Used car values are a “double edged sword” for TD Auto Finance, as the company has shifted its mix to include a higher volume of used vehicles, said Chris Howard, head of the company’s U.S. product group.
Around the fourth quarter of 2015, TD began a strategic shift in its credit mix to more prime loans rather than super prime, and with that shift brought more consumers from the used market. Today, the company’s mix is 50/50 new to used, which is “significantly improved” from where it was 18 months ago, Howard said.
In September 2016, TD Auto’s portfolio was split 60-40 in favor of new cars, President and Chief Executive Andrew Stuart told AFN at the time. The company’s current 50-50 split even has the opportunity to reach a 40-60 mix of new to used, he added.
“We looked at all the off-lease vehicles coming back to the market over the next two to three years — there is going to be a high supply of used vehicles, and those are going to need to be disposed of,” Howard said. “The opportunity for us as a lender is to make inroads into that used-vehicle financing space, with all those vehicles coming back.”
However, that strategy comes with its own set of risks as used-vehicle values depreciate in the coming years, he admits. While TD doesn’t have to worry about lease residuals, like its captive counterparts, it does have to worry about the impact on repossessions.
“There is some risk in it … [but] candidly, we haven’t seen it yet,” he said, speaking about lower recovery values. “The repossessions we’re bringing in are just the normal course of business, the liquidation dollars we’re seeing there haven’t been significantly impacted by evaluation of the used-car market.”
As part of the overall strategy shift, TD offers 84-month loan terms, but says that portion of its portfolio is very limited, and it has no plans to grow that segment
“We’re certainly seeing our competitors — especially in the credit union space — extend terms,” Howard said. “We don’t think that’s the best thing for our dealer partners, we’re still very aware of trade cycles and wanting to bring customers back to the dealership to trade in, finance and purchase another vehicle. So while we do play in that space and the market is there, it’s not a significant portion of our strategy, and again, I don’t expect it’s something we’re looking to expand based on where we are now.”
