Listen: Weekly Wrap discussion on credit availability, used vehicles

Last week the auto finance industry entered the tail end of second-quarter earnings season as used-vehicle values depreciated for the second straight month and the unemployment rate remained strong. The Manheim Used Vehicle Value Index logged a small sequential decline in July, but still remained well above pre-pandemic levels. Hertz reported that it is sourcing approximately a third of its fleet from the used market. Meanwhile, Credit Acceptance , Carvana and Solera Auto Finance posted increased origination volume in Q2 even as credit demand weakened . In this episode of the Weekly Wrap, Deputy Editor Amanda Harris, Editor Joey Pizzolato and Associate Editor Riley Wolfbauer discuss the top stories for the week ending Aug. 5, and what to expect in the week ahead. Subscribe to The Roadmap Podcast on iTunes , Spotify , or download the episode. Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 26-28 at the Wynn Las Vegas. To learn more about the 2022 event and register, visit www.AutoFinanceSummit.com . Video Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain. Joey Pizzolato 00:02 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, August 8, and I'm Joey Pizzolato joined by Amanda Harris and Riley Wolfbauer. This is our weekly wrap on what happened in auto finance for the week ending August 5 2022. In general economic use, US employers added 520,000 jobs in July, pushing the unemployment rate to a five decade low of 3.5% as wage growth accelerated, adding additional pressure from the Federal Reserve to continue to increase the benchmark interest rate to combat inflation. Current expectations pegging another 75 basis point increase in the benchmark rate when the FOMC meets again its September, matching increases in June and July. The Senate also passed the inflation reduction act over the weekend, the bill is set to revive the $7,500 tax credit for GM, Toyota and Tesla introduced a new $4,000 perk for consumers purchasing a cleaner used car. Other incentives include tax credits for domestic mineral production, and evey battery manufacturing. Speaking of EVs in automotive, pre orders picked up as production tightened, Lucid motors, reservations rose 23 rows 23% sequentially to 37,000 vehicles in q2 According to the company's release. That's compared to 30,000 reservations in q1. Still, it remains to be seen when lucid will actually be able to deliver on those vehicles. Lucid produced 1405 units in the first half of the year, with vehicle deliveries totaling totaling 679 units in the quarter. The Ev OEM once again announced a cut in production volume for 2022 to a range of 6000 to 7000 vehicles due to supply chain constraints, which is a 50% decrease from the projected 12,000 to 14,000 vehicles in the first quarter. This year Inc, meanwhile, received a total of 56,000 reservations for the Fisker Ocean as of last Monday, with production set to begin November 7, according to the company's release. This year we'll accept pre orders for the ocean extreme starting November 18. And pre orders will open for the ocean Ultra and ocean sport in q1 2023. In auto finance us vehicle values declined for the second straight month in July but remain higher year over year as inventory constraints persist. That Manheim us vehicle value index dropped 0.1% month over month to 2.19 or 219.6, excuse me in July, but increased 12.5% year over year, used vehicle values decreased sequentially, or decreased sequentially every month this year, except for 0.7% increase month over month in May in a sign of slowly improving momentum as supply normalizes. We're also coming to the tail end of second quarter earnings season notably Carvana log of 6.1% year over year increase in origination volume as rising interest rates and wider credit spreads are putting a squeeze on the automotive retailers financing business. We also had reports of credit availability and demand in q2 from the Fed and Open Lending earnings. Amanda you covered both of those. So what's going on there? Sure,Amanda Harris 03:29 um, well starting out so the Federal Reserve put out their July senior loan officer opinion survey which looks at Bank practices, and found that overall auto financing demand did weaken in the second quarter. That's likely due to like you mentioned, rising interest rates, tight supply, high vehicle prices, all that just kind of coming to head and we're seeing that play out in the auto finance world. So weakened financing demand also translated into a decline in auto loan production at major banks in the second quarter. So we touched on this a little bit before but Capital One origination style 11.8% sequentially