The auto finance industry this week saw falling used-vehicle values, new funding and further adoption of digital tools.
The Manheim Used Vehicle Value Index sat at 194.5 in August, a decrease of 0.4% from July but still 18.8% above last year’s values. The index has gradually fallen the past three months after hitting record highs nearly every month since the pandemic started.
Used-vehicle prices have begun to stabilize in part due to increased inventory, but the trend is likely to be short-lived as wholesale prices increased 0.6% in August as manufacturers are calling for supply constraints to worsen in the coming months.
Meanwhile, Tricolor Auto Acceptance has secured $90 million in funding from BlackRock to further its geographic expansion and scale its Tricolor Financial software-as-a-service (SaaS) venture launched in February. Under the convertible preferred equity investment, BlackRock will be able to convert its investment into a minority share of Tricolor Auto.
In line with an industrywide move to digital financing, Gesa Credit Union has adopted fintech Scienaptic’s credit-decisioning technology, driven by artificial intelligence. Since implementing the automated credit platform, Gesa’s overall approval rate has increased 20%.
In this episode of the Weekly Wrap, Associate Editors Amanda Harris and Whitney McDonald join Editor Joey Pizzolato to discuss top developments this week and what’s to come in the week ahead.
Auto Finance Summit, the premier industry event, returns October 27-29 in Las Vegas. The Summit continues to bring together the best and brightest in the industry year after year for unparalleled networking and professional education. To learn more about the 2021 event and register, visit www.AutoFinanceSummit.com.
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 Monday, September 13. I’m Amanda Harris, Associate Editor of auto finance news. I’m joined today by my fellow associate editor Whitney McDonald’s and our editor Joey Palazzo. This is our weekly wrap on what happened in auto finance for the week ending September 10 2021. As always, I want to thank our auto finance news advertisers, Alfa, defi solutions, Equifax and Wolters Kluwer for their continuing support. First, in some general automotive news, non unionized automakers, including Toyota Motor Corp, Tesla and rivian automotive have criticized a proposal by US House Democratic lawmakers to give union made electric vehicles higher subsidies. The tenure proposal would provide an additional 40 $500 tax incentive for union bill TVs, a move that would benefit mainly carmakers such as General Motors, Ford Motor and scientists whose factory workers are represented by the United Auto Workers. Critics argue their proposal is therefore discriminatory. Another update to hit the wires this past week is that Ford Motor Company is refinancing three revolving credit facilities. Using the secured overnight financing rate or Sofer. As the company transitions away from labor. Ford is likely the first and more Sofer linked deals to come. Now that new loans cannot be tied to library after New Year’s Eve. Turning to vehicle finance, we saw some some interesting things come in this week. First, the industry might need to prepare for vehicle values to again start to rise following the last three months of decline, which seem to be pointing toward possibly normalizing us vehicle costs. In August, the Mannheim used vehicle value index set at 190 4.5, which is down just point 4% from July. And it’s still 18.8%. above what we saw last year at this time, the index has been gradually falling for the past about three months after hitting record highs, we talked about that for a long time, nearly every month since the pandemic started. In fact, in May we know it peaked and went over 200 for the first time in indexes history. But they have begun to stabilize in part due to improving us vehicle inventory. Supply started about 40 days at the end of August, which is up a little bit from July. But it’s not quite up to the normal 45 days supply that we would typically see. And even though values have kind of started to come down the last few months, it’s not likely that downward trend will continue, it’s going to be pretty short lived. Because wholesale prices did increase point 6% in August, nothing too crazy. But it does kind of point to the fact that those are increasing again. And it’s mainly due to dealers are having to buy more cars at wholesale. Because manufacturing constraints, which have been pretty pretty bad anyway, they’re likely to worsen in the coming months. So kind of have to see how that factors out if these vehicle values will go up again, how much they’ll go up again, I don’t think it’s likely we’ll see, you know, the peak that we saw in May, or like over the springtime, but because a chip shortage is likely to last until you know, into 2022 is kind of the consensus at least it is very likely that supply will continue being an issue and as more dealers go to the wholesale market, you know, and those prices go up that will eventually start to impact the prices were actually seeing, you know, in the in the retail market too. So that’s kind of what we’re tracking with these vehicle values. So is there any questions on these vehicle values before we go forward and talk about some other things? They they’re pretty, pretty straightforward. We’re just gonna keep monitoring it as we normally do, and we’ll see what happens next month and if they do indeed go up again. This week, we also saw some funding news, tricolour auto secured a $90 million convertible preferred equity investment from funds managed by BlackRock. So Joey, thank you did that one too? Do you want to walk us through the deal and kind of what it meansJoey Pizzolato 04:33
