Category: Economy

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 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?
Continue reading “Don’t Settle for More of the Same”
Categories
Business Growth Economy

Perspective on the Auto Sales Plateau

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

It’s official. Auto sales have plateaued. Dealerships across the U.S. are reporting low sales numbers in comparison to last year. Manufacturers have increased incentives, but no one’s taking the bait. Looking at these headlines, it all looks like doom and gloom. But, let’s take a step back for a second.

According to Automotive News, the auto industry sold 17.5 million vehicles last year, representing a seventh straight year of growth. When put in that perspective, a plateau at 17.5 million vehicles doesn’t seem too bad.

Yes, vehicle sales aren’t hitting manufacturer projections, but seriously, how long did they really think sustained growth was going to continue? We’ve been in one of the longest economic expansions in U.S. history; the economy was bound to slow down at one point.

With that perspective in mind, economic indicators continue to be strong.  National unemployment has hit its lowest level since May 2007. We’ve seen strong jobs gains in recent months. According to CNN, wages rose 2.5 percent in the past 12 months, and the median price of a home has risen to $236,400. Lastly, consumers are still taking on debt. According to the Federal Reserve, consumer credit rose 4.8% annually in February.

Clearly, there is still plenty of business available. This time of relative calm, with no abrupt economic changes, is the perfect time for auto lenders to catch a breath, regroup and re-address their go-forward plans with regards to loan volume.

Continue reading “Perspective on the Auto Sales Plateau”