Auto lenders homed in on subprime financing, liquidity management, technology and vehicle pricing last week during Auto Finance Summit 2023.
Subprime financiers are accounting for shifting FICO scores due to pandemic-related government assistance, with some updating their scoring models.
Lenders are also strategically deploying capital in the next year as liquidity improves. Fifth Third Bank, for one, is planning to increase its liquidity in 2024 while being mindful of how and where it lends its funds.
On the tech front, auto lenders are identifying uses for AI in improving operations. Chase Auto is leveraging AI to speed decisioning and manage fraud and compliance mitigation.
Meanwhile, the United Auto Workers strike is not predicted to have a significant impact on vehicle prices or supply levels following the recent settlement.
In this episode of the “Weekly Wrap,” Deputy Editor Amanda Harris and Senior Associate Editor Riley Wolfbauer discuss the top stories for the week ended Nov. 3, and what to expect in the week ahead.
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 road map from auto Finance News.
Since 1996, the nations leading newsletter in automotive lending and leasing, it is Monday, November 6th, and I’m Amanda Harris, joined by Riley Wolfbauer.
This is our weekly wrap on what happened in auto finance for the week ending November 3rd, 2023.
This episode is sponsored by software solution provider Inovatec, touching on the economy U.S.
Jobs grow slow by more than expected as the unemployment rate rose to a two year high at 3.9% in October.
Non farm payrolls increased by 150,000 in October, following two consecutive downward revisions in the previous months, while monthly wage growth slowed in compliance, the Consumer Financial Protection Bureau is implementing A 3 pronged approach to protect consumers amid elevated interest rates, with the agency planning to hire 75 additional enforcement staffers.
See if see if he be enforcement director Eric Halperin said during a consumer rights conference in late October.
The CFPB is going to be looking closely at how companies use consumer data and if they appropriately investigate disputes regarding data accuracy.
The agency is also picking up his scrutiny of predatory lending.
At the same time, the Bureau’s own information security measures garnered some recommendations following the Office of Inspector General’s 2023 audit of the CFPB’s Information Security or Infosec Program, In Auto finance Carvana’s receivables held for sale clocked in at $650 million in Q3, down from 1.1 billion in Q2, but up from 485 million in Q 32022, driven by a higher volume of loan sales.
Origination volume clocked in at 1.6 billion and increases 6.7% sequentially, but down 5.6% year over year.
The retailer is higher than usual volume of loans held and sold during the quarter contributed to a $400.00 uptick in other gross profit per unit.
Carvana’s retail units sold also went up about 6% sequentially, but fell 21% year over year.
We also had our auto finance summit last week where auto lenders touched on themes including subprime financing, liquidity management, technology and vehicle pricing.
Just to name a few.
So subprime was a very hot topic throughout the show.
Multiple people talking about, you know, just trying to whether some of the things happening in the market, one of the big things that we heard lenders talk about was this FICO migration coming out of the pandemic.
So essentially, as everyone remembers, the government put quite a bit of funds and stimulus into everyone’s wallets during the pandemic.
That translate into higher savings.
It allowed people to pay off a lot of their debt.
So basically, in turn, consumers had had a lot of ability to raise their credit scores.
So you know that kind of inflation to their FICO scores allow them to move into different credit bands, allow them access to credit, maybe a little bit easier, but it also meant that those consumers were, you know, for lack of a better term, artificially inflated, right?
So these were funds that were one time thing, you know, they were allowed to pay off debt booster savings.
But now we are kind of far out from when those stimulus were granted to everyone.
Those have either been spent.
You know, we’re kind of getting back toward where consumers would normally be in their credit score.
So this is something that lenders definitely are keeping a close eye on.
Some of them have even had to make changes to their scorecard and to their scoring practices to kind of account for some of this migration that was missed.
Subprime lenders especially are impacted by this, because if you’ve got someone with a FICO score a, say 620, some of the concerns are that that 620 score doesn’t mean the same thing as it did prior to the pandemic.
So there’s some kinds of concerns there now.
