Last week, used-car values began to cool after meteoric rises over the past five months set new records for the Manheim Index and drove up the country’s inflation figure. As used-vehicle values begin depreciating, economists expect the rising inflation rate to slow.
Meanwhile, the Auto Finance News editorial team took a deep dive into Banco Santander’s July 2 proposal to acquire all remaining outstanding shares of Santander Consumer USA. The Dallas-based full spectrum became the second auto lender in less than a week to potentially enter into an acquisition agreement, with Exeter Finance announcing July 5 that it would be acquired private equity firm Warburg Pincus by yearend.
In this episode of the Weekly Wrap, Associate Editor Amanda Harris and Editor Joey Pizzolato discuss the top stories for the week ended July 9, and what to expect as second-quarter earnings season kicks off 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 is Monday, July 12. And I’m Joey Pizzolato, editor of auto finance news. Joining me is Amanda Harris, Associate Editor as always, and this is our weekly wrapup on what happened in auto finance for the week ending July 9 2021. To start, I want to thank auto finance news advertisers, Alfa Agora Data, Dealertrack, defi Solutions and Spireon for their continued support. In general news, jobless claims last week ended up but hell near pandemic lows increasing by 2000 applications week over week to 373,000. New weekly filings for jobless benefits have more than halved since the beginning of the year as health concerns dwindle and pent up demand fuels hiring at hotels and restaurants. Economists forecast that the unemployment wage rate will fall below 5%. By the fourth quarter of this year, as more than half of US states are ending enhanced federal unemployment benefit programs. In banking and FinTech the Biden administration signed a sweeping executive order on Friday designed to promote competition in the US the order, which primarily targets big tech and the healthcare industry also calls for banks to allow customers to take financial transaction data with them to a competitor. A move that will quote make it easier and cheaper to switch banks. The order order also takes aim at mergers in general including banking in urges the federal reserve the FDIC and the Office of the Comptroller of the Currency to update guidelines on banking mergers to quote, provide more robust scrutiny of mergers. Even though such such mergers are subject to federal review, the federal agencies have not formally denied a bank merger application in more than 15 years, the order notes in auto finance our top stories last week were cooling us vehicle values, which was somewhat expected and Banco Santander there’s proposed acquisition of Santander consumer USA, his remaining outstanding shares. Let’s start with us vehicle values. I mean, what was the top takeaway there?Amanda Harris 02:19
Yeah, so as you said it was expected. And I think industry is kind of waiting for this to happen. But finally, it looks like us vehicle values after just sitting it just record highs and every single month going up yet again, from pretty much since really the peak of the pandemic. So like last May last June. Not every single month, you had a consecutive increase from previous month, but it still hit record levels nearly every month since that time. And then for the last five months, it has gone up consecutively every single month. But now finally in June, we’re starting to see a level out. And so it’s still ridiculous over Degrassi high. But they have started to come down a little bit, level out a little bit. So the Manheim index, which had surpassed 200 for the first time ever, and may decrease about 1.3% from last month. So we’re not talking like a huge decrease. But it’s at to 200.4. In June, it was like two or three in May. So like I said, not anything huge, but it is a sign that things might be stabilizing a little bit. And there’s a couple of factors. One of them just being that supply for us cars is getting a little better. That was kind of part of what was driving up the prices so much as it is so hard to find these vehicles. So that was driving up demand and all the pricing. And of course, what was coming in were, you know, pretty nice, used like trading that like trading cars and things like that. So that was kind of driving the price up when our supplies coming back a little bit because a lot of people who may be purchased vehicles are finally able to find like the new vehicle that they want, as that’s kind of getting a little better. So they’re trading in their us vehicles. So that’s helping see an influx of trade ins, that’s kind of going toward this repo is still not something that’s helping with this, it’s still very behind. So this is really driven mainly by the fact that people are trading in their cars. I mean, I know people are getting calls have cars that they have. And, you know, dealerships are really pushing for people to come in and try their use vehicles because they need them to get a good deal on on maybe a newer whose vehicle in there a lot or something like that. So that’s kind of helping, and it does look like that. That’s going to be the trend now. They don’t, the people I’ve talked to don’t really think that they’re going to jump back up. I think we’re in a point now or this is going to continue kind of coming down and evening out but Ending the year still weigh up compared to last year. And even compared to 2019, when things were more normal, what we’re seeing,
Joey Pizzolato 05:09
yeah, we’ll probably continue continue to see elevated values, you know, through 2020, at the very least, but I would imagine, you know, per normal supply chain ones, new car production kind of ramps up, you have the repo volume, which I think last month, it was still in about 50 to 60%, what pre pandemic levels were once that kind of builds up a little bit. rental car companies have an opportunity to kind of add to their fleet with that new car, and maybe the fleet some of their older models, I think that that will also help to accelerate that depreciation. But you know, like you said, they are so going to continue to be high, but it is kind of a, you know, a line at the end of the tunnel to see them depreciate even by you know, that small margin that we did in June.
Amanda Harris 05:55
Definitely the rest of 2021. And yeah, renewal really isn’t, hasn’t really come back, either. They’re kind of holding on to their stuff. So
Joey Pizzolato 06:04
really, if that changes, I mean, rental car prices are through the roof right now. Um, my dad was just visiting, and he said that he paid almost double what he would normally pay to rent a car for, you know, a long weekend. So I you know, I don’t imagine as long as those stay up, as well, they probably won’t be D fleeting anytime soon. So they will need those used cars to, you know, again, pad their fleet a little bit more to you know, keep up with consumer demand, especially as they spend more money traveling and, you know, going places that they couldn’t go last year.
