Lending Curve

Contributing Author:
Brien Joyce
Vice President
EFG Companies

Holiday season is here! Will consumers be spending? Recent PwC research says, “yes”. In fact, the PwC 2019 Holiday Outlook shows consumers are optimistic with 86 percent saying they will spend the same or more this year, than in 2018.

But, will this holiday sentiment extend to the automotive industry? According to J.D. Power, the fourth quarter hinges on consumer affordability, rate reductions and manufacturer incentives to clear 2019 inventories.

Prepare, Prepare, Prepare

Unfortunately, credit unions have their work cut out for them. According to Experian’s latest State of the Automotive Finance Market report, credit unions lost market share in the retail automotive market in the second quarter of this year. Especially glaring was the fall to 26 percent market share for used vehicle financing, previously a stronghold in the sector.

While some pundits claimed the credit unions scaled back their auto originations due to overcapacity, others point to more aggressive efforts among traditional and non-traditional lenders entering the space. Banks increased their used-vehicle market share to 36.3 percent, up 1.7 percentage points from 2018. Non-traditional lenders, including digital providers, also saw an uptick thanks to more consumers purchasing their vehicles online.

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Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

Instances of fraud have been on the rise lately and regulatory agencies at both the state and federal level have been keeping a watchful eye on the automotive lending industry. Research in 2017 showed that fraud cost the auto industry between $4- to – $6 billion – in one year! Data from PointPredictive shows the dramatic jump between 2015 to 2017. While the research has not been updated for 2019, it’s likely a similar picture.

This correlates closely with the implementation of microchips to credit and debit cards. Starting in 2015, the use of microchips rose, making credit cards more difficult to counterfeit, and forcing criminals to focus on other types of fraud like new account fraud.

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Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

There have been several pieces of news this month which could prompt a little champagne and celebration. After struggling through a challenging first half of the year, the third quarter looks to be strong for anyone operating in the retail automotive space. U.S. light-vehicle sales rose 10% in August, the second straight month of higher volume, with positive sales across most brands. Additionally, on September 19^th, the Federal Reserve shaved 50 basis points off the short-term benchmark interest rate, including a quarter point reduction in the general interest rate. But, don’t pop the Champagne cork yet. While this signals good news for auto loan volume, Cox Automotive cautioned the industry not to be too excited, indicating that consumers with lower credit scores will not see any relief. Subprime has reached a 10-year high and the analyst firm sees lenders requiring a higher premium to cover their risk. Potentially in response to this concern, the New York Federal Reserve reflected that lenders relaxed access to loans for customers whose credit scores were subprime and in the lowest category of prime during the second quarter of this year. As a result, auto loan and lease originations combined totaled $155.6 billion for the quarter, up 2.9% year-over-year. Keeping a cautious eye on the market, the New York Fed analysts are monitoring an increase in auto delinquencies. In the second quarter of 2019, loans that were 90+ days delinquent rose year-over-year by 4.2%. Continue reading →

Contributing Author:
Brien Joyce
Vice President
EFG Companies

The economy has been heavily featured in the news lately, with some pundits ringing the recession bell and others pointing to low unemployment and consumer confidence. Whichever way your divining rod is pointing, the fact remains that these economic indicators prompt savvy credit union lenders to be on alert. From a retail automotive standpoint, first quarter numbers are validating the forecasted plateau/slight downturn in both new and used sales. According to the first quarter Experian statistics, new vehicle registrations were down 100,000 as compared to Q1 2018. Used vehicle registration took a steeper dive, dropping by 300,000 versus the same time frame. As context, quarterly auto loan balances reached a record high in Q1 2019, jumping 6.5% year over year. The average new loan also hit a record high, surpassing $32,000, reflective of the continued high cost of vehicles and lack of OEM incentives. The monthly payment amount on those loans also hit a record, passing the $550 mark across all loan types. The interest rate on all risk categories averaged over 6%. Credit may be cheap at the Federal Reserve lending window, but it is holding firm against pressure at the auto loan desk. A few anomalies also appeared in Experian’s first quarter data. Surprisingly, new auto loan terms decreased while used terms increased in Q1 2019. It is likely that even with low unemployment in many areas of the country, job security and available discretionary income remains low. While longer term loans continued to dominate the market, new loans with shorter terms experienced growth. This factor may be attributed to a generational demographic. Millennials and GenZ tend to be debt averse, having experienced the fallout from the Great Recession first hand. As these consumers gain a credit history, they could become an interesting short term/low payment niche market if the data continues to follow the trend. Continue reading →

Lending Curve

Are You Ready for the Holidays?

Prepare, Prepare, Prepare

Guarding Against Fraud

Buy The Champagne – But Keep It on Ice!

Growth vs. Risk in Today’s Economy