‘Weekly Wrap’ discussion on subprime financing, affordability

Affordability, credit performance, cost of funds and regulatory compliance are top of mind for subprime auto lenders as inflationary pressures further squeeze consumers’ wallets.  

There are some positives when it comes to affordability. The Manheim Used-Vehicle Value Index dipped 2.3% sequentially and 4% year over year in October, while credit access improved month over month but remained tighter YoY.  

Banks, however, continued to keep credit standards tight for auto loans in the third quarter amid weakened consumer demand.  

Meanwhile, earnings results were mixed last week. United Auto Credit originated more than 40% of Vroom loans in Q3 as the retailer’s finance and insurance revenue increased. Upstart’s originations fell 49% YoY, while Open Lending’s number of certified loans declined 29% YoY.  

In this episode of the “Weekly Wrap,” Deputy Editor Amanda Harris discusses the top stories for the week ended Nov. 10, and what to expect in the week ahead. 

Subscribe to “The Roadmap Podcast” on iTunes or Spotify, or download the episode.

Transcript:   

Editor’s note: This transcript has been generated by software and is being presented as is. Some transcription errors may remain.   

Amanda Harris 0:05
Hello everyone, and welcome to The Roadmap from Auto Finance News, Since 1996, the nations leading newsletter and automotive lending and leasing, it is Monday, November 13th, and Amanda Harris.
This is our weekly wrap and what happened in auto finance for the week ending November 10th, 2023.
This episode is sponsored by software solutions provider and Inovatec.
In auto News, used vehicle values continue to fall in October, with the Manheim used Vehicle Value index down 2.3% month over month and 4% year over year to 209.4 all major market segments recorded year over year.
Price declines as used car retail sales are estimated down 2% sequentially and 4% year over year.
Supply ended October at about 49 days of one day from September and five days from a year prior.
In auto finance, we had the tail end of third quarter earnings covers last week.
United Auto Credit originated more than 40% of Vroom loans in Q3 following brooms acquisition of the company in February to form its captive finance arm, Vrooms finance and insurance revenue increased during the quarter with product gross profit per unit up 35% year over year to $2628.00 in part credited to UACC operations.
Groomed retail financing segment gross profit, which includes UACC operations, declined 5.1% sequentially and 10% year over year to 32 million.
Finance receivables also declined sequentially in year over year.
AI-based lending platform upstart’s originations fell 49% year over year in Q3 to 29 million with more than 80% of personal and auto loans fully automated.
The company is expanding its retail auto business to more States and is signing on nonprime auto lenders to act as forward flow buyers for the Fintech auto loans.
More details will come out on that later.
Automation. Fintech Open lending’s number of certified loans also declined 29% year over year during the quarter, largely due to a slowdown in auto lending by credit unions, which is the company’s core customer.
The company is adding additional data sources to improve its scorecard to support his AI powered lender protection program
on the EV front Newark, CA based Lucid Motors lowered his 2023 production guidance to between 8085 hundred vehicles as production in Q3 fell 29% sequentially and 32% year over year to 1500 units.
And 32% year over year to 1500 units, origination production estimates for the full year were between 10,000 and 14,000 units.
The EV manufacturer delivered 1457 units in Q3, which is up about 4% year over year.
Evie, manufacturer Rivian Automotive, is gearing up to launch leasing on select truck models and Q4 in certain regions.
The company actually raised its production guidance to 54,000 units compared to about 50,000 in the beginning of the year.
As Q3 production soared 121% year over year to more than 16,000 units and deliveries rose 136% year over year to more than 15,500 units, Rivian has a private label partnership with Chase Auto.
They are fighting this week also was taking an in-depth look at the subprime financing market affordability, credit performance, cost of funds and regulatory compliance or top of mind for subprime auto lenders as inflationary pressures further squeeze consumers wallets, we’re taking end up.
Look at this.
We’re putting out a really big feature on this later this week, so make sure to check that out, but essentially affordability is the term of the day everything relates to whether consumers are going to be able to and want to keep paying their car payments when literally everything is costing them more groceries, rent, you name it, everything is costing them more and you know, the idea is that affordability is not just about higher interest rates, right?
We know interest rates are at all time highs.
We know those are causing a lot of inflationary pressures on consumers, especially in the subprime market, which is story has been consumers who are hit a little harder when prices are raised.
But it’s not just the interest rate on loans, it’s also everything to do with all their daily, you know expenses, groceries are at are way higher.
I know this personally gas has gone up, rent has gone up.
If you look at, you know average [insurance] numbers is up about 14% year over year according to analysis that we did us some data.
So just that cost alone has gone up.
Their insurance car insurance has gone up.
Everything has gone up so that is causing a lot more pressures on consumers, who historically already struggle when the market is squeezed.
So we’re seeing this play out.
You know, auto lenders are keeping a close eye on credit performance, rising delinquencies, trying to put measures in such as longer loan terms to try to help with that monthly payment.
But there’s only so far you can take an extended loan term before.
It’s not really helpful anymore.
So that’s something that really people are looking into.
You know, use car prices are still elevated even though they are starting to normalize.
Student loan payments have resumed, so that’s yet another couple $100.
A lot of people’s wallets that are having to pay out each month, so that’s something that lenders keeping a close eye on.
You know, if you got a couple different metrics that they’re having to watch, this idea of FICO migration of people being able to raise their credit scores due to pandemic stimulus.
So they were moved up into different credit tiers.
Well, now their performance is starting to look like they would normally look, so that’s causing some problems on vintages as well and that performance.
So lenders are having to update their scoring models.
So there’s a lot going on the subprime market, our feature, like I said, is going to be a really in-depth look at some of the compliance considerations as repossessions go back up as well.
Again, tied back to the rising delinquencies and credit performance.
So a little bit of everything.
I think the main message here is that affordability is maybe even bigger of a concern for the industry than people realize, and it’s pervading every single part of the consumers life.
It’s not just that it’s a higher interest rate and it’s harder to get credit.
It’s also just a matter of everything costs more, and it’s whether or not they can and are willing to keep paying their auto loan when they may not even be able to afford groceries.
So definitely check that out.
Make sure to check out full feature coming later this week, where we’ll have a lot more data and everything for you to pour through and a lot more coverage on the subprime market to come.
We will also have more coverage from our auto finance summit that happened earlier this month.
So make sure you check out that as well and that will do it for today’s episode.
Thank you for joining us on the roadmap and be sure to follow us on X, formerly known as Twitter and LinkedIn, and we will see you online at autofinancenews.net and here next time.