Released a day after AutoData Corp. indicated April new-vehicle sales rose both sequentially and year-over-year, Black Book released results of its recent survey taking the pulse of the finance company community.
And that community is pretty upbeat about its prospects for continuing to fill portfolios. A total of 61.29 percent of finance company executives surveyed by Black Book said loan balances should climb this year.
“You never fully know what to expect when you produce a survey like this,” said Barrett Teague, vice president of Black Book Lender Solutions, which surveyed dozens of auto finance company executives in February.
“The first thing that is very encouraging is that our lenders are looking at the marketplace, and they’re very optimistic,” Teague continued during a phone conversation with SubPrime Auto Finance News. “They see a good year coming ahead for them. They feel like they’ve got a nice plan for how they will address the year. They look like they’ve gone in and made some contingency plans in case the market does plateau a little bit.
“I would say the overall lending market is quite optimistic,” he added.
There is a population that thinks sales might plateau this year. The Black Book survey found that level to be at 35.48 percent.
Barrett Teague, Black Book
Black Book highlighted four other key findings from its 10-question survey, including:
• If loan balances remain flat, loan profitability is priority for majority (35.48 percent).
• Most will focus on extending terms or explore leasing if fewer loans booked in 2016.
• 38.7 percent of lenders are now conducting monthly portfolio analysis.
• 52 percent of lenders are likely or somewhat likely to look for external portfolios for purchase.
AutoData reported that the new-vehicle seasonally adjusted annual rate (SAAR) in April was 17.42 million units versus 16.75 million units in April of last year. The firm noted total industry deliveries of new models increased by 3.6 percent over last April and 5.5 percent versus March’s delivery figures.
Industrywide, AutoData determined 1,506,977 light vehicles were sold in April, up from 1,454,951 in April 2015.
“Despite continued headwinds that include failures of national retailers, wage stagnation and almost flat-line economic ‘growth,’ the auto industry continued to vault ahead in April,” said Jack Nerad, executive editorial director and executive market analyst for Kelley Blue Book.
“Low-cost loans, a burgeoning leasing market and low fuel costs all combined to convince a near-record number of consumers to buy a new car, truck or SUV during the month,” Nerad continued. “It seems that nothing short of a quick hike in interest rates or a sudden fuel crisis can stop the momentum of vehicle sales in the wake of last year’s record total.”
To work toward any kind of sales record, Teague emphasized how much finance companies are using data and analysis provided by firms such as Black Book. He defended his thinking by returning to the survey results.
“As you know, that’s a very important part to us and everyone who is in the industry providing data to lenders, dealers and the entire marketplace. The survey came back and told us that more lenders were planning on using more data refreshing portfolios more often, keeping an eye on how their portfolios perform from a delinquency standing as well as from an equity standing,” Teague said.
“We feel like lenders have reached out and are starting to use data significantly more than they used to. And of course that’s exciting because we feel like the data drives a lot of the decisions being made out there and gives lenders a great opportunity,” he continued.
While Black Book regularly converses with its client base, this survey gave a glimpse into what finance companies are saying.
“We do listen to the marketplace,” Teague said. “Without the input and hearing the needs of our lender market, Black Book is not as capable of bringing new items that will give them the strength to succeed. Without the strength of our partners out there succeeding, there’s not a lot of room for us.
“We ask questions and we want to listen to the needs and try to do everything within our power to fulfill those needs,” he went on to say.
Here are complete results of the Black Book Lender Solutions survey:
1. What do you expect to happen to loan balances in 2016?
Plateau - 35.48 percent
Decrease - 3.23 percent
Continue to increase - 61.29 percent
2. If growth in the market does not continue and loan balances remain flat or decrease, what is your biggest concern?
Market share loss - 16.13 percent
Loss of interest income - 12.90 percent
Focus only on loans that yield maximum profitability - 35.48 percent
Want to maintain market share but will book fewer loans - 19.35 percent
Other - 6.45 percent
3. What is your strategy for profitability if you book fewer loans in 2016? Check all that apply
Alter parameters of your program guidelines - 22.58 percent
Consider different geographic markets - 19.35 percent
Look for profitability by extending terms - 29.03 percent
Organic growth through marketing to current customers - 25.81 percent
Explore more alternative finance options such as leasing - 29.03 percent
4. What is your expectation for interest rates in 2016?
Low rates - 67.74 percent
Steady climb to 2008 levels - 32.26 percent
Steep drastic incline - 0.00 percent
5. What data are you leveraging currently to navigate the changing market?
Real-time data - 64.52 percent
Longer-term residual forecasting - 35.48 percent
6. How important is collateral data to you currently?
It will become more important in the next 6 months - 25.81 percent
We've already started to leverage collateral data for our portfolios - 32.26 percent
We're relying on collateral data more for residual forecasting - 22.58 percent
It’s not very important to me - 19.35 percent
7. How frequently will you do a portfolio analysis in 2016?
Weekly - 16.13 percent
Monthly - 38.71 percent
Quarterly - 35.48 percent
Annually - 9.68 percent
8. If your portfolio is shrinking, how likely is it that you will look for external portfolios to buy?
Not likely - 16.13 percent
Somewhat likely – 25.81 percent
Likely – 25.81 percent
Extremely likely – 9.68 percent
Very likely - 6.45 percent
N/A – 16.13 percent
9. How likely are you to mine your current portfolio for additional organic growth?
Not likely – 19.35 percent
Somewhat likely – 9.68 percent
Likely – 41.94 percent
Extremely likely – 16.13 percent
Very likely – 12.90 percent
10. Options you would consider for altering parameters. Check all that apply
Expanding credit eligibility criteria - 57.14 percent
Financing older model vehicles - 57.14 percent
Extend loan terms - 42.86 percent
Other - 28.57 percent