Is innovation becoming a revitalized focus in auto finance? [Video]

This week was ripe with news on the innovation front, as Ford Credit outlined the details of its new financing product , the Ford Option, which is poised to be a hybrid between a traditional retail installment contract and a lease. In addition, Upgrade, a personal loan fintech, has plans to enter the auto finance market this year with its sights set on $1 billion in new loan originations. Meanwhile, loan performance in dealer floorplan asset-backed securities is showing signs of improvement on the heels of rising vehicle sales. In this edition of the Weekly Wrap, Joey Pizzolato and JJ Hornblass discuss news developments during the week ending June 26, and what to expect next week.

Auto Finance Summit, the premier industry event, returns October 20-22, 2020, as a virtual experience. The virtual experience will offer the same quality networking and education as past events, all through an online platform. To learn more about the 2020 event and register, visit www.AutoFinanceSummit.com . Editor's note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain . JJ Hornblass 00:01 Hi, everyone. I'm JJ Hornblass and welcome to the roadmap from auto finance news since 1996, the nation's leading newsletter on automotive lending and leasing. This is our weekly wrap for the week of June 22. And we'll be exploring what's happening in auto finance before beginning I want to thank our advertisers, Alpha, Remitter, Westlake Financial, defi Solutions and National Bankruptcy Services. So thank you to them for their support. I'm joined by jelly pizzle Auto and editor news. Welcome Joey, and it is Friday, June 26 2020. This week, the US economy continued to open up after the Coronavirus pandemic. I'll be it with some regional hiccups, most notably down in Texas. But perhaps the most startling business news of the week was the continuing dislocation of stock market prices and the reality around the unemployment rate and the overall economy. We also saw some evidence of some as Emily's strong V shaped recovery in auto sales and use vehicle values, all evidence of pent up demand which brings us to a forward demand for auto finance and vehicles. And that brings us to Ford credits, new financing product Ford option the fourth option so, Joey so how is this Ford option different from other end of term products or Or just opportunities for for customers. Joey Pizzolato 02:04 The Ford Option is billed as a hybrid between your traditional retail installment contract and a lease. And what it does for on the consumer side is it lets them decide at the end of contract, how they want to continue either leasing or financing their vehicle rather than at the beginning. So the way it's structured is it's it's a retail installment contract on the books so it will remain on Ford's balance sheet. But terms are from anywhere from 36 to 48 months with a final balloon payment on at the end of the term. Now at the end of the term, consumers have three options, they can return the vehicle as if it were a lease and the balloon payment will be waived. They can trade in the vehicle and any equity that they built. Over the course of the three or four years they've been making payments on it towards a new Presumably Ford vehicle or they can keep the vehicle and either refinance that balloon payment or pay it all down JJ Hornblass 03:11 and take ownership and this is for is a Mustang Mach-E Joey Pizzolato 03:16 correct it is only for the Ford Mustang Mach-E. It's noteworthy that our traditional retail installment will be available for the Mach-E. But this is just another option to I think, you know, allow consumers to you know, get their get their feet wet a little bit without having to JJ Hornblass 03:36 you know, commit to to a what is a brand new product from Ford. So you think that this is this kind of like option out? I mean, look there. Well, first of all, are they are they concerned about Mach-E sales in the fall? I mean, because they're, they're essentially going up against this vehicle goes up against Tesla. Right. Joey Pizzolato 04:01 Yes, more or less? They are directly competing with Tesla. Oh, JJ Hornblass 04:07 yeah, sorry. Joey Pizzolato 04:08 Oh no, no, I would say, I'm not sure if they're concerned about sales. Um, because pre orders for the Maki have been pretty substantial. However, it does come with a pretty big sticker price. I believe it starts somewhere in the mid 40s. And for the GT model can extend higher than 60. Um, so I do believe that the final Ford option, financing payment as it looks to me is as a way to help keep monthly payments down for consumers while still offering the option. Right, but don't you JJ Hornblass 04:52 think I mean, like, isn't it this optionality that's so crucial the universe this way. You don't have To make that decision on lease versus alone, initially, and on a vehicle on a vehicle type that's completely new. You maybe you know, you you sort of that that optionality is the best demanded. Joey Pizzolato 05:18 I would absolutely especially in the current environment we're in, um, you know, we're seeing subscriptions OEMs put additional focus on subscription services, consumers are still weary about, you know, making big ticket prices, or big ticket purchases, excuse me, even if, you know, vehicle sales are up, there still is, you know, a hesitation in the market. And I think that the Ford option, and the ability to make that decision at the end of your term, rather than at the beginning, is the primary selling point. JJ Hornblass 05:48 You would think that you would think that they'll be more optionality based products to market I would think post pandemic Joey Pizzolato 05:59 Yeah. You know, that would follow. I think in terms of whether or not Ford didn't say whether or not they were going to roll out this this financing option to other models just yet, but I would imagine if it is a success in there is consumer demand for the product. Right? We might see it become, or it extend to other four products and potentially, you know, if it really is a huge success, other other auto finance captains might, you