A tough vehicle sales market and profit pressures are on the auto finance horizon. That was the message from a trio of industry analysts in the kickoff session at the American Financial Services Association’s 19th annual Vehicle Finance Conference in San Francisco yesterday.
The panelists were Steve Chaouki, executive vice president of U.S. Information Services at TransUnion; Steven Szakaly, chief economist of the National Automobile Dealers Association; and Jason Grohotolski, vice president and senior analyst in the financial institutions group at Moody’s Investors Service. AFSA President and Chief Executive Chris Stinebert moderated the panel.
To set the tone for the session, Stinebert polled the audience on predictions for their companies’ origination volume in 2015. While 4.3% of audience participants predicted their volume would decrease, 22.2% said it would remain the same, and 57.3% predicted an increase in the new year. Another 16.2% said they were unsure.
Szalaky kicked off the discussion talking about the difficulty selling vehicles to Millennials. While Millennials are the largest generation coming to market, they remain the toughest sell in auto because they marry later in life and they don’t want to add to existing student loan debt. However, they will come to the auto market eventually, Szalaky said, and with the same expectations for cars that they place upon computers and cell phones. Apple has become a commodity brand, he explained, and in auto currently, if you aren’t a luxury commodity like BMW, Mercedes, or Porsche, you’re going to have problems marketing to Millennials.
Szakaly also predicted that lower gas prices would put “billions” of dollars back into customers’ pockets, translating into more purchasing of durable goods, including cars, in 2015.
Grohotolski predicted profit compression across the board in 2015, but on the other side of the coin, the low interest rate environment lenders have been experiencing has lowered the cost of funds. He also cautioned that while Moody’s forecasts a rise in subprime lending, performance must go along with the increase, as well.
Chaouki agreed that the subprime sector has experienced growth in the past year, and will continue into 2015, however those levels are just reaching pre-recession norms, and subprime auto loans, he said, only account for 14% to 15% of total auto balances.
In closing, when asked by an attendee asked what the top concern should be for finance company CEOs in 2015, Szakaly earned a laugh from the audience when he responded: “I wouldn’t have any concerns, I would focus on making lenders more profitable.”