or Yeah, tricolour auto dot 90 million like he said in convertible preferred equity investment which will allow that are from BlackRock which will allow BlackRock to have an option to convert its investment into a minority share the company, which is actually really I think one of the more interesting things about this deal is we are seeing a lot of investment firms kind of gravitate back towards auto finance. We have worked Were Warburg Pincus, you know, a couple months ago, maybe that’s how long ago was I can’t remember at this point, acquire Exeter and you know if we look back kind of like at the credit crisis, pre credit crisis there were a lot of investment firms that were, you know kind of all over auto finance in a lot of those investment firms kind of took a step back after the credit crisis because you know, a lot of subprime auto kind of went belly up, you know, the lenders we see in the market today that are in subprime. They were the ones that kind of weathered the storm. So, you know, I think it kind of points to two things, you know, from black rocks point of view, I think tricolour is a very solid investment. I mean, if you look at their metrics or ability to originate loans to credit, invisible consumers and more, so their total addressable market, I mean, they’re only in Texas and Southern California. That leaves quite a bit of geography that they can still fill out, which means they have nothing but room to grow from. So from an investment perspective, I think that that’s really interesting. Now, I think the big question is, how much how, how active are these investment firms going to be in like the management of the capital, Warburg Pincus, I believe, indicated that you know, Exeter’s leadership team, they would continue everything would kind of be par for the course, I would imagine that tricolours not going to be doing anything different. But as more and more of these investment firms kind of step in auto, you know, how much hand they’ll have in their operations? Kind of is a question. I think that that’s on my mind, and probably should be on everyone’s mind. I’m not sure you know how far that would go. But it’s definitely something that we need to keep an eye out for.Amanda Harris 06:49
We will be following that one for sure. The other thing that we saw this week, was we did see another development when it comes to auto lenders adopting digital tools. That’s something we’ve been talking about for quite a while. But we know the pandemic really kind of highlighted this. And kind of, you know, quicken the pace on lenders really taking on more digital initiatives. So when I believe you talk to guess a credit union about this, you can each share kind of what they’ve been doing.Whitney McDonald 07:19
Yes, so exactly what you said we’ve been seeing an ongoing trend in the industry of the adoption of automation, ai technology on new digital tools just to better serve customers and kind of go through the credit decisioning process. So yeah, with Jessa at the end of August Desa credit union adopted sign up takes AI powered credit decisioning platform, which improves the underwriting decisions using custom AI or artificial intelligence models that predict credit worthiness, the platform has led to auto approval of 50% of 50 50% of direct and indirect auto loan applications since the credit union adopted the technology, like I said at the end of last month. So through the use of a custom credit risk model built on guesses auto portfolio performance history, the technology can replicate approvals, even with the elimination of human intervention. technology offers quick decision making for consumers adding to the customer experience model that other lenders have been working to improve. Wells Fargo, for example, increased automation through its loan approval process that started in the fourth quarter of 2020. Sign uptick works with banks, credit unions, fintechs and others in the auto industry, including automotive acceptance Corporation and power sports lender American cycle finance, the addition of more automation and AI has Geza on trend with the fight with the auto finance industry as lenders continue to add more automation options to their consumers and to their portfolios. Really.Amanda Harris 09:04
I think they actually saw a jump in their approval rates after Yes,Whitney McDonald 09:08
it was a 20% jump. So pretty significant.Joey Pizzolato 09:14
Write and I think what’s really interesting about about this particular story is not necessarily you know, the nuts and bolts of guesses in particular but you know, some of these smaller guys that you know have their hand in auto. I think automation is is really in this might be kind of like a well done statement but it really provides or eases up a lot of resources for some of these smaller guys that are doing this still still engaging in like this manual loan approval process, right you can if you incorporate automation into your loan decisioning like like your story points out when he on loans that they would have already approved in the first place. Then you can spend more time you know, maybe not necessarily chasing down some other You know, out of your credit box loans, but you know, you can spend more time, you know, servicing those loans, you know, working with your dealer partners. So I think that, as we continue to follow automation will will definitely see more of this, you know, even from the big guys, right? Wells Fargo in the first quarter seven, they were doing this, like he said, Whitney, so, you know, this is definitely gonna be something we see a lot more of, especially as artificial intelligence kind of comes more front and center, rather than, you know, kind of being on the fringes of the industry right now.
Whitney McDonald 10:32
Yeah, continue to follow it and see who else and what else is coming in the automation world.
Amanda Harris 10:39
And just to kind of tack on a little thought there. I think you’re right, Joey, like, I think there, the point is not so much to maybe, you know, get more approvals that you wouldn’t have normally done. It’s just free up, like your human capital and your processes and all that to just like increase everything across the board. That’s why I think bear ones will jump on to and smaller ones as well. So kind of works for all lender types. Because if you can save some time and money like, obviously, that makes a big difference just on being able to grow your auto book and to service loans better and keep them up to date and lower those delinquency rates. So I think we’ll see more of it for sure. Perfect. Well, thank you both. And as a reminder, the auto finance summit returns October 27 to 29th in Las Vegas. We’re really excited to bring back more of the best and brightest in the industry this year, in more networking opportunities, as well as course professional education. So you can learn more about the 2021 event and register at auto finance summit calm. And we also want to hear from you. So when on whatever platform you listen to the roadmap, please rate, the weekly wrapup. And please also follow us on Twitter and LinkedIn. Thank you for joining us on another week. And we’ll see you online auto finance news dotnet and here next time