Late-stage delinquencies were on the rise in the second quarter as the Federal Reserve’s hawkish monetary policy continued to affect the auto finance industry.
In fact, 23% of loans that were 30 days past due became 60 days delinquent, while 30% of loans in early-stage delinquencies were brought current, according to Experian.
Dealership acquisitions by publicly traded dealer groups, however, soared quarter over quarter despite rising interest rates as the dealer groups looked to deploy capital following stock buyback programs in the first quarter.
In this episode of the “Weekly Wrap,” Editor Joey Pizzolato, Deputy Editor Amanda Harris and Senior Associate Editor Riley Wolfbauer discuss the top stories for the week ended Sept. 1, and what to expect in the week ahead.
Subscribe to “The Roadmap Podcast” on iTunes or Spotify, or download the episode.
Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 29-31 at the Bellagio Las Vegas and features fireside chats with Vroom and Ford Credit. To learn more about the 2023 event and register, visit here.
Transcript:
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 on automotive lending and leasing. It’s Tuesday, September 5, and I’m Joey Pizzolato, joined by Amanda Harris and Riley Wolfbauer. This is our weekly wrap on what happened in auto finance for the week ending September 1 2023. In general economic news US consumer confidence fell by the most in two years on pessimistic views of the labor market, higher borrowing cost and lingering inflation. The Conference Board’s index fell to one of 6.1 this month last month, down from 114. In July, the group’s measure of current conditions fell to 140 4.8, the lowest since last November, consumer six month outlet dropped to 80 point to leaving it’s slightly above June’s level. The decline in consumer sentiment comes as unemployment rose in August, according to the Bureau of Labor Statistics, the unemployment rate climbed to 3.8% largely reflecting a pickup in participation while wage growth slowed. In auto finance, FinTech Upgrade, Inc, will offer consumer auto loans for the first time with plans to target all types of consumers including those with FICO scores as low as 580 Upgrade first told AFN they plan to get into auto finance back in 2020. high interest rates are prompting more consumers to pay for vehicles in cash rather than finance with cash transactions up year over year for used vehicle purchases and stable for new vehicles. cash purchases, including direct loans accounted for 30% of us vehicle transactions in July 2023 compared with 25% in July 22. According to JD Power 6% of us vehicle purchases in July are for or were funded through direct loan which include Cass purchase share. high interest rates are also contributing to more consumers entering late stage delinquencies. Riley has the details.Riley Wolfbauer 02:15
Yes, so more auto finance accounts rolled into later stage delinquency status by the end of the second quarter, compared with the same time last year. So at the end of the second quarter 23% of auto loan accounts that were 30 days past due, became 60 days delinquent, while 30% of accounts that were 30 days delinquent caught up on payments to become current. In q2 2020 to 34% of consumers who were 30 days delinquent became current by the end of the quarter. So there’s a four percentage point difference from q2 this year to q2 last year and the consumers that are catching up on payments. So the industry wide 30 Day delinquency rate, as a percentage of bounces increased 43 basis points year over year to 2.72% in the second quarter, that surpassing the q2 2019 pre pandemic rate of 2.65% balances 60 plus days delinquent came in at point nine 4% which is up 19 basis points and also above the q2 level of point seven 9%. A lot of these delinquencies are occurring in subprime transactions as well. Melinda Zabritski, Senior Director of automotive financial solutions that experience said the importance of that at the same time is subprime market shares also shrinking as we’re seeing this increase. Subprime originations accounted for 13.4% of total financing across the industry, and deep subprime made up 1.6%, which is down from 14.9% and 2%. And keep to 22. We might see a little change in the market share in subprime because as consumers are getting later on their delinquencies, they could fall into those lower credit tiers.Joey Pizzolato 04:12
Great thanks Riley. dealership acquisitions by publicly traded dealer groups, however, soared quarter over quarter despite rising interest rates as the dealer groups look to deploy capital following stock buyback programs in the first quarter. Amanda, what’s going on there?Amanda Harris 04:29
Sure. So yes, as you said, the dealership acquisition activity picked up quite a bit in the second quarter after definitely taking down in the first quarter. They like you said we’re focused on other things in their capital. Now they’re back to spending on acquisitions. Acquisition spending really hasn’t slowed down even though rates are you know, going up. We’re still seeing dealer profits about three times what they were pre pandemic. So even though profits are declining, they are still very elevated. We’re still seeing dealers just want to grow Mostly led by the private groups leading the charge. And then we also had public groups as well, who were buying companies and adding to their their footprint. So we’re still seeing this play out. The idea is that this will continue playing out obviously for lenders who provide floorplan and acquisition financing typically larger bank groups. And typically the companies that already provide floor plan for these dealership groups will also provide the acquisition funding and mortgages and other areas that the dealerships need for capital. So they will obviously benefit as more dealers continue buying up, you know, locations and continue that acquisition spending. And as that keeps going up, that’s good thing for lenders. We are hearing just a little teaser though, that more dealership groups looking to acquire locations are turning to cash. So we’ll have to see how that kind of plays out and whether or not that ends up hurting, you know, the dealers or the lenders books that provide this acquisition funding. But as far as I can tell, as far as I’m hearing so far, not slowing down to any great extent, and still very good for both lenders and dealers on the profit side.Joey Pizzolato 06:03
Great. Thanks, Amanda. That about does it for today’s episode. As a reminder, you can purchase your all access pass to the auto finance summit in the power sports finance summit to attend both events October 29 through 31st at the Bellagio in Las Vegas for 20% off, get your all access pass at WWW dot auto finance dot live. Thanks for joining us on the roadmap and be sure to follow us on X formerly known as Twitter and LinkedIn. We will see you online at Auto Finance News that net in here next time.
