Weekly Wrap: Recovery momentum builds in latest Q3 earnings

This week, the Auto Finance News team took a deep dive into third-quarter earnings for auto lenders and found that, overall, the industry is seeing further signs of recovery. Ford Motor Credit logged its “ strongest performance ” in 15 years with increased earnings and receivables, while Santander Consumer USA saw improvements in its lease portfolio . However, with uncertainty still looming on the fate of another round of stimulus and the election, along with fluctuating unemployment numbers , lenders remain cautious. Consumer Portfolio Services, for one, added to its provision for credit losses and saw delinquency rates rise in the third quarter. In this edition of the Weekly Wrap, Amanda Harris, JJ Hornblass and Joey Pizzolato discuss these news developments for the week ending Oct. 30 and what’s on the horizon for next week. .embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Video Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain . JJ Hornblass 00:00 Hi, everyone. I'm JJ Hornblass your host for this edition of the Roadmap from auto finance news since 1996, the nation's leading automotive lending and leasing news resource. This is our weekly wrap for the week of October 26 2020. I certainly want to start by thanking our advertisers, Alfa, auto IMS, defi and FIS for their continuing support. Thank you so much to them. And I am so pleased to be joined by Joey Pizzolato, our deputy editor and Amanda Harris, the Associate Editor about offense news, Welcome to you both. It is Friday, October 31 2020. This week, it was the last week of the exhausting, at least for me presidential election election campaign, with many Americans, as including some of our colleagues, casting early votes at record levels. US households increase their spending 1.4% in September, that's according to data that was released this morning. Actually, this was the fifth straight month of household spending increases, as remaining pandemic aid helped boost incomes by point 9% disposable incomes. Also yesterday, GDP numbers came out for the third quarter for the second quarter, excuse me, for the third quarter, sorry, and it showed the economy grew at a record pace last quarter recovering a good chunk of pandemic losses. But still below where it ended last year, Amazon reported $96.2 billion of revenue for the third quarter, that was a year over year increase of 37%. Apple this week also reported an all time high of 580 5 million paid subscribers or subscriptions for its services last quarter. It had it grew that number by 130 5 million on a year over year basis, and the company said it should hit 600 million subs paid subscriptions by the end of 2020. And finally, a 45 year old west virginia fitness instructor broke a Guinness World Record by completing 34 pull ups in one minute. She and her husband had been passing the time during the covid lockdown by completing fitness challenges. Apparently, she was successful. This week saw additional earnings reports from auto finance companies, three notables and we're going to talk about them today. Ford, Santander consumer USA and consumer portfolio services. Let's start with Ford, the largest of them overall assessment of their earnings. What was the overall assessment of their earnings? Last quarter, AmandaAmanda Harris 03:47 So overall, we kind of saw the same trend that we saw in the second quarter, which was the overall for motor credit performance being kind of propped up by or ford credit, or ford Motor Company propped up by ford credit in the third quarter as well. And a lot of that was due course, you know, there's a lot of pent up demand. You know, we saw their receivables go up from last quarter as well. And then they're still having pretty low, you know, delinquency rates, and charge offs and things like that are also helping. So overall, it was, I would say pretty positive, you know, they are doing as many extensions not having as many requests for extensions, and the ones who, you know, consumers who did have extensions on their loans 99% of those have made at least one payment. So they're not seeing you know, too many negatives when it comes to those as well. So yeah, I think we're starting to see you know, some some positives come out of it. But of course, a lot of that is we had such a crazy last quarter. Obviously this is like really more, just normalizing So even though it was like a really big kind of dump, it was also just kind of getting back to their normal numbers because of all the craziness.JJ Hornblass 05:08 Yeah. So the what seemed pretty significant in their numbers may be kind of an underlying factor is the swing in their forecasts for used car values versus their actual performance. They had a 700 basis points swing in that that is like, unbelievable. I mean, you're talking about a diametric diametrically opposed result verse the forecast. And that seemed to be that seems to be a driver of their financial results. What about at Santander consumer USA?Joey Pizzolato 05:53 Well, Santander, his earnings were also positive, I'm decreasing on delinquencies, net charge offs originations were mostly flat, but they're seeing, you know, quite a bit of resurgence in their leasing portfolio. One thing to note that came out of the earnings call was that, um, excuse me, uh, incentives, um, you know, the very aggressive extended term incentives, the subvented loans that we were seeing to try and drive new vehicle value or new vehicle sales, excuse me, that was actually pushing people out of leasing in into the us into the retail market. So Santander has now seen pretty substantial growth. I'm trying to get back to normative levels.JJ Hornblass 06:44 It's interesting that you frame it like, I mean, you Santander looks like you can you can look at it, look at it as a glass half full