Amanda Harris 06:38
I wish someone would take mine so I could find it.
Joey Pizzolato 06:44
You have to be persistent. Somebody will want it I promise
Amanda Harris 06:48
being picky. That’s the problem. And it’s not an environment to be thinking but I mean big anyway,
Joey Pizzolato 06:55
that you do you I mean, all right. Moving on to Santander, their first announced July second, Santander holdings, which is a wholly owned subsidiary of Banco Santander, Madrid based bank, they want to buy all the outstanding shares of Santander consumer USA, they currently own about 80% of the outstanding shares that are currently available on the New York Stock Exchange. This is the second acquisition announced or potential acquisition, we don’t know if it’s gonna go through yet, but it’s the second potential one announced within a week. And you know, obviously, these two really don’t necessarily have anything to do with each other. But I think I think it is interesting, you know, to look at, like the differences between the two. So maybe we can start with just kind of like the nuts and bolts, Amanda what like, what do we know about the the deal? And what are we still kind of waiting to hear?
Amanda Harris 07:55
Yeah, so essentially, Santander holdings wants to basically become the sole, no, basically owner of Santander consumer USA by buying the rest of the share. So they hold at, like almost 81% at this point. So they did offer in their original proposal, a price that was about about 7.4%, from where it was trading that day, which was June 30. And about 30% above, like excuses, average share price since January 1. So they were hoping that that would be enough to kind of push, you know, the the Santander consumer USA board to accept this proposal, get the people who are holders of the rest of the shares to sell those at that premium price. And then they would basically become, you know, the sole owner, it would remove senior senior say, from publicly trading, because now they’re all they’re completely owned by one company. Um, but kind of like threw a wrench in a little bit is that stock price did go up. And it seems like investors do believe that Santander consumer USA is worth more than what it was priced at in holdings proposal. So right now, yeah, it was trading at 39. They went up to I think, what 41 at one point. So people were kind of valuing it more than that, like low 40s where the proposal was about $36. So kind of a difference there, which part of that just, you know, people kind of driving it up a little bit. There’s also like this thought that maybe the proposal was, you know, underpricing the shares a little bit. So right now, it really just goes to the container consumer USA board, they have to look at this proposal and to see if this is the best interest in the company and in their shareholders, best interests, and they would have to decide whether or not to move forward. And then from there, if they do move forward, they would have to kind of work out all the actual details. of what the deal would look like what the final price would be, you know how they would go about proposing this to the investors who hold those shares. So we’re just kind of in a waiting game now to see if the board is going to take this or not. And it’s kind of we don’t really know, because it was technically above where it was trading when they did the proposal. But now, investors might feel like that’s not enough. So they may go back or they may decide not to do this at this point, or we’re not really sure yet exactly what’s gonna happen.
Joey Pizzolato 10:32
Right. And I just brought up brought up the numbers, there’s a lot to keep track of the closing price on the 30th was around $36. And some change in their offer was for $39. On July 2, on July 2, their stock price rose up to 40. And currently at is 3:04pm Eastern Time and is currently sitting at 4103 per share, which is relatively flat from market open today, like a 0.31% increase. So like he said, Yeah, but you know, analysts have told us that you know, the mark, the market seems to think that that Santander’s is worth more and that you know that maybe they expect Santander holdings to come back with another deal now different analysts. I believe john Hecht from Jefferies wrote in a research note that he did not believe that Santander would come back with with a with a higher higher price tag solely because they are you know, that 80% shareholder. However, you know, it really remains to be seen, you know, we’re trying to get ahold of their investor relations to get a more definite timeline but no word yet. We will definitely keep everyone updated. But I you know, I do think I think it’s worth it’s interesting to kind of look at this in light of Exeter, right? Exeter, a private company. You know, they they had been in, in works with with this deal for notan who knows how long, but we know that they did have plans to file for an IPO a couple of years ago they scrapped those plans. So, you know, the the concept of you know, where where lenders are getting their capital and funding, you know, is continuing to evolve and it will be interesting to see the way Santander consumer if this deal goes through how their operations and the way they do business evolves. Now once you know if Santander holdings does take full control of them. I know for sure it will probably mean we’ll have to dive deeper into Santander holdings earnings rather than just get you know their report, you know, directly sent to our inbox.
Amanda Harris 12:44
Yep, that’s okay.
Joey Pizzolato 12:47
We’re we’re up to the challenge. Speaking of earnings, this week starts kicks off second, or second quarter earnings season. Tomorrow we’ll have chase auto and then Wednesday is Wells Fargo, PNC financial, as well as Bank of America with US Bank and truist coming on Thursday. We also have a couple stories in the works about the TPS TCPA excuse me, the Telephone Consumer Protection Act, and JD powers acquisition of Darwin automotive so keep an eye out for that. As always, we want to hear from you our listeners rate the roadmap on whichever platform you use to listen to us and follow us on Twitter and LinkedIn. Thanks so much for joining us. We’ll see you online at auto finance news dotnet and here next time