Podcast: Floorplan finance fraud on the rise; CUs lean into auto

Hello everyone, and welcome to the Road Map from Auto Finance News. Since 1996, the nation’s leading newsletter in automotive lending and leasing. It’s Monday, August 25th, and I’m Amanda Harris. First, I’d like to thank our sponsor for this week’s podcast, The Work Number by Equifax. This week we dived into fraud trends impacting the automotive industry. We’ve already shared that fraud is on the rise across the industry, with emerging trends such as bust out auto schemes in which fraudsters take out multiple car loans to acquire vehicles that then they sell ahead of the loans hitting their credit report. Synthetic identity fraud also continues to be a growing problem. And while not new, we’re also hearing that floor plan financers are seeing a rise in fraudulent activity tied to dealer financing for inventory. Westlake Flooring Services and independent dealer floor plan financer NextGear Capital both told me that dealer fraud is noticeably up. While it’s still small from a volume standpoint, there has been a noticeable rise in dealers disappearing with vehicles and not paying their floor plan, which leaves the lenders on the hook for those losses without being able to repossess the cars, hiding cars, quickly selling vehicles for cash, submitting fake documents or fraudulent bills of sale, and not providing property. Proper audit documentation are all forms of fraud floor plan lenders must navigate. Other forms of risk are also up, such as dealers inflating vehicle values to get more funds from their lenders and engaging in car sales to employees. On top of fraud risks, floor plan lenders are also navigating a rise in defaults. As dealers face increased costs, and of course you can read the full story to get a deeper look at these trends. Also, last week we took a deep dive into the credit union landscape as consumer demand for used vehicles contributes to a shift in market share. And Truth has the update there. Truth. Truth Headlam 2:24
Thanks, Amanda. So according to the latest TransUnion data, banks actually grew their market share of used and new vehicle finances in the second quarter as credit unions and captives saw their market share be A. little mixed. And shrunk A. bit. So for captives on A. new side, you know they led the market share for new vehicle auto loans in the second quarter at 45%. And while they did hold majority of market share, they their market share still dropped just A. tad from. At the same time last year. Banks, however, they trailed captives A. tad, but they did have the largest gain of four percentage points year over year, and so that put them at 34% of market share. Following banks was credit union with 18% of market share and a.Two percentage point increase. Now on the used side, banks market share of used auto loans ticked up two percentage points to another 34%. So they kind of matched their new vehicle market share there. But credit unions saw A. slight decline year over year.
And their market share came in at about 33%. And for captives, their market share also dropped to 8%. So I had the chance to speak with TD Auto Finance’s Chief Executive Nadir Jones, who told us that one reason for captives growth and the. The new market is because OEMs are managing their incentive spend in anticipation of the pressure tariffs will likely put on their margins. Both TD Auto and Oregon Community Credit Union are prioritizing used vehicles as consumer demand shifts from new vehicles. Shifts from new vehicles. OCCU recently came to market with an auto ABS. It is their third ABS in about two years and they came to market in late July and I believe it totaled about 350 million. And that’s it when it comes to market share. But I did want to touch on tariffs A. little bit more. So we had yet another event, so to speak, when it comes to the tariff landscape. President Donald Trump’s administration has implemented steel and. Aluminum tires on products that were previously not included with and this kind of came to market on August, August 18th, excuse me. So there was A. notice from the Bureau of Industry and Security, which is A. division of the US Department of Commerce, and in that notice. You basically saw that 407 harmonized tariffs scheduled schedule of the United States codes. So basically tariff codes were added and those 407 tariffs. Codes, excuse me, were mainly steel and aluminum derivative products, and only about 60 tariff codes were withheld. But don’t get too happy, folks. It wasn’t because the government decided not to. Tax them. It was simply because those 60 derivatives are likely to be hit by other tariffs. And it’s also important to note that several auto manufacturers have already noted that their tariff impacts will be in the multi billions. And so we also got to speak to Jim Murray, who is the president of A. subprime lender, Western Funding, and he detailed for us A. likely scenario that could happen in about four steps. So. Looking A. little bit further into the future, cause tariffs haven’t quite hit consumer prices just yet, as many OEM’s are trying to keep demand leveled by eating the tariff cost themselves. Eventually, tariffs will get passed on to the consumers, which will contribute to further price increases. As you guys remember, we have always, we have already been seeing price increases as A. result of demand and supply kind of just not being on the same page here. As it normally happens. And so once those tires get passed on to the consumers, of course, passes prices will rise even further. Used vehicle demand and prices will rise even further, and then lenders will likely take precautions and start to tighten their underwriting programs. But ironically, with all this tariff noise, if you will, retail investors kind of seem unfazed. And while some auto stocks saw A. slight drop immediately following the news of the. Expansion of towers. Many stocks actually closed up from their market open values, so I definitely found that A. bit interesting. Now for some key takeaways in power sports, I’ll turn it over to Aidan.
