Listen: Weekly Wrap on auto leasing, earnings

Earnings season has so far been marked by declines in lenders’ auto portfolios, while Tesla reported a decrease in leasing revenue in line with market penetration falling in 2022. Huntington Bank and U.S. Bank recorded in the fourth quarter year-over-year declines in their auto portfolios of 1.5% and 28.1%, respectively. Capital One saw outstandings grow 3.4% YoY despite a shrink in originations. All three banks reported deteriorating credit performance on a sequential basis as consumers became more squeezed with cash. Meanwhile, leasing penetration fell in 2022 as consumers ended their leases early and financed their next vehicle. Lease penetration fell to 17% in July 2022, down from 31% in January 2022, according to TransUnion . Tesla , however, saw an increase in the number of leased vehicles on the road in Q4 2022 but recorded a decline in leasing revenue of 4.6% YoY as the OEM cut prices to drive sales. In this episode of the Weekly Wrap, Deputy Editor Amanda Harris, Editor Joey Pizzolato , and Associate Editor Riley Wolfbauer discuss the 2023 Vehicle Finance Conference , National Auto Dealers Association Show , lease penetration and ongoing Q4 earnings. Subscribe to The Roadmap Podcast on iTunes , Spotify , or download the episode. Auto Finance Summit East, Auto Finance News’ new spring event, kicks off May 10-12 at the JW Marriott Nashville featuring a fireside chat with Peter Muriungi, CEO of Chase Auto. Visit autofinance.live/afs-east . 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 0:09 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, January 30. And I'm Joey Pizzolato joined by Riley Wolfbauer. This is our weekly wrap and what happened in auto finance for the week ending January 27 2023. In general economic news, the US GDP increased at a 2.9% annualized rate over the last three months of 2022, following a 3.2% gain in the third quarter, According to the Commerce Department. personal consumption however, climbed at a below forecast pace of 2.1%. personal spending was forecasted to advance 2.9%. According to Bloomberg, the latest Bloomberg monthly survey puts 65% odds on a recession in the coming year. Wells Fargo economists predict the economy will slip into a mild recession with a low contraction of about 1% peaking in the second half of the year. By comparison, the economy contracted by 10% during the COVID 19 pandemic and 4% during the Great Recession. Economist at Wells Fargo forecasts at least one or excuse me, forecast at least 75 basis point interest rate hike this year before cutting rates in 2024. The FOMC meets on Wednesday. It was a busy time in auto finance last week with the AFSA vehicle Finance Conference and the data show in full swing in Dallas. Unsurprisingly, there was a lot of talk about affordability, interest rates and supply around the halls in the convention center. Despite the most agree we're heading towards a mild recession, the lenders I spoke with said that they're this was no different than managing any other cycle and pointed to robust consumer demand as a tailwind. That wasn't present in in oh eight during the Great Recession. Dealers at the data show were more forward in their optimism. The industry as a whole is coming off of record profitability. And dealers are looking to deploy their cash. A few exhibitors who I spoke with said they never had as much foot traffic as their booth as they did this year. I've also heard rumblings about increased consolidation across auto dealers. But we'll have to do a little bit more digging on that one. Leasing was also top of mind for lenders and dealers in Dallas, particularly particularly. When's it going to come back? Riley, you and Amanda did some separate reporting last week on leasing. So give us some insights on what's going on there.Riley Wolfbauer 2:46 I can't necessarily tell you when it's going to come back. But we do have numbers about it following throughout the pandemic, and then into July 2022. So a new report from TransUnion reported that leasing penetration fell down 17% In July, fell down to 17% in July of 2022. For comparison, leasing penetration was up to 31% in January 2020. So, obviously, as we all know, leasing fell due to less incentives as a result of low inventory on dealer lots. And also many consumers decided to get out of their lease early because when they got into their lease contract, they had a lower residual value buyback price. So they were looking to buy out their vehicles and then they were gaining. They were gaining equity on their vehicle. And as the as as we know, that's not normally something that would happen in the market. So about 24% of consumers who leased whose leases ended between July 2021 And June 2022, chose to lease again. But that's down from 44% in January 2020. So that was one of the big things loyalty is big and leasing. But many, many consumers were not going back to leases and they were buying out their leases with the low buyout price that they were able to get. Um, speaking of leasing, Tesla had their earnings and they brought out their leasing numbers last week, the total number of leased Tesla's on the road grew by 4.2% quarter over quarter and 16.9% year over year to 140,667 vehicles. So that's so despite overall lease penetration falling, Tesla's saw an increase in their leased vehicles. Part of that reason is because in the fourth quarter of 2022 Tesla slashed a lot of their prices to up sales and that's when they saw a big increase in the number of vehicles that they were having leased Um, Tesla deliver 405,000 vehicles in q4, and 3.7% of those vehicles released. That's up from 3.2% in q3, but down from 5.2% in q4 2021. Joey Pizzolato 5:17 I think that that really points. You know, there is consumer demand for leases. I spoke with credit union leasing Association and NADA and lovestory on this in more detail later, but they're seeing an increase in their lease originations. You know, like you pointed out, there is, you know, just no OEM support for leasing. Now, as supply comes back. You know, that will I think the expectation this year is that it's going to start getting back to where, or clawing back, but it will still probably remain well below. Its historic, you know, 28% that we saw pre pandemic for at least another couple of years. And who's to know? Yeah, really, what sort of ramification the lack of lease volumes going to have on the on the US market? You know, looking ahead, we'll see, we should be seeing how you know, all the leases that were executed during 2020. They are due to sort of come back this year, so we'll have to see how that plays out. And we'll keep our ear to the ground. We also had more earnings last week, Capital One Huntington and US Bank all reported their q4 earnings Riley. what's the upshot there? Riley Wolfbauer 6:36 I'll start with Capital One. As of the three banks they were the only lender who saw a year over year increase in their outstandings. Capital One recorded a 3.4% increase in their auto outstandings, bringing their total portfolio to $78.4 billion outstandings did ticked down on a sequential basis, though of 1.5%. Even though they recorded increased outstandings year over year, their auto loan originations declined 20% sequentially, and 32% year over year to $6.6 billion. Capital One pulled back on auto loan production for the third consecutive quarter. So that's why they saw the decline in originations. That pullback was due to competitive pricing dynamics pressuring margins, which is what Capital One's chief executive Richard fair bank noted on their earnings call. Capital One increased its allowance for credit losses as delinquencies and net charge offs continued to normalize during the quarter, the bank added $130 million to its allowance for auto loan losses, bringing the total to $2.2 billion and representing a coverage ratio of 2.9%. Now over to Huntington, their auto outstandings came in at $13.2 billion in q4, which was a 1.5% decrease sequentially and year over year. Their originations fell 14.3% quarter over quarter and 33%. Year over year to $1.2 billion. They also saw credit performance deteriorating just like Capital One, but so far every bank that has reported their earnings has seen deteriorating credit performance. US Bank, their auto outstandings totaled $17.9 billion, they decreased 23% sequentially and 28% year over year, US Bank anticipated to see a lower amount of auto loans through 2022 due to them pulling back in the market as well. They also like all the other banks, as I said, they also saw an increase in delinquencies and that charge offs throughout 2023. But it's to where they expected it to be. Joey Pizzolato 9:04 Great. Well, we have more earnings this week GM Financial, Ford Credit Credit Acceptance Corp, I believe, all report this week. So that about does it for today's episode. Stay tuned for more in depth coverage on earnings as well as AFSA and data show. Thanks for joining us on the roadmap and be sure to follow us on LinkedIn. We will see you online at auto finance news.net in here next time

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