Podcast: “Weekly Wrap” discusses EV earnings, CFPB

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, August 14. And I’m Joey Pizzolato, joined by Amanda Harris, Riley Wolfbauer and Johnny Martinez. This is our weekly wrap on what happened in auto finance for the week ending August 11 2023. In general economic News Corp Consumer Price Index, which excludes often volatile food and energy costs rose 0.2% for a second month, according to the Bureau of Labor Statistics, marking the smallest back to back gains in more than two years. The core gauge was up 4.7% From July 2022. Inflation has slowed nearly every month since peaking at 6.6% in September 2022. Overall, CPI also increased 0.2% in July and 3.2% from a year ago. In auto finance, automakers incentive spend rose to the highest level in a year in July as rising interest rates contributed to slowing consumer demand and dealership restock. Average incentive spend industry wide reached $2,148 per unit in July representing 4.4% of the average transaction price compared with 4.2% in June, according to Kelley Blue Book, instead of as a rain below the average of 5.9% of ATP in July 2021 and 10.3% of ATP in July 2019. industry wide ATP declined 0.7% sequentially with increased zero 4.4% year over year to $48,334 in July. Auto Finance fintechs were feeling the squeeze last quarter open lending logged a decline in certified loan volume in the second quarter as banks and credit unions tightened credit and targeted prime and superbrand consumers. Certified loans dipped about 23% year over year to 34,354 loans according to the company’s earning supplement. on $1 basis, open lending facilitated 1 billion of origination volume in q2 compared with 1.3 billion in q2 2022. The second quarter marks the fifth consecutive decline in certified loans for the company. upstart also won a year over year decline insecure auto loans which dropped 71% to 56 million upstart updated risk models for its auto refinance and retail lending products during the quarter. Electric Vehicle OEMs also reported second quarter earnings last week. Riley has the details.Riley Wolfbauer 2:49
Yes. So last week, I covered lucid motors earnings and rivian automotive, I’ll start with lucid. The biggest takeaway from them is that they’re behind on their vehicle production for 2023. So lucid produced just under 2200 vehicles in the second quarter, that’s down 6% compared with the first quarter, but it is up 213% year over year, it’s up that much are year over year because lucid began producing vehicles in the second quarter of 2022. So that baseline was really low for them to build off of. For the first half of the year. They’ve produced just under 45,000 units or sorry, not 45,040 500 units. And that’s trailing their initial full year production guidance, which was between 10,000 to 14,000 vehicles. Despite being behind on that guidance. They reaffirmed it saying that they will meet their guidance for 2023. One thing that might help them make that guidance in 2023 is that they’re opening up their first manufacturing facility in Saudi Arabia in September, that will be their second factory and their first one outside of the United States. The facility that they’re opening up is expected to produce 5000 units per year and that’s part of a larger manufacturing facility that they are building towards creating in Saudi Arabia. So once that factory is fully up fully up and running, it will be producing about 155,000 vehicles per year. But as of now with that first leg it will be responsible for 5000 a year. Lucid delivered 1400 vehicles in the second quarter, which was down point 1% sequentially, but up 107% year over year. The company does expect deliveries to be up in the second half of the year as they were having some issues with the supply chain and vehicles being stuck in transit that they were delivering to Saudi Arabia. One thing that was to note that came out of the call is that the CEO Peter Rawlinson said that consumer interest seems to be picking up for lucid vehicles. As the number of consumers who test drove, the vehicle increased in the second quarter, as far as the company’s cash and cash equivalents goes, the company carried about 6.5 mil or $6.25 billion dollars in total liquidity into third quarter which is expected to be sufficient for the company to operate into 2025. So now over to rivian. Their story is different on the production side, they’re actually ahead of production and up their guidance for 2023 rivian produce produced 14,000 vehicles in the second quarter which is 49% year over year, and 218% Sorry, 49% quarter over quarter and 218% year over year. So the company’s original guidance was 50,000 units and they upped it to 52,000 units rivian has their R one s SUV and their r1 T truck. They produced more SUVs during the quarter about 70% of the vehicles they produced whether the SUVs they upped that production because they were building a larger backlog of pre orders for SUVs so they wanted to catch up on that and get the vehicles out to consumers. rivian delivered 13,000 vehicles in the second quarter, which is up 60% quarter over quarter. And then as far as their cash and cash equivalents goes they also are looking at enough to operate into 2025 at about $9.3 million.

Joey Pizzolato 7:00
Great thanks Riley. There was also activity on the Consumer Financial Protection Bureau last week Amanda what’s happening there?