know, adopt a similar program, if there is in fact, a market demand for it. JJ Hornblass 06:38 There are great expectations that have been set at the FinTech startup upgrade. They're starting and there's they're they're expecting to launch an auto finance. It will just give us a little bit of background on Upgrade first Joey Joey Pizzolato 07:00 So, so Upgrade is a mobile FinTech banking platform. So they they position themselves as a lender, although they don't have a bank charter. So they do have a partner, I believe it's Cross River Bank that does all their underwriting, servicing and originations. However, they do have they have plans to enter into the auto finance market and they do have very lofty goals. They they are shooting for a billion dollars in originations and within their first year of after launching the product. Which just to put that in perspective, it took Carvana almost almost two years of financing to break the billion dollar mark, I believe. JJ Hornblass 07:47 Yeah, I mean, well, upgrade is founded by Rene le plush. I hope I'm pronouncing that properly, but he's the founder of Lending Club. Never want to shy away from substantial goals. I guess the question is, you know, how likely is this goal of being reached? I thought it was interesting as well, like, you know, what, what's kind of the key and they here, you know, we've just talked about before adoption where they're innovating on on product and sell on there. But, I mean, what do they got and upgrade other than, you know, a number of users right now. And I mean, to me, it's also striking that they're using crossover bank as their partner bank. And crossover is really not a major auto finance player. They are on marketplace loans, but not necessarily on the origination side. So, I mean, like, what do you see is the likelihood of them getting to this? This goal, and I'm a holiday doing this. Joey Pizzolato 08:57 I think the goal is ambitious to be quite honest. But, you know, mobile banking, especially from these FinTech firms have have really kind of gained a surge in popularity within the last three months due to you know, COVID-19. And if if consumers are flocking to those mobile platforms, I can't see why they wouldn't get an auto loan if they're doing the rest of their banking with upgrade, JJ Hornblass 09:26 right. So that's upgrade comm is where the company is, I think, right. One positive news was on the ABS front this week, floor plan, abs performance numbers came out from Fitch right. And, and showed that the monthly payment rates have really stayed at a reasonable level. Not and so so floor plan, credit performance has has has stayed at an Good at a good at a good level. But this is before the end of the three month deferral period that we've seen in the market as a result of the pandemic. What are the expectations there? Um, what do you think? What do you think are some of the expectations for when this deferral period ends. Joey Pizzolato 10:27 So for some dealers, the deferral period might have already ended on depending on if they took it at the end of March or in April. But I do think even if deferrals are still a thing, I know we spoke to quite a number of dealers that chose not to take the deferral packages. But just the monthly payment rate and the increase points, even if they're under two deferrals, points to you know, vehicle sales and PPP packages, supplementing these dealers, shortage of income and allowing them to pay on those on their own. Floor Plan, and we the JJ Hornblass 11:03 the bulk of the deferral periods will end most likely next month, I think, right? Joey Pizzolato 11:09 July. Correct. July 1 is when we're going to start seeing deferral periods start to terminate if they haven't already, JJ Hornblass 11:16 right. So this like floor plan, you know, and, you know, MPR rate, right, the monthly payment. I mean, to what degree is it kind of a misnomer as a result of this deferral? Because they do not they're not counting the defer in in their delinquency rates. Joey Pizzolato 11:40 Correct. Um, however, the report did note that not a single dealer has defaulted. And and it is worth noting that only the only a handful of lenders really offered a 90 day deferral period for their floor plan financing. Most of it was 30 to 60 days. So a lot of those deferral programs probably have expired by now. So I would say it's probably a very good metric as to how floorplan financing will continue to perform going into July especially considering you know, the July 4 holiday there's a bunch of incentive programs OEMs are pushing out yet again. And you know, vehicle sales are on the rise, which is the main driver for dealers to to make those payments on their on their notes, JJ Hornblass 12:31 right. So next week, Joey July for First of all, what's your plans? Joey Pizzolato 12:36 Ah, I'm gonna do a whole lot of walking around New York City and still be still social distance. I'm not quite convinced the Coronavirus is is completely in our rearview just yet. JJ Hornblass 12:50 You are a smart one, Joey And what about on the editorial side? What do we have planned for next week? Joey Pizzolato 12:56 So as I mentioned, we have some OEMs that are putting Out zero percent APR financing. So we will be exploring that, as well as news of another FinTech banking platform that has plans to enter auto finance. So this could be a rising trend that we're gonna have to pay attention to. JJ Hornblass 13:19 So, thanks, Joey, so I want to remind everyone that the auto finance summit is October 20, to 22. And you can learn more about that at auto finance, summit calm and also want to encourage everyone to visit us at auto finance news dotnet. We want to hear from you. So please rate the roadmap on whichever platform you listen to the roadmap on, and also, certainly to follow us on Twitter and LinkedIn. Thanks for joining us on the roadmap. We'll see you online at auto finance news dotnet Hear next time. Thanks, everyone. Thank you

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Is innovation becoming a revitalized focus in auto finance? [Video]

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