Podcast: Tricolor bankruptcy prompts calls for transparency, portfolio reviews 

Amanda Harris 0:20 Hello everyone and welcome to the Road Map from Auto Finance News since 1996, the nation’s leading newsletter on automotive lending and leasing. It is Monday, October 27th and I’m Amanda Harris. First, I’d like to thank our sponsor for this week’s podcast, The Work Number by Equifax. Last week, Truth attended the ABS E conference in Miami, where much of the talk centered around Tricolor’s bankruptcy and the ripple effects in asset-backed finance. Truth, can you please fill us in? Take it away. Truth Headlam 0:52 Yeah, for sure. Thanks, Amanda. So as you said last week, the structured finance community gathered in Miami for the annual ABS East Conference and I had the chance to attend this year and hear about all things auto and ABS. As expected, tricolor auto was a topic at almost every panel I attended. Those that were autofocus and those that weren’t, as you said, because there are verbal effects that are simply impacting the greater asset-backed community. Market participants who continue to examine tricolor and dissect what happened there, they’re also trying to. Figure out what can be learned with what little information has been released or conf. Because the reality is a lot of what is being said about tricolor are still allegations, with the exception, of course, of the fact that the DOJ is investigating them. So some of the biggest takeaways was a call for transparency from investors in ABS. So at ABS East there was an investor panel where several investing experts. Discussed how there’s a lack of transparency in the auto ABS market compared to other assets classes. And one of the most common asset classes that are used to compared to, excuse me, one of the most common asset classes that people often compare autos to is the housing market and mortgage ABS. And so there was. A lot of talk about how the mortgage and the mortgage ABS market is just a bit more advanced when it comes to transparency and investor who’s being well educated and having more immediate access to the information they feel is necessary to make the most informed. Decision. So the bottom line there is that investors want to understand what they’re investing in to better understand the risk. And some are even suggesting to go to limits as extreme as limiting their investments until the auto market can catch up on the level of. Desire transparency and continuing with the idea of ripple effects to the to the to the greater auto market. Also at the summit, S&P projected that. No FICO lenders were going to see some losses because of their model, and in part as what some may believe contributed to at least a fraction of what went on with Tricolor. S&P also put out 11 classes of notes from another subprime lender, First Help Financials, and they specifically put those 11 classes of notes on credit watch negative due to declining performance. So this is just. A another scenario of how after the downfall of Tricolor, or at least in the in the midst of it, we’re hearing a lot of agencies that are heavily relied upon take a closer look at similar. Lenders to tricolor. And when I say similar, I mean it could be similar in the sense of no FICO lending, buy here, pay here and otherwise. And then lastly, in the wake of Tricolor, several lenders, including Ford Credit, have taken steps to reassure investors that there’s no double pledging of assets. Ford Credit specifically reviewed its loans following Tricolor’s collapse, according to Ryan Hershberger, the Director of Global Funding and Capital Markets of Ford Motor, who also spoke at the summit. And then getting into some more broader ABS news and getting off a tricolor for a quick second. What I will another popular topic at the summit was regulation. A ramp up in state regulation amid a pullback from the Consumer Financial Protection Bureau, CFPB for sure. could have a direct impact on the asset-backed community, specifically asset-backed security securitizations. One example of a legislation that might have this effect was the California Combating Auto Retail Scams Act. CARS Act for short. This was brought up as an example because, for instance, lenders have to comply with a three-day buyback rule, among other things outlined in the Act, which could impact the loans that lenders can include in their. Their pool for an ABS and and so on and so forth. There’s a lot to unpack there and in short, the auto ABS market is keeping their eyes on tricolor, the after effects as well as regulation. To give some additional updates from our Auto Finance Summit 2025 and to get some takeaways, I’ll turn it over to Aidan. Aidan Bush 6:42 Yeah. Thank you so much, Truth. I think it’s really interesting. One of the kind of key topics we heard at AFS 25, and I think we might have even touched on this a little bit in some previous episodes was consumer resiliency, even despite some of those headwinds around tricolor or had kind of broader affordability issues. And so one of the things that was mentioned at AFS was Santander US has a quarterly survey and in their most recent one, over half of the respondents said they were thinking about buying a vehicle, which was up from 43% last year. Kind of continuing on a similar note there, 66% are researching options and 49% have visited a dealer. So despite some of these affordability issues we’ve talked about or despite some of the broader