This week, all signs point to the continued recovery of the auto finance sector as the unemployment rate dipped to 8.4% and consumers continued to make partial payments on loans in extensions status. Subprime lender Global Lending Services ventured into digital financing through a partnership with CarGurus amid improved performance on its portfolio. And Tricolor Auto Acceptance, a Dallas-based buy-here, pay-here lender recorded a 25% increase in year-over-year originations.
In this edition of the Weekly Wrap, Amanda Harris and Joey Pizzolato discuss the top stories for the week ending Aug. 28, and what’s to come next week.
Hello everyone. I’m Joey Pizzolato deputy editor and welcome to to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing. This is our weekly wrap on what happened in auto finance for the week ending September 4 2021. I want to thank auto finance news advertisers, alpha defi, solutions FiOS dot sec, and remitter for their continued support. As always, I’m joined by Amanda Harris, Associate Editor. Thanks for coming. We had an interesting week leading up to the holiday weekend, with initial jobless claims dropping below 1 million new filings to 881,000. Yesterday, the lowest number since the pandemic started after the US Labor Department changed this methodology. I’m in line with the market and it moving in opposite of the economy. The dad lost 800 points yesterday, one of its worst days since June. And today the unemployment rate. Our updated unemployment figures were released. And we are at 8.4%, which is which beat expectations from what economists were predicting. I’m I know this week, the auto finance news team spent some time leading up to the holiday weekend catching up on various projects we have in the works, including some new data initiatives we’re pretty excited about so keep an eye out for those. But we also took a deeper look into payments on loan securitizing the asset backed securities market. Amanda, can you can you tell tell us a little bit about what you found?Amanda Harris 01:42
Yeah, so you know, we’re starting to see things kind of improve and getting some at least small glimmers of hope coming out of the pandemic. So we know a couple months ago, when you know back in March, April, a lot of lenders had to kind of help customers. During, you know, layoffs, things like that businesses are closed. So there was a lot of, you know, deferral program started extensions, and most of those were for, you know, three to four months. So we’re starting to see some of those end. Um, so with that we are seeing though kind of a positive thing on consumer health, that may, they may point to the consumer, you’re doing a little better than maybe they originally thought they would be is that most of those consumers who have some kind of extension are making some kind of payment. So either a partial payment or their full payments, advance payments, in some cases where they’re going a little more than what’s due, um, while there’s still an extension. So as we look at those coming, coming out of extension status, we are seeing that some of those consumers are making their payments, which could point to, you know, lower delinquency rates and things like that. coming forward, if you know, they would have seen that they had just not maintained throughout that whole program, so that I think is a good thing, it’s still a lot to be determined, as far as if CMS will happen again, if unemployment benefits continue and how long and how much. But at least for now, they are still making some payments on the majority of those loans.Joey Pizzolato 03:18
Yeah, and, you know, one thing we’ve been talking about to the point of nausea is how not knowing, you know, how, how credit performance is going to be in light of the pandemic, because, you know, as you mentioned, the state government stimulus, unemployment benefits, they’ve really kind of propped up, you know, consumers who have lost their jobs, but you know, it’s kind of seeming like, you know, all signs are starting really to point that, you know, things are actually getting better and this is not, you know, a facade or a mirage. Um, you know, we have the payments and we’ve also seen we have unemployment dropping jobless claims are are going down on a weekly basis. And we’re also seeing seeing that from, um, you know, subprime lenders, you know, we talked with global lending services this week about their new partnership with CarGurus to get their, their loan offering online and allow for consumers who are looking to shop online to to get pre approvals, so that they then can either go into the dealership or not if they if they’re not comfortable with that. And, you know, on that note, you know, global lending services thinks or hopes that this new initiative will continue to boost their, their, their origination volume and they’re they’re back to, they’re not quite back to pre pandemic levels, but but they are improving which is, you know, a good sign as well as extensions for them. They are they are back to pre pandemic levels. So that’s a good thing. But you know, what, you last month you wrote about, you know, lenders prioritizing so so I’m curious, you know, what are your thoughts now that we’re actually finally seeing a lender prioritize this this move to digital?Amanda Harris 05:16
