June marked a continued pullback on indirect auto lending in a challenging market, but a strong sales month for electric vehicles.
Subprime auto lender Gateway Financial Solutions in May scaled back indirect auto financing outside of Michigan, but continues to originate loans in Illinois, Indiana, Kentucky, Michigan, Missouri, Ohio and Wisconsin.
Meanwhile, EV sales improved at many of the major manufacturers in the second quarter, boosted by record-setting sales in June. EV inventory continues to hit dealer lots while demand is mixed, prompting concerns about oversupply within the next three months.
Subscriptions remain an option for consumers to test an EV before purchasing. Vehicle subscription platform FINN, for one, secured a $27.2 million asset-backed facility to purchase vehicles. FINN’s inventory consists of 30% EVs and 55% electrified vehicles, including hybrids.
In this episode of the “Weekly Wrap,” Auto Finance News’ Deputy Editor Amanda Harris and Senior Associate Editor Riley Wolfbauer discuss the top stories for the week ending July 7, and what to expect in the upcoming earnings season.
Auto Finance Summit, the premier industry event for auto lending and leasing, returns October 29-31 at the Bellagio Las Vegas. To learn more about the 2023 event and register, visit autofinance.live/afs/.
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 roadmap from auto finance news since 1996, the nation’s leading newsletter and automotive lending and leasing is Monday July 10. And Amanda Harris joined by Riley Wolfbauer. This is our weekly wrap on what happened in auto finance for the week ending July 7 2023. In general economic news, the Federal Reserve’s likely going to raise rates this month and potentially bring in additional hike in September, after the unemployment rate fell to 3.6% in June and average hourly earnings Rose 4.4% year over year, non farm payrolls increased to under 9000. Last month. And on a motor vehicle finance related consumer complaints with this Consumer Financial Protection Bureau are on track to surpass 13,000 by year end with the volume of complaints filed through mid year, outpacing total volume and 2020 difficulty making loan payments topless complaints while Consumers also complained to struggles related to managing and paying their car loan as well as lenders refusal to lower their payments. With vehicle sales increasing is likely complaint volume will to nearly every major auto manufacturer also posted double digit year over year growth and sales during the second quarter. American Honda sales jumped 44.7% year over year Nissan sales grew 33% year over year Hyundai positive 14% year over year increase and Stellantis sales ticked up 6% year over year. rising rates continue to be one of the biggest factors keeping auto sales from reaching pre pandemic numbers but obviously still very strong. And auto finance subprime auto lender gateway Financial Solutions became the latest financer to curtail indirect auto lending Marly tell us what’s going on there.Riley Wolfbauer 01:45
Yeah, so as you just said gateway financial solutions, they scaled back their indirect auto lending. They are a they are based in Saginaw, Michigan. So they scaled their indirect auto, they scaled back their indirect auto lending outside of the state of Michigan and may deal with financial services originated 377 loans and leases in Michigan in May, that’s where their greatest footprint is. So that’s why they’re keeping their presence up in the state. Gateway also originates loans in Illinois, Indiana, Kentucky, Missouri, Ohio, and Wisconsin. So they pulled back in all of those states outside of Michigan, as over the past few months, they have seen their volume decrease a little bit. In March, they did 146 loans and leases in Indiana, and their their volume went down to 87 and May. For another comparison in Missouri, they had 68 in March. And then by the time they got to May they were down to 27. So the motivation behind the pullback is that they’re placing more of a focus on their primary footprint just to maximize operational efficiencies in an attempt to offset the rising cost of capital. That is what Chief Executive Kristin Karwat told us. GFS has no additional plan for any more pullback at this time outside of Michigan. But they are constantly looking at what they have to do to be most profitable. But as they are just the latest one to join in a pullback last week, Fifth Third, they ended their indirect auto lending and select Western States Citizens Financial, they completely exited auto lending in June. And then citizen then Mechanics bank and Key Bank also exited earlier within the past couple of years. So this is just the next one who has pulled back a little bit amid the rising cost of capital and not as much or not as many loans occurring out there.Amanda Harris 04:08
Definitely yeah, and it’ll be interesting to see you know, knowing that regional banks and intermixture pulling back on you know, their indirect auto finance business how this will play out, you know, with earnings coming up so it’ll be definitely paying close attention to those numbers. Sure. They’re going to be down for most of them anyway. So what kind of see what happens, but turning to some electric vehicle news, Evie sales improved at many of the major manufacturers in the second quarter boosted by record setting sales in June. So for example, General Motors q2 EV sales jumped 114.4% year over year to just over 15,600 units. While Hyundai said q2 sales records have multiple other EV models including its Elantra HEV and Santa Fe PHEV, Ford Motor and Kia whoever does he Evie sales fall during the quarter Ford sales dropped 2.8% year over year. or to about 14,800 units. While key is sales of its Evie six fell 32.3% year over year. In June Ford’s overall Evie sales actually increased 35.5% year over year to 5900 units and Toyota Motor North America’s Evie sales rose 28.8% year over year to about 51,500 units. So Evie sales are very strong. Pretty much across the board. Even the few down ticks we saw were large and in June we did see pretty much across the board everyone going up with with a couple of outliers there. But while sales are strong, Evie inventory continues to hit dealer lots and we know new models are coming in production has not slowed. But demand is still mixed prompting concerns that it could be an oversupply or in our sources where it’s a tsunami of product coming in within the next three months. And that’s because Evie supplies it at 92 days in its second core, which by comparisons up from 35.8 days a year ago, and higher than the 51 days that new vehicle supply supply sitting at industry wide at the end of June. So they’re not slowing down Evie production. It’s hard to sell EVs in the mainstream market, which is really where EVs are now headed, early adopters have pretty much you know, gotten their vehicles, we know they’ve been a luxury product for a long time, there is now this push to get more in the mainstream the regular buyers who come in typically finance or vehicle purchases, and there’s still a lot of hesitancy to even get an Eevee because of range anxiety, and it’s new technologies new, the price is still very high. Again, a lot of people just aren’t sure about being able to charge and have that range that they need. So there’s still a lot of hesitancy there while production hasn’t slowed down and supply is building. So that could spell some challenges down the road. Evie prices are already down about 15% year over year. So we’ll probably we’ll see more price cuffs, incentives on the horizon to drive those sales, again, trying to offset some of that production outpacing the the sales right now. And subscriptions are one way companies are looking to address that hesitancy I talked about so vehicle switch and platform fin for example, just secured a $27 million asset back facility and are going to use that to purchase vehicles and their inventories about 30% of EVs. 55% electrified vehicles, including hybrids, they’re based in Germany and in the US. And they will use their new capital funding, which goes into their kind of pot of other capital funding that they have to buy vehicles to list for subscription. And they’ll contribute more of their equity funding to grow their business and invest in operations. So before they really had to rely on equity also to purchase vehicles now they can really purchase straight with debt funding. And now they can put more of their equity into growing their subscriptions for consumers. They also do business to business fleet subscription. So those are probably going to pick up both in Germany and in the US. So they’re trying to grow the US market since that’s fairly new. That’s what so I’m sure we’ll have more AV news to share with you all soon. But that about does it for today’s episode. Stay tuned as earnings season does kick off later this week with Chase Otto and Wells Fargo so we will be covering those as well as continuing earnings coverage over the next about month or so as a team. Thank you for joining us on the roadmap and be sure to follow us on Twitter and LinkedIn. We will see you online at auto finance news.net and here next time