Weekly Wrap: A budding leasing trend and the state of auto ABS

Last week, the Auto Finance News team highlighted an uptick of low-mileage lease options as consumers change their driving habits, which could have lasting implications for both consumers and lessors. Used-vehicle values continued to show seasonal strength , and four issuers injected $4 billion in the auto ABS market after nearly a month of no activity. In this episode of the Weekly Wrap, Amanda Harris, JJ Hornblass and Joey Pizzolato highlight the top stories for the week ending Nov. 20, and what to expect in the coming week. .embed-container { position: relative; padding-bottom: 56.25%; height: 0; overflow: hidden; max-width: 100%; } .embed-container iframe, .embed-container object, .embed-container embed { position: absolute; top: 0; left: 0; width: 100%; height: 100%; } Video Transcript: Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain . JJ Hornblass 00:00 Hi, everyone. I'm JJ Hornblass and welcome to the roadmap from auto finance news since 1996, the nation's leading newsletter on automotive lending and leasing. Welcome. This is our weekly wrap for what's happening in auto finance for November 23 2020. Before beginning thanks to our advertisers defi and FiS for their continuing support. So thank you. And welcome to Joey Pizzolato, deputy editor of auto finance news and Amanda Harris, Associate Editor of auto finance news. Welcome to you both this week. Or recently, early data shows that Moderna's Coronavirus faxing is 94 4.5% effective, which means that both the Moderna and Pfizer vaccines are now plus 90% in their efficacy rate. While President Trump continued to try to unwind the Election Day vote, President Elect Biden's cabinet has started to take shape with key members being signed for nomination. The US home sales in October rose to a 14 year high. The CDC has urged Americans to avoid Thanksgiving travel this week. And finally an Indonesian man turned an unusual bit of property damage into a fortune when he sold the meteorite that crashed through his roof for over $1 million. He was working outside his home in Sumatra when the meteorite crashed through the roof of his house and landed outside. And when he picked it up. It was still hot. We have the news in the news this week. I want to start with an update on the ABS market. And and just get a sense for what's happening on the securitization market for auto backed securities. Who wants to take that one? Oh, well, Joey Pizzolato 02:11 it's my favorite. So So last week, we saw about $4 billion get injected into the auto ABS market after just about a month of no activity. As of now, we are sitting at or as of not November 19, we are sitting at about $92 billion in total volume, which is about 12% behind that same volume last year at 104. Point 4 billion total securitizations last year and were 100 and 11 billion. And so it's not really looking like there's any hope to catch up with that number. tall, long, long and short of it. JJ Hornblass 02:58 Yeah. I mean, is there a, you know, the is there an a bottom line ramification to that? In other words, I mean, we've got, we've got auto car sales that are on a year over year basis, still behind last years, but not necessarily minus 12%. So it seems like autos are being able to be financed despite the I got somewhat reluctance on the ABS market. No. Joey Pizzolato 03:27 Well, yeah, so the ABS market, as far as investor appetite is still very strong from what we're hearing. I think the lack of volume is really that month, we saw at the beginning of the year where the markets dried up. Um, if you remember, we looked into lenders liquidity. And while a lot of them do rely on the ABS market to secure funding, every auto lender had had a significant amount of liquidity in reserves to kind of make up for that. And like you mentioned, you know, sales are are still pacing behind last year, they're not quite um, you know, that far behind as the ABS volume is, but I think I think that as far as ramifications go, they're probably few and far between. JJ Hornblass 04:16 You have a sense for what what we should expect from the ABS market in 2021. Already, Joey Pizzolato 04:25 yes, um, at least at least, you know, given the current trajectory of the economy. lenders are planning on returning to their normal cadence, some synchronize four times a year. If you're Santander maybe you securitize nine times a year. Um, other smaller subprime lenders were securitized maybe twice, maybe once and I think the general consensus as as I mentioned, investor appetite is still strong, and with markets continuing to stay open, lenders will return back to normal. JJ Hornblass 04:58 So capital available ability not necessarily an issue for for the forthcoming year, 05:06 Naga will see not only JJ Hornblass 05:12 the 10,000 mile lease, why are our auto finance companies originating those leases today? Amanda Harris 05:21 So I'll take that one, it's kind of a mix of a few things. One, there was a decline in leasing, in part due to these, you know, zero percent offers and things that we saw out there pretty high incentives. During the pandemic, as sales were struggling, kind of made some consumers go that route versus leasing, we also know consumers