Tricolor projects originations at $1.3B

Tricolor Auto Acceptance projects origination volume to surpass $1 billion in 2024 as the company expands geographically and seeks additional capital. Used-car retailer and subprime lender Tricolor Holdings issued its first auto asset-backed securitization (ABS) transaction of the year Jan. 25, a $271.3 million social bond backed by subprime auto loans, according to Finsight , which monitors securities. Irving, Texas-based Tricolor leverages AI to provide vehicle financing to thin- and no-file Hispanic consumers. It projects originations to reach $1.3 billion at yearend 2024, Daniel Chu , founder and chief executive , told Auto Finance News . Tricolor originated $639.6 million through September 2023, increases of 35% and 110% compared with the first nine months of 2022 and 2021, respectively, according to a Kroll Bond Rating Agency presale report of the 2024 transaction. The company’s managed portfolio stood at $1.1 billion as of Oct. 31, 2023. Tricolor’s origination volume has seen a double-digit increase on a unit basis for the past four years, Chu said. Origination units increased by 20% YoY in 2020, 55% YoY in 2021 and 33% YoY in 2022, he said, without providing specific unit volume. Originations ticked up 25% YoY in 2023 to 31,000 units, with growth projected at 25% YoY in 2024, Chu said. On a dollar basis, originations have increased by about 36% on a compounded annual basis, Chu said. First 2024 ABS deal Tricolor’s 2024 auto ABS transaction had been planned for late 2023 but was postponed due to increased cost of funds related to the Israel-Hamas conflict in the Middle East, Chu said. Tricolor previously issued a $224 million subprime deal in February 2023, according to Finsight. “Spreads widened and it made our structure unmarketable,” he said. “We had support from our lenders [to wait].” Tricolor expects to issue at least two more auto ABS deals this year, in early Q2 followed by early Q4, Chu said, noting that the capital markets are projected to be stable this year. “There are still expectations that the Federal Reserve will lower [interest rates] incrementally through 2024,” he said. “There are anticipations from issuers that the capital markets will be open and robust and functioning, but there’s still going to be ... uncertainty that the consumer in America is healthy. Consumer debts and borrowing costs are high .” Cushioned losses The presale report notes that Tricolor’s average loan balances increased 5.1% compared with the previous deal to $25,556, resulting in higher monthly payments and an increased risk of default, though Chu did not provide specific credit performance metrics. Tricolor’s consumer base largely depends on their vehicles for survival rather than a discretionary purchase, a reality that is reflected in credit performance, Chu said. Tricolor’s loans typically are supported by multiple incomes as the vehicle is being shared within the household, he said. “Our consumer isn’t the beneficiary of stimulus,” Chu said. “The consumer we serve is at the lowest income levels of the population. They cannot work remotely; they're employed in hospitality and construction and agriculture and landscaping.” In the wider industry, consumers who received stimulus money and bought a vehicle with the funds, and in some cases this led to an increase in losses down the line , Chu said. Tricolor’s cumulative net losses averaged 13% higher when comparing 2022 with 2021 and 2023 with 2021 performance, according to Tricolor data provided to AFN . Using the same comparison, Exeter Finance ’s losses were 91% higher, Global Lending Services ’ losses were 149% higher, Santander Consumer USA ’s losses were 118% higher and Westlake Financial’ s losses were 129% higher, according to Tricolor’s analysis. Tricolor projects losses to improve in 2024 across 2023-vintage loans, Chu said. “We've seen our customers be able to perform pretty consistently,” he said. The company also is growing its used-vehicle business. Tricolor plans to open a used-vehicle retail facility in Chicago this quarter and grow its presence in Arizona and California, Chu said. As of Dec. 31, 2023, Tricolor operated 52 dealerships — 30 in Texas, 18 in California, two in Arizona, one in New Mexico and one in Nevada, according to the presale report. Early-bird registration is now available for the second annual Auto Finance Summit East , May 1-3 in Nashville, Tenn., which gathers lenders, dealers and fintech innovators in an event designed to bring the power of technology to a cross section of industry players. Early-bird pricing ends March 15. Visit AutoFinance.Live to learn more.

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