Aidan Bush 7:57 Thank you, Truth. Well, maybe power sports as an industry is in some ways a little bit more insulated from the tariffs. That does not mean that there hasn’t been a handful of sort of volatile activity in the power sports space. So let me just get right into that. Let’s start with Marine. There we saw reports that the average selling price rose 10%. Month over month in July for boats, according to an integrated dealer system report. Dealer consultants and dealers I spoke with told me that while we may have seen a delay in sales around April and May due to a colder, rainier spring with just sort of, you know, less favorable weather. That has not resulted in a in a shorter sales season overall. Rather, the sales that maybe, you know, would have happened in April and May are now sustaining themselves into even early August. Another potential factor for that sales increase is the release of new visually distinct models this year from Mastercraft and Monterey. As well as Scarab jet boats. The thinking there from kind of the dealers I spoke with is that previously consumers were holding on to their vehicles thinking that there wasn’t sort of substantial enough difference between that and the new model year vehicles. In the motorcycle segment, dealers have also reported higher new vehicle prices. Though that hasn’t necessarily translated to more sales for them. Instead, as new units have become more expensive, consumers look toward used and more affordable motorcycle lines. There’s also been an uptick in power sports loan rejections, just anecdotally from dealers I’ve spoken with, though they’re careful to clarify that they’re. Not sure if that’s because of tightening credit standards or just an influx of subprime consumers. The general manager of an Ontario based Harley-Davidson dealership told me that in some instances that dealership will not send loans to banks because of how often it expects to see rejections. Kind of backing up a little bit towards more of the, you know, dealership itself side, a deal between Aqua Finance and Wells Fargo Commercial Distribution Finance may streamline floor plan payments for dealers who work with both. And this is sort of an abstract deal. So just kind of bear with me for a second as I give you an example here. Let’s say you’re A. motorcycle dealership who has taken A. floor plan loan with Wells Fargo to get all of your inventory. If you sell one of those motorcycles to A. consumer and finance it through Aqua, Aqua’s software can detect if that vehicle is A. part of Wells floor plan loan and it will automatically pay off the full balance for the dealer. In addition, sort of on the retail side, this program allows Aqua Finance to tap some of Wells Fargo’s OEM partners. So think like Brunswick, KTM and Winnebago to get better incentives on the Power Sports loans they’re offering. And there’s also sort of A. small consumer component to this as well. There’s A. digital portal that allows pre-qualification.
For financing and DocuSign to kind of speed up some of those transactions. That’s all for me this time in the Power Sports space, so I’ll kick it back over to Amanda. Amanda Harris 10:54 Great. Thank you, Aidan and Truth. Lots of, lots of updates happening all around, so we’ll try to keep everyone updated. Also, a couple other headlines on economic news. Federal Reserve Chair Jerome Powell during the Fed’s annual conference on Friday did say that the outlook for risk in the labor market could warrant policy adjustments. Signifying their rate cut could come as soon as next month. Although he didn’t say that specifically, the speech did solidify economic expectations that the Fed will pass a 25 basis point cut in September. So I guess we’ll all wait and see if those hold up. And then in auto finance news, Salantis expanded Chief Financial Officer Doug Osterman’s role to include leading. Atlantis Financial Services. We have that and several other leadership changes that are published on our site, so be sure to check out that latest roundup and that will be all. So thank you for joining us on the roadmap. Be sure to follow us on X and LinkedIn. Registration is of course open for our upcoming Auto Finance Summit and Power Sports Finance Summit in the fall with Power Sports just around the corner next month.