Late-stage delinquencies were on the rise in the second quarter as the Federal Reserve’s hawkish monetary policy continued to affect the auto finance industry.
In fact, 23% of loans that were 30 days past due became 60 days delinquent, while 30% of loans in early-stage delinquencies were brought current, according to Experian.
Dealership acquisitions by publicly traded dealer groups, however, soared quarter over quarter despite rising interest rates as the dealer groups looked to deploy capital following stock buyback programs in the first quarter.
In this episode of the “Weekly Wrap,” Editor Joey Pizzolato, Deputy Editor Amanda Harris and Senior Associate Editor Riley Wolfbauer discuss the top stories for the week ended Sept. 1, and what to expect in the week ahead.
Subscribe to “The Roadmap Podcast” on iTunes or Spotify, or download the episode.
Auto Finance Summit, the premier industry event for auto lending and leasing, returns Oct. 29-31 at the Bellagio Las Vegas and features fireside chats with Vroom and Ford Credit. To learn more about the 2023 event and register, visit here.
Transcript:
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 on automotive lending and leasing. It’s Tuesday, September 5, and I’m Joey Pizzolato, joined by Amanda Harris and Riley Wolfbauer. This is our weekly wrap on what happened in auto finance for the week ending September 1 2023. In general economic news US consumer confidence fell by the most in two years on pessimistic views of the labor market, higher borrowing cost and lingering inflation. The Conference Board’s index fell to one of 6.1 this month last month, down from 114. In July, the group’s measure of current conditions fell to 140 4.8, the lowest since last November, consumer six month outlet dropped to 80 point to leaving it’s slightly above June’s level. The decline in consumer sentiment comes as unemployment rose in August, according to the Bureau of Labor Statistics, the unemployment rate climbed to 3.8% largely reflecting a pickup in participation while wage growth slowed. In auto finance, FinTech Upgrade, Inc, will offer consumer auto loans for the first time with plans to target all types of consumers including those with FICO scores as low as 580 Upgrade first told AFN they plan to get into auto finance back in 2020. high interest rates are prompting more consumers to pay for vehicles in cash rather than finance with cash transactions up year over year for used vehicle purchases and stable for new vehicles. cash purchases, including direct loans accounted for 30% of us vehicle transactions in July 2023 compared with 25% in July 22. According to JD Power 6% of us vehicle purchases in July are for or were funded through direct loan which include Cass purchase share. high interest rates are also contributing to more consumers entering late stage delinquencies. Riley has the details.Riley Wolfbauer 02:15
Yes, so more auto finance accounts rolled into later stage delinquency status by the end of the second quarter, compared with the same time last year. So at the end of the second quarter 23% of auto loan accounts that were 30 days past due, became 60 days delinquent, while 30% of accounts that were 30 days delinquent caught up on payments to become current. In q2 2020 to 34% of consumers who were 30 days delinquent became current by the end of the quarter. So there’s a four percentage point difference from q2 this year to q2 last year and the consumers that are catching up on payments. So the industry wide 30 Day delinquency rate, as a percentage of bounces increased 43 basis points year over year to 2.72% in the second quarter, that surpassing the q2 2019 pre pandemic rate of 2.65% balances 60 plus days delinquent came in at point nine 4% which is up 19 basis points and also above the q2 level of point seven 9%. A lot of these delinquencies are occurring in subprime transactions as well. Melinda Zabritski, Senior Director of automotive financial solutions that experience said the importance of that at the same time is subprime market shares also shrinking as we’re seeing this increase. Subprime originations accounted for 13.4% of total financing across the industry, and deep subprime made up 1.6%, which is down from 14.9% and 2%. And keep to 22. We might see a little change in the market share in subprime because as consumers are getting later on their delinquencies, they could fall into those lower credit tiers.Joey Pizzolato 04:12
Great thanks Riley. dealership acquisitions by publicly traded dealer groups, however, soared quarter over quarter despite rising interest rates as the dealer groups look to deploy capital following stock buyback programs in the first quarter. Amanda, what’s going on there?Amanda Harris 04:29
Sure. So yes, as you said, the dealership acquisition activity picked up quite a bit in the second quarter after definitely taking down in the first quarter. They like you said we’re focused on other things in their capital. Now they’re back to spending on acquisitions. Acquisition spending really hasn’t slowed down even though rates are you know, going up. We’re still seeing dealer profits about three times what they were pre pandemic. So even though profits are declining, they are still very elevated. We’re still seeing dealers just want to grow Mostly led by the private groups leading the charge. And then we also had public groups as well, who were buying companies and adding to their their footprint. So we’re still seeing this play out. The idea is that this will continue playing out obviously for lenders who provide floorplan and acquisition financing typically larger bank groups. And typically the companies that already provide floor plan for these dealership groups will also provide the acquisition funding and mortgages and other areas that the dealerships need for capital. So they will obviously benefit as more dealers continue buying up, you know, locations and continue that acquisition spending. And as that keeps going up, that’s good thing for lenders. We are hearing just a little teaser though, that more dealership groups looking to acquire locations are turning to cash. So we’ll have to see how that kind of plays out and whether or not that ends up hurting, you know, the dealers or the lenders books that provide this acquisition funding. But as far as I can tell, as far as I’m hearing so far, not slowing down to any great extent, and still very good for both lenders and dealers on the profit side.Joey Pizzolato 06:03
Great. Thanks, Amanda. That about does it for today’s episode. As a reminder, you can purchase your all access pass to the auto finance summit in the power sports finance summit to attend both events October 29 through 31st at the Bellagio in Las Vegas for 20% off, get your all access pass at WWW dot auto finance dot live. Thanks for joining us on the roadmap and be sure to follow us on X formerly known as Twitter and LinkedIn. We will see you online at Auto Finance News that net in here next time.