Podcast: ‘Weekly Wrap’ on Fifth Third pullback, EV financing

Joey Pizzolato 0:09
Hello, everyone, and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing. It’s Monday, July 3, and I’m Joey Pizzolato. Joined by Riley Wolfbauer and Johnnie Martinez. This is our weekly wrap on what happened in auto finance for the week ending June 30 2023. In general economic news, US consumer confidence increased to the highest level since the start of the year on greater optimism around the labor market and the economic expansion. The Conference Board’s Index rose to 109.7 in June from 102.5 In May, exceeding estimates in a Bloomberg survey of economists. The group’s gauge of current conditions jumped to 155.3, the highest level in almost two years. In automotive Lordstown motors filed for bankruptcy last week. The move follows a protracted dispute with iPhone maker Foxconn Technology Group, over a deal to make pickup trucks for Lordstown and an assembly plant in Ohio. The Taiwanese manufacturer said it was preparing to pull out of their production partnership, prompting the Eevee startup to warn it could fail without additional capital. In auto finance, Fifth Third last week pulled out of indirect auto lending and select Western states on the heels of declining auto originations the bank is not exiting indirect auto and specialty lending. The company spokesperson told on a Finance News rather is quote, paring back to reduce originations with the vast majority being in western saints outside of fifth third’s footprint in quote. Cincinnati base Fifth Third offers indirect auto lending in every state except for Alaska, Hawaii, Louisiana and Wyoming and has branches in Florida, Georgia, Illinois, Indiana, Kentucky, Michigan, North and South Carolina, Ohio, Tennessee and West Virginia. Fifth thirds pullback follow citizens exit from indirect auto last month. Citizens on June 23 price a $1.5 billion asset backed securities transaction and upside the upside is the deal due to strong demand from investors. Citizens financial group plans to sell more bonds backed by prime auto loans following its first such first such deal. Following its exit, Bloomberg reported citizens plans to issue around three to five more bonds backed by its $11.5 billion auto loan portfolio on the electric vehicle front, so their auto finance is prioritizing its new electric vehicle loan product over its nonprime product on the heels of its freshly in partnership with climate finance company tenant that is bringing the Eevee offerings to Solaris indirect dealer network. So let our auto finance offers tenants evey loans which include charger and charger installation financing to its dealer network in California, Colorado, Oregon, Texas in Washington Solera will push its Evie offering and quote, throttle back on its nonprime offering chief executive Ken Morell said The move marks tenants first foray in indirect auto financing and follows the launch of commercial fleet financing for small business says in May. Ad prices have been falling as supply improves rally well Pharma has the details.Riley Wolfbauer 3:29
In the second quarter of this year, average retail new Evie prices fell to just above $55,000. And so that’s a year over year decrease of 15%. And that’s pretty significant in EVs because as we all know, the high price point is one of the big barriers to adoption for consumers. So as we see these prices falling, we might see consumers follow by adopting electric vehicles at a quicker rate. These price cuts came largely in response to the large amounts of inventory that are available for EVs. The new Evie supply in the second quarter reached 92.2 days, which is up compared with 35.8 days during the same period last year. So EVs are sitting as I said at 92 days in the second quarter, and for reference all new vehicle supply is sitting at 51 days currently. So Evie supply is way more than internal combustion engine supply right now. So in order to move the vehicles and stay competitive and boost sales, we’ve seen Evie companies cut back prices or cut back on the MSRP we saw Tesla first do it, I believe in December of 2022 then Ford followed to stay on par with Tesla. And now Hyundai is the latest manufacturer to cut Evie prices, they cut $5,000 off of their ionic six sedan. So as there’s this overflow of inventory, these OEMs have to move supply so we could see potential price declines come in the future, and it could increase the amount of share that EVs are taking up of sales.Joey Pizzolato 5:31
Right. And, you know, speaking of falling prices falling used car prices are pushing up loan to value ratios on used vehicles. Riley, what’s going on there? You reported on the story last week as well?

Riley Wolfbauer 5:45
Yes, so as as you just said, we’re seeing loan to value ratios at the point of origination, increasing over the past two years. And so that’s putting consumers into greater negative equity and high loan to value or high loan to value ratios at origination has also kind of indicated of where there could be softness in the portfolio and where lenders could see delinquencies rise. So the average loan to value ratio on used vehicle originations jumped to 125% in the first quarter 2023. That’s compared with 110% in the first quarter, 2022 and 104% in the first quarter of 2021. It is important to note that most of these elevated LTVs are concentrated in the subprime risk tier. The average implied negative equity at origination with these high LTVs reached $6,700 In the first quarter, and that’s an increase of 348% compared with the fourth quarter of 2021. So as I said before, there’s higher LTV, origination points to greater risk of delinquencies. So use vehicle loans are after 12 months on the portfolio used vehicle loans are originated with an LTV of 140% plus between 2018 and 2021 had a 60 day delinquency rate of above 7% compared with 5%. At LTV is between 125% and 139%. And a delinquency of rate of 4% on loans with an LTV between 100% and 124%. So as we see the LTV tick up, we see the likelihood of delinquency tick up as well. So this could indicate that there’s softness in some subprime portfolios. But overall, portfolios are generally healthy, but it’s more focused in the subprime area that lenders need to be concerned about.

Joey Pizzolato 7:58
Great, thanks, Riley. During the power sports, we have more RV news. Johnny Martinez has the details.

Johnnie Martinez 8:07
Yeah, so powersports lender IronHorse funding is expanded into RV financing and refinancing. The company announced that it’s going to be in the direct consumer financing and refinancing for motorhomes a total RVs as well as in that indirect space that they’re more so ironing out what we know more definitively what’s happening direct to consumer in financing refinancing. And this is kind of a building upon what they’ve been building on really since they’ve started right they have ATV, motorcycle, personal watercraft side by side that they’ve been doing, they even expanded motorcycle and the personal watercraft earlier this year. And it’s just you’re seeing a company grow in this space and get more involved in RV finance or get involved in RV financing which you know, they’re not even the only one we’ve seen doing that recently. Octane lending got into RV lending in August of last year, US Bank got into omni channel RV financing in April of this year. So it’s just more and more companies wanting to kind of complete that space under the power sports umbrella similar to how we have it where on our site, you know, we break it on road off road, RV marine you’re seeing more and more companies want to be in kind of all four of those buckets. And this is just iron horse kind of going that way and you know, talking with their their CEO, it was part of just the long term vision of the company was always and up here. This is where they’re at now and it’s another person getting into more financing in these RV space especially as this RV market kind of solidifies post COVID.

Joey Pizzolato 9:36
Right. Thanks, Johnny. That about does it for today’s episode. Happy Fourth of July to all thanks for joining us on the roadmap and be sure to follow us on Twitter and LinkedIn. We will see you online and auto finance news.net and here next time