We did talk with FICO themselves as well and they are basically telling me, you know, that they have.
They have heard this concern from lenders and their response is essentially, you know, it’s always been a rank ordering tool.
If it goes not meant to be, you know, it’s a moment in time and someone’s consumer credit, and it is a moment in time of a measurement in their ability to repay based on that score.
So they are helping lenders, they are providing some resources.
They’re kind of how to account for some of this migration as well as how to, you know, use FICO and and lean on its ability to kind of separate out low scoring consumers from high scoring consumers and their relative likelihood to default.
So they’re basically saying it’s still a very predictive tool.
It’s still does that and still leans into its normal goal.
So we’ll be looking into that issue a lot more going forward and kind of doing a deep dive here soon.
So stay tuned.
I’m also in the show.
We also had, you know, valuation experts said the, you know, an auto worker strike not predicted to have a significant impact on vehicle prices or supply levels following the settlements.
Much of that is due to the fact that big three already had so much supply ahead of the production strikes, and we’re in a good place to whether those slowdowns we have more coverage on the site on that.
And Riley also has some more of the recap from the show.
So, Riley, why don’t you give us some more details?Riley Wolfbauer 5:16
So how does touch on a couple of themes that we saw throughout the event and the common theme, the common things that we saw a lot of lenders talk about on stage?
So one of those points was we had a lot of lenders to talk about liquidity, especially as cost of capital has been higher and consumer deposit volume has been down throughout 2023.
For example, Fifth Third Bank, we had, Craig Harter, senior vice president and head of indirect lending at the bank talk on stage and he was talking about how they’re approaching 2024 as an opportunity to increase liquidity.
So he was kind of talking how?
2024 they’re gonna be careful in the way that they allocate their liquidity across their portfolio because liquidity is hard to come by.
And as I already said, the cost of liquidity is high.
So they’re gonna be careful where they deploy that and make sure that they’re getting the biggest return on asset when they’re looking to how they’re going to lend money throughout 2024.
He did say that the bank is reviewing its internal scorecards and looking closely at payment to income and debt to income ratios to really manage that risk and get the most out of the airport folio.
Another big talking point, and it has been throughout the industry, is technical, technological advancement and AI Chase auto, for one, is looking at its operations and underwriting and seeing how they can implement AI to make us smoother funding process and make it a better.
Process overall for the consumer, the lender, the dealer just across the board.
So we had Anne Alburo national credit director on stage in the three talking points that she touched on for underwriting and automation was speed, fraud and compliance and AI for recommendations.
As we all know, speed, the funding or time to funding is one of the most important things for lenders of getting that application approved.
And also you’re making the consumer happy.
You’re making the dealer happy, and any time your operations are faster, you’re saving more money.
Same thing with fraud and compliance.
We’ve seen fraud go up across the board throughout the industry a couple months or last month.
We had a story where fraud, I believe, reached $8.9 billion.
So we keep seeing fraud increase more and more and there’s multiple companies out there now that are leveraging AI to look at fraud like look for falsified pay stubs, false place of employment, really anything in the AI can identify that and flag it.
So you don’t write that contract and then AI for recommendations of really just AI recommending how the lender can underwrite a deal to get the most out of that deal.
Uh, so those are a couple themes that we had.
Overall, I’d say it was a great event.
It’s always great to connect with people in the industry that we talk about, talk with over zoom over the phone and really just get that face to FaceTime and it’s always enjoyable to me.
So I thought it was a great event overall and you can check out more of our coverage on the site and we’ll have some more going this week as well.Amanda Harris 8:42
And it was, of course, great to see you too early in person there as well.
So we get our team together.
Well, thank you so much for all.
It was a great summit and we are looking forward to welcome everyone back next year with the Auto Finance Summit, E 2024, which is coming up in May in Nashville.
So make sure you check out the website For more information on that, and that about does it for today’s episode.
Thank you for joining us on the roadmap and be sure to follow us on X from known as Twitter and LinkedIn.
We will see you online at autofinancenews.net and here next time.