Podcast: ‘Weekly Wrap’ on Q2 earnings kickoff

Joey Pizzolato 0:09
Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing, it’s Monday July 17. And I’m Joey Pizzolato joined by Amanda Harris Riley Wolfbauer and Johnny Martinez. This is our weekly wrap on what happened in auto finance for the week ending July 14 2023. In general economic news, US inflation hit a two year low in June giving fresh credence that the Federal Reserve will pause its most aggressive rate hike campaign in decades. Headline CPI rose 3% last month from a year ago, according to the Bureau of Labor Statistics from May and advanced 0.2%. Core CPI, which excludes food and energy and is the metric economist view as a better gauge of inflation Rose 4.8% year over year. Apollo Global Management chief economist Torsten Slok said last week that consumer and corporate markets are beginning to feel the squeeze of the Feds aggressive rate hike campaign despite other positive macro economic indicators. Auto delinquencies have been on the rise and are expected to continue to tick up. Many consumers received a boost to their credit scores over the course of the pandemic thanks to government assistance program, foreclosure moratoriums and forced savings according to TransUnion. In auto finance, use vehicle values fell sequentially for the third straight month in June, setting the groundwork for a potential rise in retail sales heading into the fall. The Manheim us vehicle value Index declined 4.2% month over month and 10.3% year over year to 215.1 in June, marking one of the largest sequential declines in the history of the index. According to Cox automotive, the year over year decline marks the 10th straight months. The 10th straight month excuse me, the index has fallen on a year over year basis somewhat offsetting the huge rise in prices the industry saw over the last few years. On the labor front use vehicle retailer ship technologies turn into 30 for 4% of its workforce last week amid a restructuring to focus on the company’s omni channel sales strategy. San Francisco Bay shift is also divesting from its dealer marketplace business which had acquired from defunct leasing startup fair in May 2022. To quote, focus on core operations. According to a filing with the US Securities and Exchange Commission’s commission singular. The cuts include 60% of centralized operations roles along with technology positions allocated to its dealer marketplace. According to the retailer, the reduction is expected to result in 14 million and analyze S G, and a savings and about 900,000 in non recurring charges related to employee severance costs. Second quarter earnings kicked off Friday with Chase Otto and Wells Fargo reporting. Amanda, what were the results?Amanda Harris 3:08
Sure. So so far, I mean, I say so far is only two, but mixed results between the two that are reported so far in the quarter. So Chase autos, originations actually went up. So about 30% sequentially, and 71% year over year, totaling about $12 billion. And that’s largely due to you know, inventory that we’ve been talking about is coming back. So that is definitely helping vehicle sales have been healthy. So obviously, that’s going to help origination volume. And then obviously, we’ve been talking about the fact that banks least some banks, especially regional banks have been pulling back on auto we’ve reported quite a few that have either, you know, pulled back or left the space entirely. That’s obviously going to open the door for other banks to potentially step in. So tasto, taking a little bit of advantage of that, and that’s contributing as well and their outstandings went up about 2% sequentially, and about 2% year over year, standing at about 82 billion during the quarter, Wells Fargo saw kind of an opposite there originations actually did dip down not too too crazy. They were down about 11% year over year to about 4.8 billion, and their outstandings dropped about 7% year over year and 2% sequentially to about 52 billion so they saw a little bit of a dip again, I think we’re gonna see this kind of play out differently depending on things appetite for auto and, you know, their, their appetite for lending in general given the volatility in the market. So I think as more earnings come out, we’ll we’ll see pretty much mixed results across the board. So just kind of have to see who who gains and who falls depending it same time credit performance really in line with everyone’s expectation. At Wells Fargo credit performance did go down a little bit delinquencies came up some about 2.55%. They were sitting at for loans 30 plus days delinquent, which is up 60 basis points year over year. net charge offs did go up a little bit year over year, even though they went down somewhat sequentially. So again, everyone kind of expected delinquencies to go up some at least over on a year over year basis. So that’ll probably be mixed as well. And then chase also saw, you know, credit performance in line with their expectations with delinquencies rising some 30 plus days past due loans up, just like point nine 2%. So are at point nine 2%. So up two basis points, sequentially and 23 basis points year over year. So not anything major or not seeing like huge jumps in, you know, light loans or anything like that no huge red flags. And that’s kind of what we expected going into the rest of the years that delinquencies would pick up some, but there’s nothing really pinpointing to a major recession, nothing really pinpointing to people not being able to, you know, pay their loans, we know consumers still put their auto loans pretty high up on the payment hierarchy. So from everything I’m hearing, you know, it’s likely going to go up some, but not anything, that’s going to be a huge red flag. We are seeing banks build their allowances some, but they really haven’t, haven’t built them too much yet. Both Wells Fargo and Chase had a little bit of of their allowance is still sitting pretty, it’s pretty in line with where it was a year ago. So I’m not seeing any huge jumps there either. That could change. As you know, more strict requirements might come down the road for banks. So we’ll have to just see how that plays out on their allowances in future earnings. But for now, everything is kind of kind of just holding steady for bank. So we’ll see how the rest of them play out as more report later this week and then into later this month, as well.

