This week, Ford Motor Credit propped up Ford Motor Co.’s second-quarter performance with strong consumer loans and leases, and low delinquency rates as major banks tightened credit underwriting standards.
Still, Ford Credit increased its allowance for credit losses in anticipation of the end to extension programs and continued economic fallout from the COVID-19 pandemic. Lenders will need to be ready to make tough decisions as payment assistance programs come to a close. During this week’s Auto Finance Risk Summit webinar, compliance experts shared regulatory best practices for lenders during this unprecedented time.
In this edition of the Weekly Wrap, Joey Pizzolato and Amanda Harris discuss these news developments during the week ending Aug. 7, 2020. Next week, Auto Finance News will dive into the inner workings of a new digital auto lender in the refinance space and Ford’s new credit card program with linked incentives.
Joey Pizzolato 00:02
Hello, everyone. I’m Joey Pizzolato interim deputy editor and welcome to the roadmap from auto finance news since 1986, the nation’s leading newsletter on automotive lending and leasing. czar weekly wrap on what happened in auto finance for the week of august 3 2020. I’m joined by Amanda Harris, Associate Editor of Auto Finance News. Thanks for joining, like you’ve had a choice. Great. It’s Friday, August, 7 2020. And there were some good news this week. Both unemployment rates and new jobless claims beat out their respective forecast. Unemployment in July landed at 10.2%. And jobless claims came in for the week of august 1 at 1.2 million. So, the good news could be short lived government stimulus which included a $600 a week addition to unemployment benefits expired last week in the payment period. Protection Program is set to expire tomorrow. Lawmakers on the hill are still no closer to finding common ground on a renewed stimulus plan. But President Trump indicated this morning that he would take matters into his own hands through an executive order if the two sides could not come to conclusion. It’s no secret that the auto finance industry has been propped up by government stimulus, unemployment benefits. Lenders such as GM Financial have reported high rate of payments on accounts in deferral and Credit Acceptance Corp. chief executive Brett Roberts, sending their earnings call last week that the referral rates are lower than pre COVID levels or credit also posted a strong quarter. Amanda, I think you wrote that story on Ford Credit, or I know you wrote that story on foreign credit. So why don’t you tell us a little bit about it?
Amanda Harris 01:47
Sure. So much like we’re saying with you know, other lenders there definitely were propped up by you know, the stimulus loan delinquency rates and a lot of that, you know, comes out of deferral programs and things like that they put into place to help customers during this time because we’re still seeing you know, fairly high unemployment rates and things like that. So a lot of these programs even though they’re coming to an end, we’re still kind of benefiting the benefits from that. So for credit was was not alone in that either. So that kind of was the pillar strength for the whole company. So that really kind of propped up for overall for the second quarter. So they had receivables coming in at over 100 billion dollars for consumer loans and leases, which were still you know, fairly high as far as, um, you know, the FICO score and, and being pretty healthy loans leases, so that that kind of helped the overall quarter. At least look, you know, pretty healthy. We know that that could probably change next quarter as some of the differences grants in those low rates are probably going to be pretty short lived. And I imagine they’ll start going up as those programs start to end and we start to see what’s truly going on, that we kind of had this nice glossy film over the last couple months.
Joey Pizzolato 03:18
Yeah, makes sense. I’m wondering, you know, did Ford Credit did they increase their either allowance for credit losses or provisions for credit losses? I guess the bigger question right is, you know, what are the concerns looking forward? I think everyone is, you know, again, we’re gonna say it again. So wait and see wait and see. So so you know, in for Ford Credit’s case, you know, what, what are we looking at? Looking forward?
Amanda Harris 03:45
Yeah, so so just like other lenders for even though they did have, you know, fairly good numbers coming out of for credit for credit still did build that allowance by about 100 million dollars from this time last year. So that sits at about $1.3 billion. And so it is an increase from last quarter and year over year. So that I think, you know, just like everybody else, they know that those low rates and some of the things you’re seeing are, are probably not going to stay around for much longer. They, you know, they did have some deferral programs that you know, they are extending some, but for most part, those are going to end so we’re going to start to see delinquency rates rise, repossessions start, and things like that. So they are building that allowance, knowing that those losses are probably going to start to show up.
Joey Pizzolato 04:36
And, you know, on on the Fed side, Federal Reserve side, we’ve seen major banks tighten credit rating underwriting standards, and in their latest survey of senior loan officers, and in fact, 84.2% of respondents says they’ve squeezed credit requirements, two levels, the industry is not seen in 15 years, and I think that that’s is really telling about the expected trajectory of the economy and credit performance going forward. If these if these lenders are tightening the belt and making sure that they’re looking, looking at borrowers that are, at least on paper a little healthier, I think we can expect losses to mount. I agree. So shifting gears a little bit um, this week marked our second session of the auto finance summit webinar series. with Michael Benoit of Hudson Cook and Mark Edelman of McGlinchey offering regulatory best practices to lenders in this unprecedented time. I’m moderating that session. So obviously I didn’t pay attention to a word that was said. So, Amanda, why don’t you could you fill us in on what advice you know, Michael and Mark had had for the industry?
