Category: Economy

Subprime Storm Clouds on the Horizon

Post author By efgmarketing
Post date May 24, 2016

Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

The automotive finance industry has been riding a five year high with an average 8.30 percent year-over-year increase in unit sales from 2011 to 2015, according to data from Wards Auto. With the rapid pace of automotive industry growth lending requirements loosened, longer term loans became the norm and subprime lending skyrocketed.

With key market indications shifting, everyone is watching the market carefully, poised to tighten lending requirements. According to Experian, average new vehicle loan terms increased to 67 months in 2015, while used vehicle loan terms increased to 63 months. This has resulted in a significant growth of negative equity on car notes.

According to the NADA Used Car Guide (NADA UCG), the percent of originations, including trades that carried negative equity, increased year-over-year by 2 percent. In addition, NADA UCG also stated that based on data from J.D. Power’s PIN Network, of the cars that had an equity position in 2015 and 2016, the trade-in value decreased by 50 percent. In Q1 of 2015, the average trade-in value for a car was $1,000. By Q1 of 2016, the average trade-in value had decreased to $500.

Tags EFG, EFG Companies, Experian, Mark Rappaport, NADA, NADA UCG, NADA Used Car Guide, vehicle return, vehicle service contract, vsc, Wards Auto

Economy F&I

Navigating the Perfect Storm

Post author By efgmarketing
Post date April 11, 2016

Contributing Author:
Brien Joyce
Vice President
EFG Companies

One of the hot topics at the 2016 NADA Convention was the much debated subprime bubble in relation to rising delinquency rates. Again, industry experts worked to calm everyone’s nerves about Fitch Ratings’ latest report, which brought to everyone’s attention that as of February, 60-day delinquencies had risen to 5.16 percent, the highest rate since 1996. Even so, experts have once again stated that there is no bubble and delinquency rates are rising at a healthy level in conjunction with vehicle sales.

However, with the Federal Reserve raising interest rates by 25 basis points this past December, and the expectation that rates will rise again later this year, it can be posited that lenders will tighten restrictions within the subprime space. The last thing anyone wants is for higher interest rates to coincide with rising delinquency rates, creating a perfect storm that could potentially cause that debatable bubble to pop.

As you evaluate your portfolio risk and determine the best go-forward plan to maintain your market share, consider looking at avenues outside of those traditional lending benefits commonly used by the industry, like APR. While the industry has typically competed for ground on APR, lenders, especially in the subprime space, often have their hands tied on how low they can go due to Federal Reserve rate increases and portfolio risk.

Tags 2016 NADA Convention, Federal Reserve, Fitch Ratings, NADA, National Automobile Dealers Association, Rising Interest Rates

Business Growth Economy

Flat Auto Sales Doesn’t Have to Mean Flat Loan Volume

Post author By efgmarketing
Post date February 23, 2016

Contributing Author:
Steve Roennau
Vice President
Compliance
EFG Companies

The National Automobile Dealers Association predicts new unit vehicle sales to top out at 17.7 million in 2016, which equates to less than 1% increase from the 17.5 million units in 2015. Industry experts across the board are expecting auto sales to plateau because of rising interest rates, increased regulatory compliance costs, and wage and income pressure. But that’s not to say there isn’t money to be made.

17.7 million units is still vastly greater than the 10.4 million unit sales from 2009. If anything, it marks one of the strongest recoveries the retail auto industry has ever experienced. With that in mind, there is still plenty of opportunity to increase loan volume, especially in the subprime market.

That’s right, I said there is opportunity in the subprime market. Even with rate increases and flat wage growth, the opportunity to increase loan volume and better protect your loan portfolio is there for those willing to look for it.

With the Federal Reserve slowly raising interest rates, everyone is on alert to see if and how economic setbacks will affect the subprime market. After all, economic downturns tend to hit the subprime demographics first, with sustained impact.

Tags EFG Companies, NADA, National Automobile Dealers Association, steve roennau