glass half empty kind of thing. I mean, last week, and this is something we should probably talk about a little bit too, after we get to CPS, but, I mean, comparing the numbers this week versus last week, you know, but I think originations flat on a year over year basis, is not that great. Is it?Joey Pizzolato 07:20 You know, you make a you make a very solid point, right. Like, it's, I wouldn't say it's good, but it's definitely not bad. Correct. Um, you know, I will say, it's funny that Amanda mentioned, you know, if this quarter feeling like it, like it's just playing catch up from last quarter, you look at ally, um, you know, um, excuse me, um, well, I'm My mind is working right now. I like, for example, had huge originations, record originations. And it almost feels like you took last quarter and you just picked it up, and you put it in the third quarter and you just combine the two together.JJ Hornblass 08:05 Right. Well, what about it CPS? So that there it was, it was a much greater, it seemed like a much more volatile quarter in a way with originations up 28% on quarter quarter over quarter basis, but minus 33% on a year over year basis. Then what what else? What, what else did CPS report for the quarter?Amanda Harris 08:32 Yeah, so CPS also did, you know, see an increase in delinquency rates in the third quarter, and they did add to provision for current losses, whereas some of the other lenders that we saw, were starting to kind of slow down on adding or even, you know, the kind of decrease it overall and after kind of really bumping it up with the pandemic uncertainty saw a lot of them, you know, we're talking about they're upping upping upping, you know, for months, and then they were starting to kind of pull back on that this quarter. The CPS still seems to be in the position of trying to, you know, prepare for more Fallout. That's kind of what I got it from it with them increasing their provision. And they are starting to, like I said, See delinquencies and charge off rates, you know, kind of go up. So I think they're just kind of seeing what's going to happen there and still kind of being a little bit more careful, I guess, with what what could come whereas we're seeing with the bigger ones, they saw such good growth that they kind of feel like they have enough to weather any kind of other Fallout,JJ Hornblass 09:37 Amanda by how much did the provision for credit losses go up?Amanda Harris 09:42 It went up 138% from last quarter, and we actually went down on a year to year basis 62%. So they're still not where they were last year, which is to be expected because last year, we weren't in this kind of crazy situation. But they did increase it 100 Last quarter, so that that I think says that they're, you know, it's still kind of in the prep mode versus,JJ Hornblass 10:07 and all this happening while they're fielding an unsolicited acquisition, takeover bid from auto experience. So overall sense for like, if you kind of both you take a half step back on on results this week, versus last week, your feeling is that I'm still sick. I mean, we came out last week feeling, you know, pretty positive about the market. Visa v expectations, and all certainly these would be the quarter before for crying out loud, of course, but but even same sentiments this this week, I mean, even considering the auto finance summit, you know, and last week and kind of more of that, that cautious optimism, do you still feel that in these earnings, that same kind of positivity? Or do you have a different? Do you have a different take? Joey Pizzolato 11:12 No, I would say, we're still in the realm of cautious optimism. As Amanda mentioned, for CPS, you know, some of these smaller lenders, it might be a little a lot more cautious. Um, but you know, these banks they have, they have other things to fall back on, they have deposits, which are which are high, so that helps prop up their performance and like, like you both mentioned, um, I really believe that use vehicle values are really kind of propping up expect forecasted expert loss expectations, in the sense that, you know, recoveries are, you know, through the roof, CPS and great recovery rates in the third quarter. So I think as long as us vehicle values continue to hold other their value, um, you know, the, the industry will will continue to see positive results. JJ Hornblass 12:04 Right. And with that, that estimate for October SAAR coming in at 15 point 7 million. that bodes well, for four numbers down the line, I would I would imagine. So, what are we? What's our coverage plan for next week. Amanda Harris 12:29 So next week, we have, you know, more earnings that we'll be doing. We also have at least, at least one more news story to come out of our summit session. So we're excited to share a little bit more of the tidbits that we got during our session, which went really well. And then we'll just, you know, catch up on earnings and see what else will be coming in the market next week. JJ Hornblass 12:52 Such as a presidential election. Joey Pizzolato 12:55 Yeah, Tuesday. I'm gonna go vote again. No, just kidding. I'm not voting and already voted. That was a bad joke. JJ Hornblass 13:04 Well, I still haven't voted. So we'll see. We will have, we should know to everyone, we will have election coverage on auto finance news dotnet on both Tuesday, at least Tuesday and Wednesday. So you should, you can check out the site for that. In addition to the coverage that Amanda mentioned, I want to encourage everyone to rate the roadmap wherever you listen to your podcasts. And of course, follow us on Twitter, and LinkedIn. It's always a pleasure having you here and welcoming you as our guest. And we look forward to seeing you again on the roadmap. Thanks so much for joining us. We'll see you next time.

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