Tag Archive | "Auto Finance"

Consumers Relying on Financing, Experian Reports


SCHAUMBURG, Ill. —Consumers are relying on financing more than ever to buy their next vehicle, according to Experian Automotive. The firm’s latest State of the Automotive Finance Market report shows that the percentage of new vehicles purchased with financing in the fourth quarter of 2014 increased over the previous year to reach 84%. Used vehicles that were financed reached a record high of 55.2%.

Furthermore, the study shows that the average loan amount for a new vehicle in the fourth quarter of 2014 once again hit its highest level on record, reaching $28,381. This represents a more than $950 increase from a year ago and a $582 increase from the previous quarter. For used vehicles, the average loan amount increased $437 from last year to reach $18,411.

“In most parts of the country, vehicles are viewed as a necessity to everyday life, which is why we continue to see consumers willing to take out larger loans as the average price of vehicles continues to rise,” said Melinda Zabritski, Experian’s senior director of automotive finance. “As more consumers lean on financing, it’s important for them to consider all of the factors involved, including monthly payments, interest rates and loan terms. These insights will enable them to have a better understanding of their potential payment obligation and take the appropriate action in order to make the vehicle fit within their monthly budget and more easily meet payment terms throughout the life of the loan.”

Findings from the report also show that leasing continued to gain traction, as it jumped 3.6% from a year ago to reach nearly 30% of all new vehicles financed in the quarter.

In addition to the number of leases increasing in the quarter, the study shows that it was slightly more affordable and easier to obtain one. The average monthly lease payment decreased $12 from a year ago to reach $408 in Q4 2014. What’s more, the average new-vehicle lessee had an average credit score of 717 in Q4 2014, down two points over the same time period.

The study also found that the average credit score for a new-vehicle loan dropped 3 points in Q4 2014 to reach 712, and the average credit score for a used vehicle loan increased 2 points in the quarter to reach 648. Also in the fourth quarter, the average monthly payment for a new vehicle hit $482 — its highest level on record.

Interest rates for new-vehicle loans crept up in Q4 2014 to 4.56% and loan terms for new and used vehicles increased from a year ago to reach 66 months and 62 months, respectively. Captives were the only lender type to see an increase in market share year over year.

Experian’s quarterly State of the Automotive Finance Market report leverages information from its AutoCount database, which enables insights into the automotive-lending market by geography, credit score and vehicle registrations, among other factors.

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New Study Casts Doubt on Latest CFPB Allegations against Automaker Finance Arms


WASHINGTON – A new study by the research firm Charles River Associates (CRA) casts doubts on recent allegations made by the Consumer Financial Protection Bureau (CFPB) against Toyota Motor Credit Corp. and American Honda Finance Corp. concerning disparate impact in the pricing of auto loans, reported the NADA.

Among the CRA study’s key findings was that, when measuring whether such unintentional discrimination has occurred, the CFPB overestimates the number of minority consumers by as much as 41 percent and the pricing differences between minority and non-minority consumers by as much as 87 percent.

CRA noted that several factors (which appear to be completely ignored by the CFPB) further account for pricing differences which are completely unrelated to a consumer’s background.

CRA also noted that while the CFPB’s own study into its testing methodology reveals a significant overestimation of minority populations, the CFPB still does not explain whether or how it corrects for this flaw. Such failings can produce significant distortions and inaccuracies in the CFPB testing results, and should be fully explained by the CFPB before it relies upon them to support an allegation of discrimination.

The study examined the accuracy and reliability of the method used by the CFPB to test for unintentional disparate impact discrimination in an auto lender’s portfolio. After examining 8.2 million auto finance contracts, CRA concluded in its comprehensive report that the CFPB’s testing method is “subject to significant bias and estimation error.”

The CRA study was commissioned by the American Financial Services Association and released on November 19. The allegations made against the automakers’ captive finance companies were publically disclosed on November 25 and December 2, respectively.

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Comment Period Opens for CFPB’s New Rule


WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB)’s proposed rule that would give it supervisory authority over larger participants in the nonbank auto finance segment was published in the Federal Register on Oct. 8, kicking off a 60-day public comment period that ends on Dec. 8.

If adopted, the proposed rule would generally allow the CFPB to supervise nonbank auto finance companies that make, acquire, or refinance 10,000 or more loans or leases in a year. The bureau has estimated that about 38 auto finance companies, which originate around 90% of nonbank auto loans and leases, would be subject to this oversight.

“Nonbank auto finance companies extend hundreds of billions of dollars in credit to American consumers, yet they have never been subject to any supervisory oversight at the federal level,” CFPB Director Richard Cordray said at an auto finance hearing on Sept. 18. “These companies have also played a significant role in the growth of subprime auto lending by making loans to consumers with lower credit scores. In this market, as in others, subprime borrowers may be more vulnerable to predatory practices, so direct oversight of their lending practices is essential.”