Joey Pizzolato 6:39
Right I’ll be very interested to see who is padding their provisions and who is not. This week, the rest of banks report their earnings so that would be Bank of America ally financial capital one US Bank, fifth, third, PNC truest citizens Huntington and Tesla all report this week. Meanwhile, monthly payments continue to climb in q2 Riley what’s happening on that front?

Riley Wolfbauer 7:09
Yeah, monthly payments once again reached a record high. And another quarter it monthly payments, on average got up to $733 and new vehicle financing in the second quarter, which is up point 4% from the first quarter and just about 8%. Year over year, when we first saw monthly payments begin to rise during COVID. That was mostly motivated by elevated sticker prices OEMs making the higher trim models. But now the monthly payments are being propped up mostly by the high interest rates that consumers are being charged. So the average amount that consumers financed actually remained pretty flat in the second quarter, it came in just above $40,000, which is a decrease of point 3% sequentially and point 6% year over year. So since that stayed relatively the same, the average APR, ours are what increased, they were up 10 basis points quarter over quarter and 210 basis points year over year to an average of 7.1%. So those increase that large increase in interest rates is what’s propping up monthly payments. So with that consumers who pay are paying $1,000 A month also increased to a record 17.1% of consumers that’s up compared with 16.8% in the first quarter and pre pandemic 2019 from reference, can only 4.3% of consumers paid $1,000 or more of the consumers who are paying $1,000 It’s generally separated into two groups. Its consumers who have a low interest rate have the budget to make that $1,000 monthly payment. So they take like a 24 month or 36 month loan with a low interest rate. But with the high vehicle values that’s going to push your monthly payment well into the 1000s of dollars went into making the payments back in such a short amount of time. Then on the other hand, we have the consumers that have to take the high interest rates are trying to spread their budget out. So they’re taking the 67 the 84 month loans and with their high interest rates, they’re pushing their payments above $1,000. So it’s two consumers that are kind of being faced with this one with this squeeze budget that’s trying to stretch it out. But with the higher interest rates and high payments, you can’t really do much stretching out to limit payments. And then the consumers who are trying to save on interest rate and finance it over a shorter term

Joey Pizzolato 9:53
running you know it’s interesting, fresh data from the Federal Reserve points to 14.2% sent of auto loan applications being rejected. And we’re gonna have to do some digging into this. But I wonder if those monthly payments are pushing up PTI ratios and resulting in more declines there. I mean, there’s obviously a slew of other factors, you know, DTI LTVs, just the price of vehicles in general. That could be pushing down applications. But we’ll certainly be looking into, you know, what exactly is driving that, that decline in, you know, if it’s if it’s those monthly payments, being the culprit on the powersports, front, and Johnny reported on RVs. Last week, so what’s going on there?

Johnnie Martinez 10:46
Yeah, so in terms of RVs, you know, we found out about RV values, what they’ve been did in the month of May, so it’s a little bit of back data, but what we’re seeing is the values are starting to kind of stabilize while they went up for motor homes and up for towables. If you start to put a trendline, over the last six months, even to the last year, it’s becoming fairly stable, we’re starting to see, hey, here’s where values are going to kind of sit to an extent coming out of the pandemic. So even in an environment where auction volumes down, registrations are down, shipments are down, it’s more so the market stabilizing, rather than, you know, anything of concern. And I was talking with Eric Lawrence Black Books, Principal Analyst of specialty vehicles, and he was talking about, yeah, it’s just a lot of the dealer inventory is starting to catch up to where it kind of needs to be, then not really needing a ton of the new space in the use space. They’re pretty consistent with what they have. And it’s just moving through the inventory. So even though there’s a lot of stuff that’s down, you’re seeing an overall stabilization in the market, and just kind of the expectation that that’s going to continue, barring anything significant changing, which, you know, we’ve heard talk of inflation concerns recessionary concerns going back for a significant mount of time and they’re still not this this panic in the RV market yet. So you know, there’s reasonably that we’re going to kind of stay steady even though stuff is overall declined. It’s in a stable place for the RV market. Right and

Joey Pizzolato 12:19
Johnny will have more RV and Marine coverage later this week. So be on the lookout for that. I’m that about does it for today’s episode. Thanks for joining us on the roadmap and be sure to follow us on Twitter and LinkedIn. We will see you online at auto finance news.net and here next time.

