Lending Curve - Part 21

Interest Rates Dampening Your Loan Volume?

Post author By efgmarketing
Post date March 14, 2018

Contributing Author:
Brien Joyce
Vice President
EFG Companies

According to Edmunds, interest rates on new-vehicle loans are expected to soar to their highest point in eight years. In an interview with F&I and Showroom Magazine, Jessica Caldwell, Edmunds Executive Director of Industry Analysis, stated, “We’re starting to see a trickle-down effect from the rate increases happening at the federal level. The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and, as a result, we’re seeing loans that were formerly between 2 percent and 3 percent being pushed up into higher APR brackets.”

New vehicle APR averaged 5.2 percent in February, representing a 4.9 percent year-over-year increase. Let’s not forget that we are expecting more rate hikes from the Federal Reserve in the coming months.

Combine this rate increase with a plateau in retail auto sales, and we can expect lenders to become more aggressive to shore up their dealer relationships. At the same time, dealers are highly attuned to customer retention and brand enhancement. To differentiate you institution and grow loan volume, consider how you are helping dealers address their concerns.

Evaluate your processes from the point of view of building a relationship:

Do you instill the value of providing superior service across your institution?
Are your dealer partners well versed in how you fund and your funding requirements?
How quickly does your institution respond to an application?

Tags Edmunds, F&I and Showroom Magazine

Compliance

The Other Side of the Domino Effect

Post author By efgmarketing
Post date March 5, 2018

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

In July 2015, BB&T Dealer Financial Services announced the launch of flat fees as the Consumer Financial Protection Bureau (CFPB) announced the expansion of oversight to larger non-bank auto finance companies. BB&T became the third auto finance lender to change their dealer participation practices, after Chrysler Capital and Santander USA. A domino effect quickly took place, with American Honda Finance Corporation, Fifth Third Bank, and Toyota Motor Credit joined the growing number of lending institutions either reducing their cap on dealer participation, or implementing flat fees.

In February, BB&T became the first auto finance company to reverse the trend, stating in an interview with Subprime Auto Finance News that the bank would be abandoning its flat-fee dealer compensation program and introduce a more traditional auto pricing program mid-March.

While BB&T plans to eliminate flat fees, we can still expect them to be more circumspect on the dealer participation cap than in previous years. In fact, Brian Davis, BB&T’s director of corporate communications stated, “BB&T remains firmly committed to the auto finance industry and to the fair and equal treatment of all consumers.”

Business Growth

2018 Shift in Auto Lending

Post author By efgmarketing
Post date February 14, 2018

Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

In 2017, we saw banks begin to pull back from auto financing, especially in the subprime markets. At the same time, captive lenders utilized manufacturer incentives to increase new vehicle loan volume, and credit unions increased their market share in both the new and used space by filling in the gaps that the banks left behind.

In 2018, we’re seeing a very similar pattern as banks continue to pull back and manufacturers continue to provide deep incentives to make new vehicles more affordable. The National Automobile Dealers Association predicts that 16.7 million new and 15.3 million used vehicles will be sold in 2018. While the new vehicle projection is slightly down from 2017, the used vehicle projection is actually higher than 2017 numbers.

In recent years consumers have been relying on leases and longer-term loans to afford vehicles with a price tag that keeps going up. This has resulted in large amounts of off-lease vehicles hitting markets in 2016, 2017, and in 2018. Meanwhile, the deep incentives provided by manufacturers are undermining vehicle values. The combination of the incentives and record off-lease vehicles hitting the market results in used vehicle values declining – hence the projected increase in used vehicle sales.

As more consumers look to purchase a potential surplus of pre-owned vehicles, auto lenders need to ask themselves how they can help dealers incentivize consumers to purchase with them. We all know dealers are more likely to send business your way if you act as a partner in accomplishing their goals.