Podcast: ‘Weekly Wrap’ on aftermarket compliance, EVs 

Amanda Harris 0:20
Hello everyone and welcome to the road map from auto finance. News is 1996 and nations leading news in an automotive lending and leasing. It is Monday, February 26th. I’m Amanda Harris joined by Riley Wolfbauer.
This is our weekly rap and what happened in auto finance for the week ending February 23rd, 2024 and Automotive News. Beijing based Li Auto reported net income of $1.6 billion last year, becoming the first of the three major Chinese EV upstarts to post an annual profit on the heels of an increase in vehicle shipments, the automaker’s revenue and deliveries were also better than expected, and auto finance news we had several earnings this week. Carvana’s originations were down about 4% sequentially and nearly flat year every year and the fourth quarter at 1.5 billion. As a retailer, tightened credit standard and enhanced its credit scoring and pricing structures. Other GPU which includes finance and insurance profits fell about 26% quarter over quarter, but rose 24% year over year to 1945 dollars. Retail sales declined about 12% year over year to about 76,000 units on the electric vehicle front, Rivian Automotive is expanding leasing after launching the option in November for select R1T and R1S models across 15 states. The Ev makers deliveries rose 73.5% year over year in the fourth quarter, while production picked up 75% year over year. Still, Rivian cut 10% of his salary workforce and then static demand. The companies production guidance for 2024 of 54,000 units came below Bank of America’s original forecast of 67,000 vehicles. Lucid Motors too, is implementing a new technology platform and working to streamline financing through lucid financial services on a sequential basis, luxury EV makers deliveries rows 19% and 54%, respectfully sewing Evie sales are also prompting more incentives and price cuts across the industry.
As we’ve seen, tells be pretty mixed. Uh. Largely bolstered by a 21% year over year decrease in the average Tesla Model Y price to $50,000 in January, and we’ll have more on that to come. We also did a deep dive into the add on product market. So we have two features up on this as vehicle profitability strengths following multiple years and strong profits driven by supply constraints in high demand finance and insurance profitability is even more key for dealers. So F and I made up on average about 23.8% of publicly traded dealership profits in Q3 and that is second only to the parts and service business and sales are aftermarket products such as vehicle service contracts, tire and wheel protection, guaranteed asset protection coverage and prepaid maintenance has still proven strong with many dealers seeing an increase in sales on a year over year basis in 2023. On the other hand, retailer profit per unit was projected to fall 28.5% year over year in January, as fewer vehicles are sold above MSRP and as dealers look to boost financing penetration rates and ancillary product sales, lenders must be aware of dealership pricing and practices to manage their own risk when it comes to add on product allowances. However, there is little data available and the exact size and makeup of the market or on pricing of individual products and deals due to how the market functions and the variations from state to stay in even by deal through deal, our full feature dies into these scenes as well as the increased adoption of digital f and i as a way to better track the market and boost F and I activity. So if you’d like to learn more about the market, the after product sales market, definitely read the full feature and the ancillary product market is also a hot topic for regulators as the Consumer Financial Protection Bureau and the Federal Trade Commission are looking closely at how lenders managed the addition of aftermarket products within retail installment contracts and how financers issue refunds when an add on product is cancelled. So Riley that was your feature. So you had the details here, don’t you? Go ahead and share what the takeaways are. Riley Wolfbauer 4:25 Yeah. So as you just said, as we all know, regulators have been cracking down on this segment of the market just to ensure that consumers are treated fairly and receive the benefits that they get out of the products as well as receive refunds for unused products or if they cancel products. Umm, but one of the largest issues that all of our lender audience obviously knows is that the issue with refunds is each state has different guidelines as to how many days it needs to take for the refund to be issued to the consumer after the products cancelled, each state looks at the calculations a little bit differently as well, so it’s very difficult to have a holistic. Compliance process set up to apply to all of them, like lenders have to go state by state. And so it’s very difficult to track. And one of the focal points in my feature was then focusing on the addition of the cars rule. Well, the potential addition of the cars rule because it’s being challenged by NADA and the Texas automobile or Dealers Association. So the cars rule is supposed to. It was set up by the FTC to be put in effect in July, but that could be postponed until the the the case is heard by the 5th US Circuit Court of Appeals as to whether or not this law can go in effect or not. So really what the FTC cars rule is trying to do, it’s FTC wants dealers to provide the full purchase price to consumers with the add-on products included, make it clear that these products are optional to the consumer. They also had to get expressed content from the consumer to add these on to the contract and then one of the big focal points in the big question marks that comes from this is refrain from adding products that don’t provide a benefit to the consumer such as in like one of those examples is like a warranty program that duplicates on top of the manufacturer’s warranty, not that dealers are doing that, but that’s one of the examples that the FTC set up.
So the biggest question mark with that is how the FTC is going to differentiate between what is the beneficial product and what’s not a beneficial product as well as how much a dealer can charge for those as well. So it’s putting the focus more on the dealer to protect the consumer, but also lenders still need to be aware of it because a lender doesn’t want to be underwriting contract that has. A unnecessary product added on so lenders. There’s potential for lenders, too. Also, get caught up in this and away lenders can avoid is by coaching their dealers and going through with them and looking at the deal jackets as to assess which products are beneficial and which are not. Umm, that’s like, really huge takeaway. And if you wanna find out more about aftermarket compliance, go check out the feature. Amanda Harris 7:44 Yeah, definitely. You know, a lot of those scenes came up at uh in ADA, too, just on the lender side of things really having to know, like you talked about, like, you know, there are at risk as well, right? If they are, they could be beholden to any, you know, actions taken against the dealer as the financer. So that’s something that, you know, they always have to make sure that you’re working with in compliance. And then the one the big challenges is that Gray area you mentioned of how determines what value the product holds, unless it’s a very stark obvious example like they give right. But then the thought is, well, no ones. No reputable dealers really doing some of these things, So what you might fall into is some of these kind of Gray area things and that could cause some challenges as far as you know, maintaining compliance and as challenges to sales too, right? Like, if you’re not sure, might hold off on selling something so that could could maybe hurt penetration rates down the road. We just don’t know what the fallout might be from the car’s rule. If it does get put in place as is, or if it’ll get changed, we’ll have to. We’ll have to wait and see, but definitely big topic for compliance and for dealership profits and for lenders as well. Amanda Harris 8:52 So we’ll be definitely falling closely. We do have a webinar coming up on this topic as well. Coming up next month, UMM registrations open for that too. So if you wanna hear more about aftermarket product compliance, make sure you go to our website and register for the webinar. So be really great Riley’s gonna host that so it’ll be a lot of fun. So if you enjoy the listening us here, I’m sure you’ll enjoy listening to that podcast as well, so make sure you register for that. Well, that’ll be it for today’s episode. Tune in this week for more EV news and other updates in the auto finance industry.