Joey Pizzolato 0:09
Hello everyone and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing, it’s Monday July 17. And I’m Joey Pizzolato joined by Amanda Harris Riley Wolfbauer and Johnny Martinez. This is our weekly wrap on what happened in auto finance for the week ending July 14 2023. In general economic news, US inflation hit a two year low in June giving fresh credence that the Federal Reserve will pause its most aggressive rate hike campaign in decades. Headline CPI rose 3% last month from a year ago, according to the Bureau of Labor Statistics from May and advanced 0.2%. Core CPI, which excludes food and energy and is the metric economist view as a better gauge of inflation Rose 4.8% year over year. Apollo Global Management chief economist Torsten Slok said last week that consumer and corporate markets are beginning to feel the squeeze of the Feds aggressive rate hike campaign despite other positive macro economic indicators. Auto delinquencies have been on the rise and are expected to continue to tick up. Many consumers received a boost to their credit scores over the course of the pandemic thanks to government assistance program, foreclosure moratoriums and forced savings according to TransUnion. In auto finance, use vehicle values fell sequentially for the third straight month in June, setting the groundwork for a potential rise in retail sales heading into the fall. The Manheim us vehicle value Index declined 4.2% month over month and 10.3% year over year to 215.1 in June, marking one of the largest sequential declines in the history of the index. According to Cox automotive, the year over year decline marks the 10th straight months. The 10th straight month excuse me, the index has fallen on a year over year basis somewhat offsetting the huge rise in prices the industry saw over the last few years. On the labor front use vehicle retailer ship technologies turn into 30 for 4% of its workforce last week amid a restructuring to focus on the company’s omni channel sales strategy. San Francisco Bay shift is also divesting from its dealer marketplace business which had acquired from defunct leasing startup fair in May 2022. To quote, focus on core operations. According to a filing with the US Securities and Exchange Commission’s commission singular. The cuts include 60% of centralized operations roles along with technology positions allocated to its dealer marketplace. According to the retailer, the reduction is expected to result in 14 million and analyze S G, and a savings and about 900,000 in non recurring charges related to employee severance costs. Second quarter earnings kicked off Friday with Chase Otto and Wells Fargo reporting. Amanda, what were the results?Amanda Harris 3:08
Sure. So so far, I mean, I say so far is only two, but mixed results between the two that are reported so far in the quarter. So Chase autos, originations actually went up. So about 30% sequentially, and 71% year over year, totaling about $12 billion. And that’s largely due to you know, inventory that we’ve been talking about is coming back. So that is definitely helping vehicle sales have been healthy. So obviously, that’s going to help origination volume. And then obviously, we’ve been talking about the fact that banks least some banks, especially regional banks have been pulling back on auto we’ve reported quite a few that have either, you know, pulled back or left the space entirely. That’s obviously going to open the door for other banks to potentially step in. So tasto, taking a little bit of advantage of that, and that’s contributing as well and their outstandings went up about 2% sequentially, and about 2% year over year, standing at about 82 billion during the quarter, Wells Fargo saw kind of an opposite there originations actually did dip down not too too crazy. They were down about 11% year over year to about 4.8 billion, and their outstandings dropped about 7% year over year and 2% sequentially to about 52 billion so they saw a little bit of a dip again, I think we’re gonna see this kind of play out differently depending on things appetite for auto and, you know, their, their appetite for lending in general given the volatility in the market. So I think as more earnings come out, we’ll we’ll see pretty much mixed results across the board. So just kind of have to see who who gains and who falls depending it same time credit performance really in line with everyone’s expectation. At Wells Fargo credit performance did go down a little bit delinquencies came up some about 2.55%. They were sitting at for loans 30 plus days delinquent, which is up 60 basis points year over year. net charge offs did go up a little bit year over year, even though they went down somewhat sequentially. So again, everyone kind of expected delinquencies to go up some at least over on a year over year basis. So that’ll probably be mixed as well. And then chase also saw, you know, credit performance in line with their expectations with delinquencies rising some 30 plus days past due loans up, just like point nine 2%. So are at point nine 2%. So up two basis points, sequentially and 23 basis points year over year. So not anything major or not seeing like huge jumps in, you know, light loans or anything like that no huge red flags. And that’s kind of what we expected going into the rest of the years that delinquencies would pick up some, but there’s nothing really pinpointing to a major recession, nothing really pinpointing to people not being able to, you know, pay their loans, we know consumers still put their auto loans pretty high up on the payment hierarchy. So from everything I’m hearing, you know, it’s likely going to go up some, but not anything, that’s going to be a huge red flag. We are seeing banks build their allowances some, but they really haven’t, haven’t built them too much yet. Both Wells Fargo and Chase had a little bit of of their allowance is still sitting pretty, it’s pretty in line with where it was a year ago. So I’m not seeing any huge jumps there either. That could change. As you know, more strict requirements might come down the road for banks. So we’ll have to just see how that plays out on their allowances in future earnings. But for now, everything is kind of kind of just holding steady for bank. So we’ll see how the rest of them play out as more report later this week and then into later this month, as well.