Amanda Harris 7:09
Sure, so it’s probably won’t surprise anyone in this industry that regulators are really paying close attention to vehicle repossession and everything surrounding that practice, both from the lender side and you know, just everything involved in that disclosure and etc. So there’s been the latest kind of litigation related to this was assumer Financial Protection Bureau brought claims against an auto loan servicer USASF servicing they are the finance arm of a now defunct dealership chain US auto sales he was auto sales has closed down at about a little over 38 inch dealerships locations, and they close out on April, a USASF was servicing their portfolio still but Westlake portfolio management has taken over servicing of those loans. They’re a third party servicer is kind of what they do. So now the CFPB has brought claims against the servicing arm. The financer basically saying they engage in unfair practices dating back to 2016. So again, even though they’re now closed, this goes back to 2016 practices and included installing devices to disable vehicles over 7000 times to play warning totaled more than 71,000 times and vehicles caught like and consumers vehicles that were either not default or they’ve been working with the finance or about their payments. So they weren’t actually eligible for the steps that were taken by USAA. Servicing per the CFPB is, you know, complaint against them. So this is the latest example of how regulators are really paying close attention to everything to do with the process of repossessing vehicles. It’s always been a big thing with them. They’ve always, you know, had a really close eye on on these things including disclosure practices, refunds related to, you know, products added on voluntary protection products when a car is repossessed, or paid off. This is just in line with their view on that but they’re even becoming closer look at this as repossessions pick back up because we know they were kind of slow during the pandemic there were moratoriums in place lenders really worked, you know, they always work the consumer as much as possible. But during the pandemic, that was a special circumstance. So now we’re kind of getting back to the normal cadence of obviously lenders have to take the steps necessary to protect their business, repossession being a part of our overall auto finance world. So realtors are really paying close attention to this and I wouldn’t be surprised, we’ll see more cases come up just as repossessions go up, the volume is gonna go up and there’s going to be more opportunities for, you know, regulators to find issues. There’s also certain states and certain, you know, courts that pay really close attention to this and kind of what they do. So there are certain areas where or this is more prevailing than others, but we’re going to kind of see this display out I’m sure and then you know, the latter part of this is the CFPB is funding right now is kind of being up in the air As far as whether it’s constitutional, the Supreme Court set to hear that but even October, so that will also play a part in whether or not these cases get put on hold. There was one against, you know, current acceptance court that is kind of on pause right now until that decision is made by a Supreme Court, this one could potentially be paused. It isn’t right now. But it really just depends on, you know, the district courts in those jurisdictions whether or not they, they feel like it’s needed to pause it while that funding is in question. So pay close, you know, we’ll pay close attention to that and see if anything happens to this case, but as it stands, right now, they’re, you know, they’re suing this particular financer for possession practices, and they are definitely on the lookout for anything that may be considered unfair or deceptive when it comes to repossessing cars.

Joey Pizzolato 10:49
Yes, and like you said, that case in front of SCOTUS is just around the corner. So we’ll be watching that. On the power sports front, the latest chapter of the rumble on saga and dropped last week, Johnny has the details.

Johnnie Martinez 11:04
Yeah, so this chapter may not be the most compelling narratively of the whole rumble on saga. But it is something that’s probably the most impactful for the powersports finance base. And that is rumble on is preparing its loan portfolio to sale. They’re working with Oak Creek Capital Management, tried to sell this portfolio, sort of getting it out of the maybe the traditional Revlon finance getting in on that space, potentially up to at least 24 million with 15 million able to reduce their debts was said during the earnings call by a member of the company’s board of directors and so it’s just this rumble on getting his loan portfolio out sale kind of falls on a lot of what’s been going on with them, their chief executive resigning earlier this year after a long fought proxy battle. And so it’s just there’s been a lot happening. The portfolio being prepared for sale, like I said, may not be the most compelling bit of all of this, but it is the one that’s potentially gonna have the biggest impact. But it’s not all doom and gloom that rumble on there. f&i is up there unit sales are up. There is some positive momentum. But as far as rumble on finance goes, bear in the portfolio for sale. And we’ll see what happens next in this as it was put saga going on. We know one of the things is they are searching for a more permanent CEO to replace Marshall sesriem.

Joey Pizzolato 12:29
Ryan and like you said last quarter, they didn’t. Marshall had signaled to us that they were not winding down the rumble on finance business, but a lot has changed since then. And no word yet from from anyone at the company as to what their plans are, but we’ll certainly keep our ear to the ground for any movement on that front. That about does it for today’s episode. As a reminder, you can purchase your all access pass to the auto finance Summit and the power sports finance summit to attend both events October 29 through 31st at the Bellagio in Las Vegas. For 20% off you can get your all access pass and WWW dot auto finance dot live. Thanks for joining us on the roadmap and be sure to follow us on Twitter and LinkedIn and we will see you online it auto finance news.net in here next time