aren't driving as much. So that's another reason they might look to maybe like a used car, versus leasing. And that's also why lenders are trying to, you know, maybe pump up leasing a little bit by offering these lower mileage options as people are driving less and less, they don't necessarily need the normal 12 15,000 mile lease. So it becomes more attractive to have a 36 month lease that's 10,000 miles, we're also seeing a slight, you know, adoption of even lower miles terms of 7500, that's still a very small part of the market, where we're not saying that that's going to be you know, a huge thing going forward. But we are seeing, you know, some people kind of going that route and Linares offering that really just to meet this new need of customers wanting, you know, another option, since you're not driving quite as much. So a couple different things in there, that are driving them to offer this and for people to jump on board and get them. It seems like the kind of thing that in a couple of years, JJ Hornblass 06:49 consumers might regret. Amanda Harris 06:52 So that is one of the risks, right, like so you could get a 10,000 mile lease now saying my car's been sitting in driveway for months. So that might be an attractive offer to me, maybe I don't want to buy a new car, I can lease one for you know, 10,000 or even lower. But in a couple years, you know, we might hopefully we'll be out of this. And people might start going back to the work commute. So there is a risk associated for the consumer, taking that lower mileage that they could go over and obviously incur some other fees. But I think the thinking is that right now, the way people are going, this is another way to meet that changing need. And for many, they're probably thinking their their work from home situation may not change very quickly. And that that I think is a fear that i think i don't think companies are going to bring people back in anytime in the super near future, at least not in, you know, hundred percent capacity, or might be seen more remote positions permanently, myself included. Um, so, you know, you just you just have to see what's going to happen. But I think that's the the term the drive behind these. JJ Hornblass 07:54 Is there a sense, Amanda? And I've never seen this data, but I mean, is there Have you ever have you seen any data on industry wide? The percentage of leased vehicles that go over the mileage cap? Amanda Harris 08:11 I have not seen that, like actual data. I know, anecdotally, just from talking with these lenders that that are offering these, that that is a concern for people who do go lower, but I don't think it's just from what I've heard, I don't think it's a huge concern. I think when people take these, they're really looking at what their lifestyles look like. And you know, the people who tend to lease tend to go back and lease again, they're, they're pretty big on releasing, I've got some in laws who do that as well, that they're not big on buying cars, they want to lease. So they're they're pretty, I think they're pretty good about looking at their mileage and keeping track of that. JJ Hornblass 08:47 Right. Okay, good, different types. And, and just in terms of like, the expectation among lessors is that these numbers are going to continue to go up in terms of the number the volume of 10,000 mile leases out there. Yeah, I Amanda Harris 09:03 think, you know, we've seen a very small shift, it's only about, you know, 5% shift between the, you know, the 10,000 and 12,000. So it's not really enough to say that this will be the ongoing trend. We're seeing this right now, it could be just I think it really just depends on how long we're in the situation. And the longer we're in the situation, the longer companies continue to do work from home, I think we will see adoption of the lower mileage leases go up. But it really just depends. And because it's such a small, you know, mix kind of change. It's not really enough for me to say that this would be like the new normal. I think the 12,000 will still end up being you know, the the main one, but of course when it comes to like premium vehicles and things like that 10,000 always been the main one. So that's part of it as well. So I think it's just we're going to have to see what how long this will stay. This will stay and how popular these will be going forward. But right now, it seems it seems to be what they need to push. JJ Hornblass 09:59 Alright. Right. So Joey, other than having turkey on Thanksgiving, what else is in store for our readers this Joey Pizzolato 10:06 week? Sure. Um, we have a look at one captives revamped incentive programs in light of its support of its OEM. And we will also have a fun listicle for you about, um, you know, auto fight the auto finance industry takes place in Black Friday, or takes part excuse me in Black Friday too. So so we're going to look at that and see what kind of sales auto auto lenders have going on. JJ Hornblass 10:36 Very nice. Well, please don't hesitate to rate us on your podcasting platform and visit us at auto finance news dotnet and on Twitter and LinkedIn. we appreciated you being here. Thank you for joining us. We'll see you next time. </div?

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