and Fifth Third originations declined 2.3% sequentially Open Lending to kind of follow that trend. So they saw a decline in the second quarter of the FinTech certified loan volume, which fell 4% year over year to a little over 44,500 loans, which accounted for about 1.3 billion and auto originations, credit unions and banks still made up about 87% of those certify loans. And OEM cert certs accounted for 13%. So the majority of certs were also for us vehicles, which is in line with what they see historically. Looking closer open lending continues to rely on refinance volume to make up for a dip in OEM certify loans, which again, that's mainly due to tight supply, which isn't surprising as open lending expanded this refinance channel partnerships in the first quarter. Again, they have to kind of make up the volume in other areas because OEMs really aren't passing them a lot of loans have that supply. So looking at this a little bit closer and a little more in depth, the percentage of indirect certs and q2 fell 14.1 percentage points year over year to about 51.7%. Refinance certs increased 13.8 percentage points year over year to 32.4%. And that's a total certs and direct certs ticked up 30 basis points year over year to 15.9%. So as you can see a little bit idea of their breakdown. Still, for the full year Open Lending expects otter resignations of banks will fall about 20% year over year just from what they're seeing so far and whether you're hearing from banks. So this all translates back to what the Fed found in their survey. When you look at credit standards, so many banks have kept their standards basically the same for auto and other consumer loans. So looking at the survey, 53 banks who reported credit standard changes for auto loans on the survey. 86.8% of them reported that standards remained basically unchanged, while just 7.5% Tighten somewhat so they are starting to tighten a little bit for the rest of 2020 to moderate net share of banks expect to tighten credit standards for auto and credit car loans. Because there is an expected deterioration in credit quality amid inflation and a decline in collateral values. That's actually something I'm looking into right now. So I hope to have a more in depth story on portfolio deterioration, and how things are impacting the auto ABS market in the coming week or so. So stay tuned.Joey Pizzolato 06:43 Okay, great. And Riley, speaking of earnings, I know we finished up automotive retailers, finance and insurance reports. Give us a rundown of what we're seeing there now that earnings are complete.Riley Wolfbauer 06:56 So across the largest automotive retailers there was there were mixed results in f&i revenue. But the biggest takeaway is that Sonic Automotive and AutoNation both posted year over year decreases, which is the first departure from the rising f&i revenue that we've been seeing over the last two years. On the other hand, Asbury Automotive Group One Automotive and Penske, all reported to see can continue to increases in f&i revenue. Sonic's f&i revenue decreased 2.3% to $172.2 million due to a 19.5% decrease in their new vehicle sales. All donations decrease was point three 8% year over year to $367.6 million. Now for the retailers that clocked in increases, Asbury clocked in the largest f&i revenue jump with a 89.7% increase year over year to 203 million. That increase was motivated by being the only retailer to post an increase in new car sales. Their new car sales increased 22% to 38,697 units, despite seeing lower inventory. Group one automotive also reported a 19.2% year over year increase to 190 point 2 million and Penske reported a 4.3% year over year increase to 221 point 4 million further into new car sales. Penske reported a 21.2% decrease. As I said before Sonic reported a 19.5% decrease. Group One had a 6.3% decrease and AutoNation had a 4.4% decrease now into new vehicle inventory numbers. That was also a mixed bag as they reported supply to be anywhere from 11 to 21 days, AutoNation and Group One both reported at the low end of an 11 day supply while Penske reported the high end of 21 days. So clearly supply chain constraints are still having being implemented implementation implementations on inventory for retailers.Joey Pizzolato 09:22 Right, great. Well, thanks for that. We got a big week ahead of us. I'm not going to spoil it here. But a lot of really great stories are in the works. So check it out and beyond on lookout for that. That about does it for today's episode. Thanks for joining us on the roadmap. Follow us on Twitter and LinkedIn and we will see you online and auto finance news.net and here next time.

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