As elevated vehicle prices and rising interest rates begin to deter consumers from purchasing new vehicles, there is a growing need for lenders to both expand their businesses and address affordability concerns.
Solera, a Westlake, Texas-based vehicle lifecycle management solution provider, has partnered with fintech DigniFi to allow consumers to finance between $350 and $7,500 for vehicle repairs and maintenance. The loans are funded by Salt Lake City-based WebBank, an issuer of consumer and small business credit, and provide an option for customers to make payments over time on costly car repairs.
Affordability is becoming a growing concern in the automotive industry in the face of a looming recession. In fact, economists at analytics company S&P Global last week increased the chance of a recession to 40% over the next 12 months. ABS data, too, is pointing to weakening performance as delinquencies tick up, especially for subprime, asset-backed securitization transactions.
Meanwhile, used-vehicle values fell again in August, bringing the Manheim Used Vehicle Value Index to 210.8, a decrease of 4% sequentially but an increase of 8.4% year over year.
In this episode of the Weekly Wrap, Deputy Editor Amanda Harris and Associate Editor Riley Wolfbauer discuss the top stories for the week ending Sept. 9, and what is in store for the week ahead.
Editor’s note: This episode is sponsored by Inovatec.
Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 26-28 at the Wynn Las Vegas. To learn more about the 2022 event and register, visit www.AutoFinanceSummit.com.
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Hello everyone and welcome to the roadmap from auto finance news since 1986, the nation’s leading newsletter in automotive lending and leasing. It is Monday, September 12. And I’m Amanda here joined by Riley Wolfbauer. This is our weekly wrap on what happened in auto finance for the week ending September 9 2020. To an economic news, rising corporate credit defaults and deteriorating economic conditions are pointing to a US recession looking more likely, economist at financial information and analytics company s&p global actually increased the chance of a recession to 40% over the next 12 months, with weaker revenue growth, potentially increasing the risk of default for mid tier issuers in the capital markets. The corporate default rate in the US is expected to reach 3.5% in June 2023, up from 1.4% During June of this year, and Auto Finance News car sharing service HyreCar Close to $100 million revolving asset backed warehouse facility with Credit Suisse and an effort to provide higher car fleet operators with the capital needed to source additional inventory. A married drive holdings higher cars largest fleet operator will purchase about 7000 vehicles in the next year to list exclusively on higher cars platform using the facility. Turning to vehicle price trends us vehicle values fell again in August bringing the Manheim used vehicle value index to two 10.8, which is down about 4% sequentially, but it’s still up 8.4% year over year, US retail sales did increase 11% from last month, but we’re still up 9% year over year, and inventory ended August at 47 days of supply down from 53 days at the end of July, but up from 38 days a year ago. So inventory is slightly improving. When you look back to where we were a year ago, things are getting a little bit better and values are coming down. In part because of that. On a year by year basis, though prices did increase across nearly every market segments. And while wholesale values are coming down the retail list prices have not come down at the same level, they’ve actually held pretty steady for the last I think six or seven months. And they are expected to remain elevated for the near future dealerships aren’t really motivated to bring down their list prices too much, even with wholesale coming down with profitability being so strong and with demand still being fairly strong. Although we do know that demand is kind of taking back a little bit. So it’s going off that and elevated vehicle prices, especially on the new side. And rising interest rates are like I said beginning to deter consumers from purchasing especially on the new vehicle side, which is making the need for lenders to look for other ways to expand their businesses and address consumer affordability concerns. So at that rally, I think you’ve dived into a little bit of what is happening on that side of things.Riley Wolfbauer 03:02
Yeah, so as you said, consumers are pulling back on car shopping in August. That’s according to the Federal Reserve Systems Beige Book report. The Beige book report is based on 12 us districts categorized by cities who are represented by federal Federal Reserve Banks. And it provides a regionalised view of the industry trends with the area that each of those banks cover. So auto sales were sluggish in the regions covered by the Federal Reserve Bank of Atlanta, New York, Philadelphia and Richmond. So that consists of 18 states across the East Coast. So that’s a large chunk of the auto market that is seeing sluggish auto sales. And then a dealer in Little Rock Arkansas reported that customers are looking to back out of pre orders. But in the Chicago Federal Reserve region, pre orders have from have remained robust. So we saw dealerships pushing consumer consumers towards pre orders as their inventory is down. But as inventory starts to come back, we’re seeing differences across the board and preorders and it’s it’s mixed. But despite sales being down, auto loan demand was also mixed. So some people are pulling back not looking to finance some people still are so it’s still different across the board. But with some consumers backing away from car shopping, lenders are getting creative to expand their business. One way they are expanding is by implementing point of sale auto repair financing. So Solera which is a vehicle lifecycle management solution, partnered with FinTech DigniFi to offer the fintechs financing options at slower at Solera. dealerships, consumers can finance anywhere between $350 earned 700 or $7,500, for mechanical repairs, maintenance, bodywork deductibles on their insurance, service contracts and accessories at the point of sale. So if a consumer gets in a car accident, they bring it to the dealership, the dealership tells them, oh, this is $2,000 for your repair, not very many people have that expected like ready to spend in their budget. So with this partnership, they can finance that $2,000 With dignify and so when they finance the services, if they pay it off, within the first 90 days, the interest on that loan is waived. But if it’s not fully paid in that first 90 days, consumers will have an interest rate between 9.99% and 36%. Based on their credit history, it’ll be applied to the first three months, and then each month after it is not paid off. So as I said, it allows consumers to not put off the auto repair and have that financing right away, because they don’t want to be driving a car around or that has issues or just their car sitting in their driveway because they can’t pay for the repair. So Solera said that’s their goal of this partnership is to keep cars on the road safer, and allow these consumers to make the repairs because you never know what’s gonna go wrong with a car that needs repair and you’re putting it off. So that was their whole goal was to allow people to drive safer vehicles and get the repairs done when they need them.Amanda Harris 06:37
And I think that goes back to the heart of, you know, what we’ve been talking about with affordability with lenders, you know, offering longer loan terms, we saw the share of you know, 70 Today, a form of loans go up in recent months, probably higher than they have been in recent history at least. So, you know, lenders are looking for ways to bring that monthly payment down or looking for ways to you know, like you said, finance, even the maintenance of the vehicle. You know, Tricolor also was working to open their own reconditioning facility to make sure that the vehicles that people are buying may not need those really high costly maintenance right out the door. So there’s a, I think, a shift across the industry to try to, you know, tailor things to the lower income consumers. And as more used vehicles, do come into the lots, you know, try to sell those make sure they are worthy Carver like roadworthy and just find different avenues to address that affordability piece because you mentioned earlier people are starting to pull back those prices are starting to give people a little bit of sticker shock. The interest rates are going up you know nothing but three or four now past benchmark rate increases so you know, there’s there’s gonna have to be something to give and I think we’re starting to see you know, different efforts to address that affordability piece and and find some interesting ways to maybe grow your business that isn’t just related to car sale origination since we know supply is going to be tight for a while even though it’s still it’s coming back a little bit. So very interesting. All right. Well, that does it for today’s episode. Thanks for joining us on the roadmap and follow us on Twitter and LinkedIn as a reminder please join us for the power sports finance Summit and the auto finance summit in Vegas is October both Riley and I will be there as moderators and we’re very excited about it. It’s gonna be a great event. Both of them will be and you can learn more and register online at power sports finance.com and auto finance summit.com and we will see you online out of finance news.net in here next time