Last week, used-car values in the Manheim Used Vehicle Value Index increased once again after a month of decline back toward normal seasonality. Used-vehicle values have squeezed some consumers on the lower end of the credit spectrum out of the market in the third quarter, according to Credit Acceptance Corp.’s Chief Executive Douglas Busk. CAC logged an 8.8% year-over-year decrease in originations last quarter.
Meanwhile, competitive pricing is helping credit unions gain market share in the used-vehicle market.
In the episode of the Weekly Wrap, JJ Hornblass and Joey Pizzolato discuss news developments for the week ending Nov. 6, and what to expect in the coming week.
Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.
Hi everyone, I am JJ Hornblass and welcome to the roadmap from auto finance news since 1996, the nation’s leading newsletter on automotive lending and leasing. This is our weekly wrap for what’s happening in auto finance for the week of November two. Before beginning I want to saying auto finance’s advertisers, alfa defi and FIS for their continuing support. Thank you so much. And it is nice to see Joey Pizzolato, deputy editor of auto finance news with me today for this episode. Welcome, Joey. It is Monday, November 9 2020. This weekend, was marked by the news that Joe Biden had been elected president and Kamala Harris, Vice President. The Justice Department late last week filed an antitrust lawsuit in federal court in San Francisco arguing that visa deal for plaid would illegally extend visas dominant position it should be stopped. The Pfizer bio and tech COVID vaccine produced even better results than expected as according to an announcement early this morning, the Chinese government has put the kibosh on and financials IPO. And finally, I’m not sure if I mentioned this, but a new president was elected in the United States. October saw some interesting developments on the used vehicle market or used vehicle value index. Joey, why don’t you give us please some background on what’s going on in the unused vehicles in October and maybe some implications for the market.Joey Pizzolato 01:58
Or, um, so the Manheim used vehicle value index in October, Rose slightly on a month over month basis, about less than a half a percentage point. Um, what was interesting about that is, you know, usually seasonality in October and November kind of plays into, you know, keeping that index, normalized, if you will. So seasonality this month, was expected eight expected higher than normal declines and use vehicle values, which is pushing up the index a little bit more. So what the report came with was a caveat, pretty much saying that my on a month over month basis, were more so looking at it, excuse me a decline of about 1.9% in US vehicle values, which is more in line with pricing trends on a week by week basis. And you know, what, what that us vehicle values, kind of being out of touch with seasonality is doing a couple different things. Credit acceptance Corp, pointing to use vehicle values, as the reason strong use vehicle values, as the reason one of the reasons why their originations were down, they said that higher prices get transferred to the consumer, because dealers have to sell their cars for you know, a higher ticket price. And that’s going to squeeze out some some of the consumers on on the lower end of that credit spectrum, which is interesting, because this is the first time we were hearing and executive points of the US vehicle market as anything but like, good. Usually you talk about a strong use vehicle market, high recoveries, everything’s great. Um, so this is an interesting development.JJ Hornblass 03:43
It was the were these numbers surprising, unexpected?03:50
Joey Pizzolato 03:53
I’m not sure if they were unexpected, um, you know, last month and in September, we saw a decline after you know, there’s three months of record, which which pointed to kind of a normalization of the US vehicle market. So, the long answer to your short question is probably yes, it was unexpected. You know, the market expects us vehicle values to decline as they as they normally do. And they’re not quite there yet. Not quite normalized.
JJ Hornblass 04:24
I mean, I the number that stuck out to me was this 15.4% year over year increase for the Manheim use vehicle index on a seasonally adjusted basis. So on a year over, I mean, I would think, you know, generally on the subprime side, you have vehicle purchases that are out of need. If if the vehicle costs no $5,000 or $10,000, there’s not, you know, that there’s not that kind of granular price sensitivity for used vehicles in the subprime credit band. But 15.4% is a lot. And they must, it must have sort of crossed some demark. I don’t know what that line is visa v affordability, non affordability for subprime borrowers, but we seem to have crossed that. Is that a fair assessment?
Joey Pizzolato 05:25
I think it is. Um, and like you pointed out that 15.9% year over year, excuse me, um, is is definitely indicative that, you know, prices are way higher than normal. And we might now be seeing kind of, as you mentioned, that line that it could be pricing consumer consumers out of the market. Yeah,
JJ Hornblass 05:50
I mean, what do you think might be a mitigating factor to that, like what might start creating a downward trend on use vehicle prices?
Joey Pizzolato 06:03
Well, I think if we, if we kind of can get past this pent up demand, that is still driving a lot of, you know, sales in the in the US market, the inventory concerns in the new market driving more consumers in the US, I think that that might help normalize us vehicle values back down to kind of where they were where they have been over the past couple of years. So that can be one driver. And then, of course, seasonality going into November, December, where we know that car sales are expected to decline. If that continues to happen. Then, again, we could probably could possibly get back to kind of a normalized level,
JJ Hornblass 06:47
I think that we know that this new car inventory issue we had said, would likely resolve by early 2021, you know, first quarter, early 2021. But I don’t think that after last month’s decline in the used car index, that there was an expectation that values would jump again, even by a nominal amount. This really does change the sort of the landscape, especially on the subprime side of the market.
Joey Pizzolato 07:21
Exactly, exactly. Um, like you mentioned, I don’t think anybody really expected them to rise. And I think that that’s, that’s why we’re seeing this caveat with the report.
JJ Hornblass 07:33
I guess we’ll see what happens with November. But I’m not sure. I guess the only thing that we can say is that it’s really not clear what the valuation trend is right now. I mean, that kind of all bets off. If you’ve got an October with, with that kind of year over year, seasonally adjusted number. Also, that’s just a remarkable number. So we shall see, we shall see. As you always do, yeah. What is the plan for our coverage over the course of this year? What can our readers expect?
Joey Pizzolato 08:15
Um, so this week, excuse Oh, I was gonna say that’s a, that’s a tall order. This week, we will have the very last of our third quarter earnings. From Nicholas financial, GM financial. I will be finishing up this afternoon. So be on the lookout for that. And then we’ll be taking a look at room and shifts, third quarter earnings. First time, we’re going to get a full quarter. So we get a nice snapshot as to you know, where they’re sitting, how the third quarter is played out for them in terms of, you know, digital retailing.
JJ Hornblass 08:50
Great. Well, please don’t. Don’t forget to rate the roadmap on your podcast platform and follow us on Twitter and LinkedIn. Thank you so much for joining us. We will see you online at auto finance news dotnet. And again here next week. Thanks, everyone. Thank you.