Yeah, so So last time, we took a pretty in depth look at, you know, how dealers and lenders had to kind of navigate this switch to digital that they were kind of working toward. But we all know that kind of moves a little slowly, unless something like this happens. And now they had to kind of, you know, accelerate that whole thing. And then we just our new feature that we just did, talked about that evolution that they saw really quickly, that they had to adapt and move to digital really quickly and work from home. So I think this new partnership that GLS is looking at is really an example of that playing out in real life. And we’re starting to see you know, see that more and more. I think that these partnerships They’re going to become, you know, something that we’re going to start seeing a lot more of. It allows them to kind of easily be able to shift to online and offer more online services than trying to maybe build that themselves from scratch. And that’s kind of what I heard when I worked on that feature last month, too, is you know, the reality is a lot of these lenders that are more the traditional style, they don’t really have the capacity just overnight, start doing online financing, but what they can do is partner with companies who, who already do that and provide a service to them to allow them to do that online. So I think this is just one of those examples, and it seems to have worked really well for them. You know, they they saw reservations, girl, you know, they are work and they’re not the only one on that platform. Capital One’s also on their website, financial services is also on there. So that just points to that they’re not alone in making the switch and that is something that I think the industry is going to see more of in the future.Joey Pizzolato 07:00
Oh, absolutely. And you know, one thing you know, we’re keeping an eye on I don’t have to tell you is you know, how lenders are expanding their their kind of technology stacks or looking for new ways. Even if, you know, credit performance is going to hold up. There’s there’s no denying the pandemic has really kind of changed. You know, every facet of, you know, life. I imagine the habits that consumers have gotten into over the last five I guess we’re approaching six months down, geez, you know, those those probably won’t go away like overnight. And, you know, we’re also seeing, you know, lenders you harness technology in terms of underwriting We spoke with tricolour auto acceptance this week as well. And they’re actually they, they’re a Buy Here Pay Here, subprime lender, they, they use artificial intelligence and machine learning to to lend to fin and no file Hispanic borrowers. And they’ve they’ve actually seen their originations grow about 25% year over year in the last three months, as a result of, you know, their, their machine learning algorithm that’s able to continually learn through the pandemic. So one interesting thing that chief executive Daniel Chu told me was, you know, they learned that, you know, during the pandemic, loans performed better when you when they lent to households with multiple wage earners. Obviously, that, you know, kind of makes sense, right? If one person loses their job you have maybe you know, one or even two three more people that can pick up that payment. Um, to be fair, they did, you know, tighten their credit box and they, you know, they’ve they’ve switched up you know, their, their their scorecard. To ensure that they’re still lending responsibly and accounting for all these macroeconomic changes.
But but that, that,
Joey Pizzolato 09:10
that, that growth, excuse me, you know, could have been even more had they not changed their scorecard, Daniel to estimates it could have been somewhere, you know, close to 36% growth year over year had they, you know, continued lending on on the same model, pre pandemic. So, I think, you know, all of this not only points to, you know, a light at the end of the tunnel, and it’s a real one rather than, you know, a fabricated one, and also the, the importance of, you know, technology, and lenders utilizing these different things to grow and continue to do business.
Amanda Harris 09:53
Absolutely. And we’ll see it more and more and it’ll be interesting, I think, to see what comes out of this and what stays around. Then what permanent changes will kind of change and be around with with the car buying and lending process? And?
Joey Pizzolato 10:07
Oh, yeah, absolutely. And we’ll deliver to your house
Amanda Harris 10:09
now. And yeah, so it’s pretty nice. You could just
Joey Pizzolato 10:14
get by when maybe delivered in my car.
Yeah, there you go.
Joey Pizzolato 10:20
Um, speaking of, you know what we’re gonna see in the future. Amanda, what do we have on the docket for next week? Yeah.
Amanda Harris 10:31
Yeah, I know. Yeah, I’ll be all by my lonesome. Next week. No, we got it. Um, but we’re gonna take a look at how lenders are faring in New York. It was where that was hit. That area was set, you know, particularly hard with dealership closures during the pandemic. We had a lot of cases in New York. Most people know, in the US when you hear about New York and COVID that they were they were pretty shut down for a while. And so we’re going to take a look there and see maybe some surprising results. out there as far as how lenders fared. That’s what we’ll be doing next weekend, as well as it’s time again to look at us vehicle values and how those are doing right now. So I think that’ll also be
Joey Pizzolato 11:11
possibly a surprise as well. Right. Great, thank well. We’re gonna keep this short this week since it’s the holiday weekend, and I’m sure everyone, including myself is itching to go on vacation. So thank you, Amanda, and thank you to everyone. Please, don’t forget to join us for the auto finance summit October 20, through the 22nd. And visit auto finance summit calm to register. And don’t forget to rate us on whichever platform you listen to the roadmap and follow us on Twitter and LinkedIn. Thanks for joining the roadmap, and we’ll see you online at auto finance news dotnet next Tuesday, and I’m here next week.