subprime ABS concerns right now, you know consumers are still looking to purchase vehicles and that’s what we heard from. Betty Jotanovic, who presented this survey sort of in part at AFS. She also mentioned that vehicles are still floating near the top of the payment hierarchy for consumers. And so around 72% of the people surveyed said they would sacrifice sort of other budgetary items to buy a vehicle. So we’re still seeing, I think we’ve seen kind of FICO report this out in in months prior that consumers are still prioritizing their vehicle payments and vehicle purchases over, you know, maybe your like student loans or some of those other recurring payments in their lives. That being said, there are still some impacts of these rising affordability. Concerns and maybe sort of where that was seen most prominently was the percentage of consumers willing to buy a used vehicle. So 81% considered getting a used vehicle and 90% have said their interest in a used car has grown, according to that study. Which sort of falls in line with what we’ve seen that perhaps there will be more used vehicle demand, especially as we still sort of expect those increase in prices from new vehicle tariffs. One other topic that was really key there was sort of the role of AI, machine learning and new technologies and how they’d be used by auto lenders and auto dealers. So we heard several auto lenders are eyeing machine learning tools, excuse me, machine learning tools to better analyze both their debt, both their debt collectors and the borrowers those collectors are calling. So for example, Pen Fed Credit Union uses a I to basically generate like a summary of the borrower’s habits. So if they’ve failed, you know, promises to pay before, sort of what their follow-through rates look like, how often you know they have paid prior. And it gives these collectors a little summary of that information in the hopes of sort of best approaching, you know, these sort of individual consumers. PenFed is also using a series of digital dashboards to track other collector metrics. So actually sort of rating the performance of the agent themselves. So how frequently they’re calling borrowers, how frequently they’re locating, you know, your more difficult to find borrowers, that kind of thing. And we heard this was really not tied to just PenFed. Arivo Acceptance has 50 machine learning models in production and is similarly looking to sort of analyze any data to impact their collections performance. And both Arivo, PenFed and some other lenders pointed to the answer rate. So how often a. Then a borrower actually picks up the phone as really a key metric to watch as they’ve seen with kind of lesser answer rates, higher delinquencies occur as a result. So that’s sort of their their big key metrics you can kind of take away from that. I think that’s all for me this time, so I will pass it over to Amanda for the rest. Amanda Harris 10:26 Great. Thank you, Aidan and Truth. Lots to unpack there, lots going on last week as we know and will continue. We also saw the star of retailer earnings and a couple of captives reported third quarter earnings as well last week. So I’ll just go through the line and kind of give some quick key stats. GM Financials originations ticked down 3.5% year-over-year to about 13.8 billion, while delinquencies and net charge-offs were flat on a year-over-year basis. Turn to for credit for credit’s lease share rose 18% from about 15% a year ago, so that’s interesting to see that uptick. Their outstandings ticked up about 4% year over year, 91.4 billion, and delinquencies and net charge-offs rose for credit does not break out originations volume. Turning to Tesla, Tesla’s lease penetration fell about 100 basis points year over year to 2.1%. With nearly 497,000 deliveries in Q3, which was up about 7.4% year over year, Capital One’s originations also rose 17.2% year over year to 10.7 billion and delinquencies and net charge-offs declined on a year-over-year basis. Auto Nation Finance’s originations jumped 85.7% year-over-year to 1.3 billion and that is year-to-date as of the third quarter and the portfolio surpassed $2 billion. The retailers finance and insurance revenue also rose nearly 12% year-over-year to 375 million and new vehicle sales increased about. 5% year over year. Lithia Motors finance arm Driveway Finance originated 732 million in loans in Q3, which is up 41.3% year over year. And Lithia’s F&I revenue increased 5% year over year to 379 million while new and used car sales rose. And then last but not least, Sonic Automotive’s F and I revenue was up about 16% year over year to 204 million while new vehicle sales increased 11% year over year. So overall slightly mixed across the board, but mostly positive with mostly growth and originations, portfolio growth sales were still up at the retailers. Retailers, F&I revenue is still pretty strong, so we’ll see if that continues for the rest of Q3. We will have more coverage from earnings this week. We had a couple more retailers to report and we’ll also have continued coverage for the next week or so from Auto Finance Summit 2025 including in the feature to come. And more stories coming out of our of our events. So make sure you stay tuned. And as always, thanks for joining us on the roadmap. Be sure to follow us on X and LinkedIn. We’ll see you online at autofinancenews.net and here next time. 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