Categories
Economy

Protecting Your Loan Portfolio from Auto Defaults

Mark Rappaport President Simplicity Division EFG Companies
Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

According to recent data from the S&P Dow Jones Indices and Experian, auto defaults rose by 9 basis points in August, and by 10 basis points in September, 2017. These represent the largest month-over-month increases since December 2011. In addition, September’s auto defaults represent the highest level analysts have seen since February 2015.

With these numbers in hand, it’s no surprise that more banks are pulling out of the subprime auto finance space to retool their credit algorithms. As credit unions and captives scramble to capture that market share, lenders everywhere are evaluating how to securely expand their auto loan portfolios without significantly increasing risk.

We’re seeing more lenders looking into alternative data to expand their algorithms and better qualify consumers. Among other criteria, lenders are increasing the importance of income verification, employment tenure, pay frequency and the possibility of employment disruption in their qualification process.

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Categories
Business Growth Compliance

Finding the Perfect Balance

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

From the very first time one person loaned another person their hard-earned money or goods, there has been a level of risk on whether they would ever see their money or property again. As the lender, finding that balance between risk and reward created the concepts of payment plans, requiring borrowers to pay back more than the total amount they originally received, as well as sophisticated algorithms for lenders to use to determine how lenient or restrictive to make their lending policies.

We are currently in a highly contemplative and speculative time when it comes to determining that perfect balance in auto finance. After seven consecutive years of vehicles sales gains, the National Automobile Dealers Association (NADA) is forecasting that vehicle sales will total out at 17.1 million new vehicles in 2017, slightly lower than total sales in 2016. This plateau could extend into 2018, or we could potentially even see the beginnings of a period of decline, or even a period of growth and expansion. It could go either way.

Lending practices differ greatly depending on whether an economy is expanding, plateauing, or declining. Hence, the period of reflection. Of course, a plateau at 17.1 million vehicles means that the consumer appetite for auto finance is still strong.

According to Experian’s latest State of Auto Finance Market Report, the total automotive open loan balance reached another record high in the second quarter of 2017, topping $1.1 billion. Average loan amounts remained high across all credit tiers, as well as across both new and used vehicles.

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Categories
Business Growth Economy

Don’t Settle for More of the Same

Mark Rappaport President Simplicity Division EFG Companies
Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

Q4 2017 has finally arrived. Are you on track to meet your auto loan volume projections?

Vehicle sales numbers are flowing in and so far it looks like the projections for a flat market have panned out, even with the upsurge in sales in flood-damaged areas. The Federal Reserve raised interest rates twice this year, and expects to raise them once again in December. Credit Union auto loan market share saw an 8.5 percent increase in Q2, according to Experian. Consumer spending grew marginally in Q3, by 1.5 percent, while consumer confidence decreased in September.

All signs point to more of the same in the coming months. Unit sales will still eke out at around the same volume as last year. The combination of raising interest rates and lackluster consumer confidence will create an atmosphere where consumers are more hesitant to make those big-ticket purchases.

In auto lending, this means increased competition for the available supply of consumers in the market for a vehicle. As you take the time in Q4 to prepare for 2018, it’s important to evaluate how to differentiate your institution with both dealers and consumers.

Evaluate your value proposition through the optics 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?
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