Podcast: ‘Weekly Wrap’ on 2023 highlights, 2024 expectations
Listen as AFN editors break down top stories from the past year
Affordability and profitability were top of mind for auto lenders in 2023, and 2024 is set to be a year of cautious growth as rates come down.
Higher interest rates and the rising cost of funds prompted several banks to prioritize profitable lines of business and curtail auto lending in 2023. Mechanics Bank and Citizens Bank exited indirect auto lending while U.S. Bank cut nearly half of its auto division staff. The year also marked the closure of used-car retailer U.S. Auto Sales and subprime lender American Car Center.
Capital One Auto Finance and Fifth Third also cut back on floorplan lending, creating the opportunity for other financiers to gain share.
Heading into 2024, the Federal Reserve is expected to lower interest rates and auto lenders project growth in originations as a result.
Meanwhile, the Consumer Financial Protection Bureau’s increased focus on fees will prompt lenders to keep a close eye on their lending practices.
In this episode of the “Weekly Wrap,” Auto Finance News Deputy Editor Amanda Harris discusses the top stories for the week ended Dec. 15, and what to expect heading into yearend.
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Transcript:
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Hello everyone, and welcome to The Roadmap from Auto Finance News, since 1996 the nation’s leading newsletter on automotive lending and leasing. It is Tuesday, Jan. 2, and I’m Amanda Harris. This is our weekly wrap on what happened in auto finance for the week ending Dec. 29, 2023.
In economic news, the core personal consumption expenditures price index, which does not factor food and energy, increased 0.1% sequentially in November following a 0.1% gain in October. Year over year, the index increased 3.2%, and on a six-month annualized basis went up 1.9%, marking the first time in three years the measure fell below the Fed’s target. The index’s measure reinforces the central bank’s plans to cut rates this year.
In automotive news, the number of electric vehicles eligible for the $7,500 tax credit has been cut to 13 from about 24 following the implementation of new rules from the Biden administration on Monday. The new rules exclude vehicles that use battery components made by Chinese manufacturers. EVs still eligible for full or partial credit include Tesla’s Model Y, Rivian’s R1T pickup truck, Stellantis NV’s Jeep Wrangler 4xe and Ford Motor Co.’s F-150 Lightning pickup truck.
Tesla’s Cybertruck is no longer eligible for the tax credit along with Nissan Motor Co’s Leaf, Ford’s E-Transit van, and General Motors Co. electric Blazer and Silverado.
In auto finance news, higher interest rates and rising cost of funds prompted several banks to prioritize profitable lines of business and curtail auto lending in 2023. Institutions such as Mechanics Bank and Citizens Bank exited indirect auto lending, while U.S. Bank cut nearly half of its auto division staff looking back on what happened this year.
The year also marked the closure of used-car retailer U.S. Auto Sales and subprime lender American Car Center. Affordability concerns continue to be a large focus for lenders and borrowers headed into the start of this year.
Capital One Auto Finance and Fifth Third also cut back on floorplan lending in 2023, opening the opportunity for other financiers to gain share as dealers consolidate. Some of Chase Auto’s dealer partners acquired new dealerships, increasing the bank’s commercial portfolio. A similar story has played out at Huntington Bank as financiers benefit from an uptick in dealership consolidation.
Headed into 2024, the Federal Reserve is expected to decrease interest rates, and auto lenders project growth in originations as a result. We’ll have a feature later this week diving into this outlook but as a teaser – the consensus is that the economy is headed toward a soft landing in 2024. This is a more optimistic outlook than economists had leading up to 2023 when many expected a recession – S&P Global for one forecasted a 40% chance of recession in the 12 months following September 2022.
Inflation has cooled and the Federal Reserve has signaled a dip in rates to come later in the year, leading to a brighter economic outlook for this year, and potential growth in auto originations.
Meanwhile, the Consumer Financial Protection Bureau’s increased focus on fees will prompt lenders to keep a close eye on their lending practices. The CFPB in March issued its supervisory highlights highlighting issues related to finance fees such as overcharging late fees, charging late fees after a vehicle is repossessed, and how fees are calculated tied to repossessions. Voluntary protection product refunds have also been under the microscope.
Fees and charges tied to auto purchases and financing are clearly an area for financial institutions to pay close attention to in 2024 to avoid further regulatory scrutiny.
That about does it for today’s episode. Thanks for joining us on the roadmap and be sure to follow us on X, formerly known as Twitter, and LinkedIn. We will see you online at auto finance news.net and here next time.
