automakers and dealers are moving things along just like they should at this time of year,” Caldwell continued.
The summer sell-down season also coincides with hurricane season, and Edmunds analysts are keeping a close eye on how Hurricane Dorian may impact automakers. After leaving catastrophic damage in the Bahamas, the storm has been projected to scrap the coasts of Florida, Georgia and the Carolinas.
“Hurricane Dorian might have delayed some new vehicle purchases, but its overall impact on August sales appears to be fairly nominal,” Caldwell said. “We’ll be keeping a close eye to see how it may impact numbers in September as its track inches closer to the U.S. mainland.”
New-Car Finance Data
|
|
August 2019
|
August 2018
|
August 2014
|
|
Term
|
69.6
|
68.6
|
66.8
|
|
Monthly Payment
|
$556
|
$536
|
$474
|
|
Amount Financed
|
$32,590
|
$30,993
|
$27,981
|
|
APR
|
5.8
|
5.8
|
4.1
|
|
Down Payment
|
$3,991
|
$4,056
|
$3,398
|
|
Average Transaction Price
|
$37,051
|
$36,041
|
$32,027
|
Used-Car Finance Data
|
|
August 2019
|
August 2018
|
August 2014
|
|
Term
|
67.4
|
66.9
|
65.3
|
|
Monthly Payment
|
$412
|
$400
|
$374
|
|
Amount Financed
|
$22,252
|
$21,596
|
$20,322
|
|
APR
|
8.5
|
8.3
|
7.5
|
|
Down Payment
|
$2,655
|
$2,601
|
$2,241
|
Source: Edmunds
Coming off of what the president and chief executive officer described as a “transitional year,” Nicholas Financial opened its 2020 fiscal year with positive net income after finishing its 2019 fiscal year with a loss.
The publicly-traded specialty consumer finance company operating branch locations in both the Southeast and Midwest, recently announced its net income for the three months that ended June 30 came in at $0.6 million. Nicholas Financial generated that figure even though revenue decreased 11.3% to $16.6 million.
Still, the metrics are an improvement from the close of its 2019 fiscal year that included a net loss for the entire reporting period of $3.6 million.
“We are pleased to be able to report positive earnings in our first quarter,” Nicholas Financial president and CEO Doug Marohn said in a news release. “Although it is only one quarter, the results indicate that the strategy and tactics deployed during fiscal 2019 are starting to pay dividends in fiscal 2020.
“Our core operations were profitable independent of the Metrolina acquisition, and that acquisition definitely helped to increase our realized net earnings for the quarter,” Marohn continued.
Back at the end of April, Nicholas Financial announced that the company acquired substantially all of the assets of ML Credit Group, which does business as Metrolina Credit Co. and provides financing to consumers by direct loans and through purchases of retail installment sales contracts originated by dealers in North Carolina and South Carolina.
“We are very pleased to announce the company’s acquisition of Metrolina. Metrolina’s local focus in North Carolina and South Carolina nicely complements our existing automobile financing program,” Marohn said at the time of the acquisition.
“Having been the CEO of Metrolina Credit Company for four years from 2014 through 2017, I am very versed in their operations, personnel and culture. We are excited to be consolidating our two companies that are so well aligned in many aspects,” continued Marohn, who noted that the transaction brought scale to its existing operations in the Carolinas by adding more than 3,000 accounts and more than $22 million in net receivables.
Turning back to the Q1 results, Marohn emphasized the strategy changes Nicholas Financial has implemented. Marohn previously explained that the company returned to a 120-day charge off policy that includes Chapter 13 bankrupt accounts, “which is more in line with industry standard.” The company also trimmed its market footprint by closing branch locations in Texas and Virginia.
And the results?
“More importantly, our portfolio metrics continue to improve and will be the driving force behind future earnings,” Marohn said. “We continue to book loans with higher rate, increased discount, lesser advance and shortened term. Our return to disciplined underwriting has had a positive impact on our portfolio yield as our gross portfolio yield has increased to 28.3% compared to 25.3% in the prior year first quarter.
“The return to a 120-day charge-off policy along with adjustments to our servicing approach has resulted in improved performance, too,” he continued. “Our 30-day delinquency is down approximately 100 basis points with most of that coming from a reduction in the 60 days past due category.”
Furthermore, Nicholas Financial reported that it’s gaining traction beyond the paper its buying from its network of dealerships.
“We are also starting to see our direct loan product contributing to our top and bottom lines. Our direct loan portfolio has now grown to over $8 million and performs better than our indirect portfolio in terms of delinquency and losses,” Marohn said.
Currently Nicholas Financial offers direct loans in Florida, Georgia, North Carolina and Ohio, and the company is in the process of obtaining licenses in the remaining states where it operates.
“As of July, we obtained licensing in Tennessee, and we intend to initiate direct consumer lending there during the second quarter of fiscal 2020. Several other states are in the final stages of licensing and we intend to have all states licensed and operational this calendar year,” Marohn added.