Amanda Harris 05:53
Sure. Well, first of all that discussion, I think was very timely and very interesting. A lot of good to talking points and ideas came out of that. One thing we chose to kind of hone in on the I personally thought was very interesting so I decided to write about it was they really honed in on this, you know, the deferral problems are ending. And, you know, that brings up the question of, you know, we’re going to start seeing an influx of delinquencies and possible repossessions that have been kind of put off on the last couple months because obviously, we were in a very unique situation. And, you know, luckily for a lot of people, lenders kind of know that, and we’re pretty helpful, but but those are ending and, and, you know, eventually got to start getting back to the normal, um, you know, they have to kind of consider their, their health as well. So that was a discussion that came up, as we know, those are coming about ethics and kind of how to handle that big influx, knowing that a lot of people are still out of work. There’s going to be a lot of customers who still can’t make those payments and and how do you handle that and how do you you know, Kind of meld that knowing the ethics and kind of moral part of it. So the main kind of idea that came out of that, and this was a lot from the law was, you know that the law, unfortunately is amoral. Um, the law doesn’t really, you know, take into consideration individual people situations, it looks at, you know, the facts, it looks at what their accounts look like. And from there, the lender has to follow their own processes that are already in place to choose whether or not to do another extension. And they have to consider also their own health and realize that we’ve already been extending for two to three months at this point. So it really just comes down to you have to look at what your normal processes are, and then treat the customers the same that are similarly situated. So that was a big thing too. You don’t want to overlay or you know, we all have human emotions, but this is a business decision and you can’t you have to be careful about overlaying your emotions and then doing it to a point of possibly treating Someone differently from somebody else in a similar situation, because you might be looking at an aspect of their life or hearing from them and wanting to do some something else for them that maybe isn’t part of what your already processes allow. So it’s really just looking at those and sticking to sticking to what you would normally do, even with knowing this unique situation, and even with seeing maybe higher numbers than you normally would have.
Joey Pizzolato 08:26
it’s great advice. Great advice. So looking at next week, I believe we’re going to dive deeper into the inner workings of a relatively new digital auto lender in the refinance space. Is that correct? Yep. And I also believe we’re going to be looking at Ford Credits, new or not for credit, excuse me, Ford Motor’s, new credit card program that has linked incentives. So more details on that next week. Um, quick reminder for everyone listening We’re excited about the Auto Finance Summit, which will be October 20 through 22nd. Please check us out at auto finance or find it auto finance summit calm and you can subscribe to us at autofinancenews.net. Of course, we always want to hear from you. Please rate the roadmap on whichever platform you use, whether it’s Spotify, iTunes, and follow us on Twitter and LinkedIn. Thanks for joining us on The Roadmap. We’ll see you online and Auto Finance News. And here next week, as always, thanks, Amanda.
Hello, everyone. I’m Joey Pizzolato interim deputy editor and welcome to the roadmap from auto finance news since 1986, the nation’s leading newsletter on automotive lending and leasing. czar weekly wrap on what happened in auto finance for the week of august 3 2020. I’m joined by Amanda Harris, Associate Editor of Auto Finance News. Thanks for joining, like you’ve had a choice. Great. It’s Friday, August, 7 2020. And there were some good news this week. Both unemployment rates and new jobless claims beat out their respective forecast. Unemployment in July landed at 10.2%. And jobless claims came in for the week of august 1 at 1.2 million. So, the good news could be short lived government stimulus which included a $600 a week addition to unemployment benefits expired last week in the payment period. Protection Program is set to expire tomorrow. Lawmakers on the hill are still no closer to finding common ground on a renewed stimulus plan. But President Trump indicated this morning that he would take matters into his own hands through an executive order if the two sides could not come to conclusion. It’s no secret that the auto finance industry has been propped up by government stimulus, unemployment benefits. Lenders such as GM Financial have reported high rate of payments on accounts in deferral and Credit Acceptance Corp. chief executive Brett Roberts, sending their earnings call last week that the referral rates are lower than pre COVID levels or credit also posted a strong quarter. Amanda, I think you wrote that story on Ford Credit, or I know you wrote that story on foreign credit. So why don’t you tell us a little bit about it?
Amanda Harris 01:47
Sure. So much like we’re saying with you know, other lenders there definitely were propped up by you know, the stimulus loan delinquency rates and a lot of that, you know, comes out of deferral programs and things like that they put into place to help customers during this time because we’re still seeing you know, fairly high unemployment rates and things like that. So a lot of these programs even though they’re coming to an end, we’re still kind of benefiting the benefits from that. So for credit was was not alone in that either. So that kind of was the pillar strength for the whole company. So that really kind of propped up for overall for the second quarter. So they had receivables coming in at over 100 billion dollars for consumer loans and leases, which were still you know, fairly high as far as, um, you know, the FICO score and, and being pretty healthy loans leases, so that that kind of helped the overall quarter. At least look, you know, pretty healthy. We know that that could probably change next quarter as some of the differences grants in those low rates are probably going to be pretty short lived. And I imagine they’ll start going up as those programs start to end and we start to see what’s truly going on, that we kind of had this nice glossy film over the last couple months.
