Elevated interest rates and inflationary pressures have prompted auto lenders to tighten credit, leading credit unions to step back and create opportunities for other financiers.
Nearly all lender types were more selective on approvals in November, with credit unions tightening access more than other financiers on a year-over-year basis, according to Cox Automotive. Captives loosened credit slightly on a sequential basis.
Credit unions also slowed new-unit powersports financing this year, allowing powersports finance companies to pick up market share. Octane Lending and FreedomRoad Financial, for example, grew their origination volume.
Meanwhile, subprime lender SameDay Auto Finance tightened its credit standards in a revision to its lending program to account for affordability concerns and rising delinquencies.
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 ended Dec. 15, and what to expect heading into yearend.
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. It is Monday, December 18. And I’m Amanda here is joined by Riley Wolfbauer. This is our weekly wrap on what happened in auto finance for the week ending December 15 2023. This episode is sponsored by business law firm McGlinchey. An economic news treasury yields began falling after the Federal Reserve indicated on December 13. That rates will come down next year, with the Federal Open Market Committee expecting to cut rates by as much as 75 basis points in 2024. Following the announcement, the two year yield declined 32 basis points from December 12 to 4.41%. As of midday Friday, and the five year Treasury yield dropped 31 basis points to 3.91%. The decline is good news for auto lenders funding costs with auto finance broadly tied to a three year Treasury yield. There will likely be a catch up period before rate dips are passed to consumers. In Automotive News electric vehicle inventories hit a record high in the US with a 114 day supply on dealer lots more than double the volume of a year ago when inventory set at a 53 day supply. industry wide vehicle inventory sits at about 71 days. According to Cox Automotive. Several Evie manufacturers, including Ford and General Motors have paused or cut production on signature and new EVs as demand cools and supply builds Empower sports news a group of investors led by KKR and company purchased Canada’s Bank of Montreal’s nearly 7.2 billion recreational vehicle loan portfolio as banks sell off consumer debt to improve liquidity. BMO provided seller financing to the purchasing parties by buying 6.4 billion in bonds backed by the RV loans purchased an auto lender activity so prime lender same day auto finance tightened credit standards as part of a revision to his lending program in an effort to account for affordability concerns and rising delinquencies. The Irving Texas based lender in June tighten standards such as payment income and debt to income ratios, revamped early payment default monitoring and improved his customer onboarding program to better manage credit performance and prepare for a resumption of growth and 2024 You can check out our full spotlight q&a with Director servicing or Mondo Hidalgo. For more information out of finance, he is also pleased to name seven auto finance executives to watch and 2020 Ford who have written out the ebb and flow of this year’s economic environment and position their companies for success in the new year. You can check out the full feature on our website to learn about this year’s honorees. This week also brought I’d look at credit union and powersports finance activity. Randy has the details. Riley?Riley Wolfbauer 02:59
Yeah, so last week, we covered the auto credit availability index from dealer track, and the index decreased point 8% sequentially and 4.2% year over year, meaning that credit availability was harder to come by for consumers during the month. I mean, that’s been much of a trend that we’ve seen over the last year, year and a half. As interest rates have risen, and delinquencies have grown along with inflation. Consumer pocketbooks are a little bit more squeezed than they were in prior years. So So lenders have had to pull back to manage their risk. Credit unions for one, they’re one area that we’ve seen tighten more so than other lenders. Credit unions when rate hikes first started, they were able to offer lower rates to consumers. So they actually grew market share, we saw credit unions get up close to 30% on total financing. But now that they’ve pulled back in the third quarter captives have gained share again, especially as incentives have increased in the market with the increased supply. So credit unions last year were in the third quarter were at almost 30% of market share of total financing. And they’re now down to 23%. And that’s an extension of them pulling back in the market and not having as competitive rates as they once did. That comes at the same time as everybody in the market has pulled back. Like we said, or like I said a second ago, we’ve seen rejection rates across the industry increase over the past year, in October, the auto loan rejection rate got to 9.6% in the previous 12 months, according to the New York Federal Reserve. So it’s really something that we’ve seen across the entire industry, not just credit unions. As we’ve seen credit unions pull back and all The same thing it’s also happened on the power sports side of things. In power sports. I spoke with Octane Lending last week and looking at the data that they look at to assess the market. They saw Credit Union Market Share peak in July 2022, like mid to high 30% range, but now Credit Union Market Shares down to the mid 20s. And once again, that’s because they’ve had to raise rates to remain competitive in the market and maintain margins. And that has opened the gate for other lenders such as Octane Synchrony Financial, Sheffield Financial Freedomroad Financial to step in and gain a little bit of market share and increase originations. Octane for one is pretty much on pace for the origination level that they had in 2022 to match it. And that’s despite retail sales being down overall in the industry, and then Freedom Road Financial, they are on pace to have their second highest year in terms of loan originations. And that comes behind their record 2022 year. So as credit unions have pulled back that’s opened the space for other lenders to increase their origination levels, while also still being within their risk parameters to not overextend their book, or over expose their book. So that’s pretty much what’s going on there.Amanda Harris 06:21
Yeah, definitely. And just a tease, I’m also working on a credit union story today, actually, in hearing similar thing, you know, rates kind of went up pretty, pretty rapidly and credit unions, once they started, you know, they were kind of slow to start doing that. And then they kind of had a wave of raising race to kind of be competitive, and now they kind of stabilized. They’re also being very careful about where they put their money. We know liquidity challenges are also facing credit union. So that’s something that they, you know, auto is pretty, pretty good. As you know, it’s short paper, it’s, you know, something that’s not too risky. So we are seeing them kind of slowly come back into the auto space, even those that had pulled back further. So be interesting to see in 2024, probably stable, or maybe a little bit of growth, but not quite what we saw in 2022 and early 2023. Like you mentioned, when credit unions were really, really competitive on the rates, right? They they were they were slow to raise rates. So banks and captains had to do the opposite. And they really took a lot of share. Now we’re seeing that kind of stabilize, and I’m kind of hearing in 2024, that could be, you know, stable, maybe down a little bit, maybe up a little bit for some kind of depends, but we’ll have to keep a close eye on on what happens there. Great. Thanks, Riley. And that about does it for today’s episode. We’re also pleased to announce that the agenda is now live for auto finance Summit East 2024 taking place at the Grand Hyatt National Hotel in Nashville may 1 through third 2020 For more information is available on our website. And thanks joining us on the roadmap and be sure to follow us on extra aminos, Twitter and LinkedIn and we will see you online at auto finance news.net and here next time