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Enterprise Financial News Volume 14

Lender Blog EFN CoverHot Off The Press

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Categories
Economy

Help Dealers Help You

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

The first quarter has come and gone, and lenders and dealers alike are still seeing red flags in retail auto, and subsequently, the auto finance market. According to J.D. Power:

We have the wrong supply for current demand.

Vehicle production is not aligned with consumer demand. Manufacturers produced more sedans when buyers were in the market for crossover utility vehicles (CUVs). Because of this, half of all auto brands, and six out of 10 vehicle models lost sales volume in Q1.

Overall supply is much greater than demand.

Dealer inventory closed out Q1 at 4.1 million units, representing an increase of approximately 300,000 units from Q1 of 2016, and a half-million unit increase from 2015. What causes concern here is that analysts depict today’s consumer demand as identical to that of 2015, meaning supply is much greater than demand.

Incentive programs aren’t aligned with demand.

Industry-wide, the average manufacturer incentive for Q1 was $3,900. This comes after closing out 2016 with incentives as high as $4,000 per vehicle. Comparatively, these incentives are even higher than those in 2008/2009, when dealers needed anything possible to close just one sale.

In the midst of all this, loan terms continue to get longer.

Loans terms continue to lengthen, with 72 month terms accounting for 33.9 percent of new-vehicle sales. As you well know, this doesn’t bode well for defaults and delinquencies down the line.

Categories
Compliance

CFPB Upheaval

Steve Roennau Vice President Compliance EFG Companies
Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

The Consumer Financial Protection Bureau (CFPB) had a busy first quarter defending itself. In the process of appealing the ruling from the U.S. Court of Appeals for the District of Columbia calling the CFPB “unconstitutionally structured,” the Department of Justice (DOJ) and 15 state Attorneys General joined the fray of government entities agreeing with the initial ruling.

The DOJ told the D.C. Circuit Court that the ruling should be upheld in its entirety, including the remedy to give President Trump full authority to remove the CFPB’s director at will. Just recently, the American Financial Services Association (AFSA) has joined the call to curb CFPB authority when they submitted a list of suggested regulatory reforms to the Trump administration. At the top of their list, was, of course, a halt to CFPB examinations and a moratorium on the use of disparate impact theory.

Lastly, in the case of Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., the Supreme Court ruled that Congress specifically intended to include disparate impact claims in the Fair Housing Act, but required plaintiffs to prove that a defendant’s policies could cause disparity. This ruling has significant implications for the CFPB in terms of how it determines disparate impact in auto finance.