Joey Pizzolato 03:18
Yeah, makes sense. I’m wondering, you know, did Ford Credit did they increase their either allowance for credit losses or provisions for credit losses? I guess the bigger question right is, you know, what are the concerns looking forward? I think everyone is, you know, again, we’re gonna say it again. So wait and see wait and see. So so you know, in for Ford Credit’s case, you know, what, what are we looking at? Looking forward?
Amanda Harris 03:45
Yeah, so so just like other lenders for even though they did have, you know, fairly good numbers coming out of for credit for credit still did build that allowance by about 100 million dollars from this time last year. So that sits at about $1.3 billion. And so it is an increase from last quarter and year over year. So that I think, you know, just like everybody else, they know that those low rates and some of the things you’re seeing are, are probably not going to stay around for much longer. They, you know, they did have some deferral programs that you know, they are extending some, but for most part, those are going to end so we’re going to start to see delinquency rates rise, repossessions start, and things like that. So they are building that allowance, knowing that those losses are probably going to start to show up.
Joey Pizzolato 04:36
And, you know, on on the Fed side, Federal Reserve side, we’ve seen major banks tighten credit rating underwriting standards, and in their latest survey of senior loan officers, and in fact, 84.2% of respondents says they’ve squeezed credit requirements, two levels, the industry is not seen in 15 years, and I think that that’s is really telling about the expected trajectory of the economy and credit performance going forward. If these if these lenders are tightening the belt and making sure that they’re looking, looking at borrowers that are, at least on paper a little healthier, I think we can expect losses to mount. I agree. So shifting gears a little bit um, this week marked our second session of the auto finance summit webinar series. with Michael Benoit of Hudson Cook and Mark Edelman of McGlinchey offering regulatory best practices to lenders in this unprecedented time. I’m moderating that session. So obviously I didn’t pay attention to a word that was said. So, Amanda, why don’t you could you fill us in on what advice you know, Michael and Mark had had for the industry?
Amanda Harris 05:53
Sure. Well, first of all that discussion, I think was very timely and very interesting. A lot of good to talking points and ideas came out of that. One thing we chose to kind of hone in on the I personally thought was very interesting so I decided to write about it was they really honed in on this, you know, the deferral problems are ending. And, you know, that brings up the question of, you know, we’re going to start seeing an influx of delinquencies and possible repossessions that have been kind of put off on the last couple months because obviously, we were in a very unique situation. And, you know, luckily for a lot of people, lenders kind of know that, and we’re pretty helpful, but but those are ending and, and, you know, eventually got to start getting back to the normal, um, you know, they have to kind of consider their, their health as well. So that was a discussion that came up, as we know, those are coming about ethics and kind of how to handle that big influx, knowing that a lot of people are still out of work. There’s going to be a lot of customers who still can’t make those payments and and how do you handle that and how do you you know, Kind of meld that knowing the ethics and kind of moral part of it. So the main kind of idea that came out of that, and this was a lot from the law was, you know that the law, unfortunately is amoral. Um, the law doesn’t really, you know, take into consideration individual people situations, it looks at, you know, the facts, it looks at what their accounts look like. And from there, the lender has to follow their own processes that are already in place to choose whether or not to do another extension. And they have to consider also their own health and realize that we’ve already been extending for two to three months at this point. So it really just comes down to you have to look at what your normal processes are, and then treat the customers the same that are similarly situated. So that was a big thing too. You don’t want to overlay or you know, we all have human emotions, but this is a business decision and you can’t you have to be careful about overlaying your emotions and then doing it to a point of possibly treating Someone differently from somebody else in a similar situation, because you might be looking at an aspect of their life or hearing from them and wanting to do some something else for them that maybe isn’t part of what your already processes allow. So it’s really just looking at those and sticking to sticking to what you would normally do, even with knowing this unique situation, and even with seeing maybe higher numbers than you normally would have.
Joey Pizzolato 08:26
it’s great advice. Great advice. So looking at next week, I believe we’re going to dive deeper into the inner workings of a relatively new digital auto lender in the refinance space. Is that correct? Yep. And I also believe we’re going to be looking at Ford Credits, new or not for credit, excuse me, Ford Motor’s, new credit card program that has linked incentives. So more details on that next week. Um, quick reminder for everyone listening We’re excited about the Auto Finance Summit, which will be October 20 through 22nd. Please check us out at auto finance or find it auto finance summit calm and you can subscribe to us at autofinancenews.net. Of course, we always want to hear from you. Please rate the roadmap on whichever platform you use, whether it’s Spotify, iTunes, and follow us on Twitter and LinkedIn. Thanks for joining us on The Roadmap. We’ll see you online and Auto Finance News. And here next week, as always, thanks, Amanda.