Joey Pizzolato 6:39
Right I’ll be very interested to see who is padding their provisions and who is not. This week, the rest of banks report their earnings so that would be Bank of America ally financial capital one US Bank, fifth, third, PNC truest citizens Huntington and Tesla all report this week. Meanwhile, monthly payments continue to climb in q2 Riley what’s happening on that front?

Riley Wolfbauer 7:09
Yeah, monthly payments once again reached a record high. And another quarter it monthly payments, on average got up to $733 and new vehicle financing in the second quarter, which is up point 4% from the first quarter and just about 8%. Year over year, when we first saw monthly payments begin to rise during COVID. That was mostly motivated by elevated sticker prices OEMs making the higher trim models. But now the monthly payments are being propped up mostly by the high interest rates that consumers are being charged. So the average amount that consumers financed actually remained pretty flat in the second quarter, it came in just above $40,000, which is a decrease of point 3% sequentially and point 6% year over year. So since that stayed relatively the same, the average APR, ours are what increased, they were up 10 basis points quarter over quarter and 210 basis points year over year to an average of 7.1%. So those increase that large increase in interest rates is what’s propping up monthly payments. So with that consumers who pay are paying $1,000 A month also increased to a record 17.1% of consumers that’s up compared with 16.8% in the first quarter and pre pandemic 2019 from reference, can only 4.3% of consumers paid $1,000 or more of the consumers who are paying $1,000 It’s generally separated into two groups. Its consumers who have a low interest rate have the budget to make that $1,000 monthly payment. So they take like a 24 month or 36 month loan with a low interest rate. But with the high vehicle values that’s going to push your monthly payment well into the 1000s of dollars went into making the payments back in such a short amount of time. Then on the other hand, we have the consumers that have to take the high interest rates are trying to spread their budget out. So they’re taking the 67 the 84 month loans and with their high interest rates, they’re pushing their payments above $1,000. So it’s two consumers that are kind of being faced with this one with this squeeze budget that’s trying to stretch it out. But with the higher interest rates and high payments, you can’t really do much stretching out to limit payments. And then the consumers who are trying to save on interest rate and finance it over a shorter term

Joey Pizzolato 9:53
running you know it’s interesting, fresh data from the Federal Reserve points to 14.2% sent of auto loan applications being rejected. And we’re gonna have to do some digging into this. But I wonder if those monthly payments are pushing up PTI ratios and resulting in more declines there. I mean, there’s obviously a slew of other factors, you know, DTI LTVs, just the price of vehicles in general. That could be pushing down applications. But we’ll certainly be looking into, you know, what exactly is driving that, that decline in, you know, if it’s if it’s those monthly payments, being the culprit on the powersports, front, and Johnny reported on RVs. Last week, so what’s going on there?

Johnnie Martinez 10:46
Yeah, so in terms of RVs, you know, we found out about RV values, what they’ve been did in the month of May, so it’s a little bit of back data, but what we’re seeing is the values are starting to kind of stabilize while they went up for motor homes and up for towables. If you start to put a trendline, over the last six months, even to the last year, it’s becoming fairly stable, we’re starting to see, hey, here’s where values are going to kind of sit to an extent coming out of the pandemic. So even in an environment where auction volumes down, registrations are down, shipments are down, it’s more so the market stabilizing, rather than, you know, anything of concern. And I was talking with Eric Lawrence Black Books, Principal Analyst of specialty vehicles, and he was talking about, yeah, it’s just a lot of the dealer inventory is starting to catch up to where it kind of needs to be, then not really needing a ton of the new space in the use space. They’re pretty consistent with what they have. And it’s just moving through the inventory. So even though there’s a lot of stuff that’s down, you’re seeing an overall stabilization in the market, and just kind of the expectation that that’s going to continue, barring anything significant changing, which, you know, we’ve heard talk of inflation concerns recessionary concerns going back for a significant mount of time and they’re still not this this panic in the RV market yet. So you know, there’s reasonably that we’re going to kind of stay steady even though stuff is overall declined. It’s in a stable place for the RV market. Right and

Joey Pizzolato 12:19
Johnny will have more RV and Marine coverage later this week. So be on the lookout for that. I’m that about does it for today’s episode. Thanks for joining us on the roadmap and be sure to follow us on Twitter and LinkedIn. We will see you online at auto finance news.net and here next time.