The CFPB began regulating the auto finance market in March 2013, when it issued a bulletin stating that lenders that offer auto loans through dealerships will be held responsible for discriminatory rate markups on retail installment sales contracts. The regulator has also expressed interest in the marketing of loans and leases, the accuracy of information given to credit bureaus, and the treatment of consumers during debt collection.

The proposed rule is the fifth in a series of rulemaking to define larger participants in consumer financial markets.

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Auto Loan Default Rate Falls to Eight-Year Low


NEW YORK — The default rate for auto loans fell to its lowest level in eight years last month, according to the S&P/Experian Consumer Credit Default Indices.

Default rates for all loan types except bank cards fell for the fourth consecutive month, reaching their lowest levels since at least the end of the recent economic crisis. The national composite declined to 1.86 percent in April from its 1.96 percent March rate.

The rate of default for auto loans fell from 1.11 percent in March to 1.07 percent last month. The first mortgage default rate decreased from March’s 1.88 percent to April’s 1.76 percent, while the second mortgage default rate also declined from 1.03 percent in March to 0.93 percent. The default rate for bank cards increased marginally in April to 4.49 percent from its 4.47 percent March level.

“April data show the continuation of the positive trend we saw in the first quarter of 2012,” said David M. Blitzer, managing director and chairman of the Index Committee for S&P Indices. “Not only have we continued the general downward trend in consumer default rates that began in the spring of 2009, but we appear to be reaching new lows across many of the loan types.”

The first mortgage default rate fell by 12 basis points in April over March and is the lowest rate since July 2007. The second mortgage rate also fell during the month by 10 basis points, and is at a seven-plus year low. The auto loans default rate hit the lowest rate in the history of this data tracking. While the bank card rate rose, it was not by much and is still close to the recent low reported in February.

Four of the five cities the indices cover saw their default rates drop, with all four at post-recession lows. For the fourth consecutive month, Chicago saw a decline, moving from 2.84 percent back in December 2011 to 2.21 percent in April. That’s a 0.63 percentage point decline and a new low.

New York and Miami both fell for the third consecutive month. New York dropped almost a quarter percentage point over the month from 2.01 percent in March to 1.78 percent, while Miami decreased by almost a half a percentage point from March’s 3.62 percent to April’s 3.14 percent.

“While still the highest default rate, Miami hit a post-recession low,” said Blitzer. “Dallas hits its lowest rate in its eight years of history, moving from 1.44 percent in March to 1.25 percent in April and retains the lowest rate among the five cities we follow. Los Angeles is the only city where default rates remained flat at 1.88 percent.”

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Independent Auto Finance Company AFC HoldCo will Close


AFC HoldCo LLC, an independent auto finance company that provided auto loans through more than 4,000 dealerships in 40 states, is shutting down, reported Automotive News.

AFC’s parent company, Mitsui & Co. of Japan, said today it will liquidate the company because of the downturn in auto sales.

The Japanese trading house acquired 87.5 percent of the Wilmington, Del., company for $63 million in 2007 expecting the auto finance business to expand. But it shrank in the wake of the financial crisis.

“We cannot foresee a recovery in auto finance business,” Mitsui said in a statement.

It said the liquidation will have little impact on its financial statements for the fiscal year ending in March.

AFC HoldCo was created in 2007 through a merger of two companies — Affiliated Financial Corp. and BayQuest Capital Corp. The owners of those firms held a 12.5 percent stake in the new company.

The company is unrelated to Automotive Finance Corp., an independent finance company in Carmel, Ind., that is affiliated with the auto auction chain ADESA Inc.

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Conservative Consumers to Challenge Dealers, F&I Departments, Says KBB


IRVINE, Calif. – Consumers are expected to remain conservative in today’s still struggling economy, with most in-market shoppers expected to spend a relatively small amount of money on their next vehicle purchase, according to a recent survey. In fact, most respondents said they are more like to buy used vs. new.

The expectations highlighted in Kelley Blue Book’s latest Market Intelligence survey also point to a challenging time for F&I departments, with more than one-third of respondents indicating that they plan to pay the entire cost of their next vehicle purchase in cash. Incentives, according to the survey, aren’t having much influence, either.

The study, which surveyed 338 in-market car shoppers on kbb.com from June 18-21, also showed that nearly three-quarter of those surveyed plan on purchasing within the next six months, with a majority of consumers (67 percent) saying they are more interested in a used vehicle than a new one (33 percent). In addition, 42 percent of used-car shoppers and 20 percent of new-car shoppers said they plan to pay the entire cost of their next vehicle in cash.

“In-market car shoppers are taking a decidedly conservative approach to car buying right now, which we think can be directly attributed to low consumer confidence in the current economy,” said James Bell, executive market analyst for Kelley Blue Book’s kbb.com. “It seems people are re-assessing their financial situations and deciding to spend less, buy used and pay more often with cash.”

Most used-car shoppers (62 percent), according to the study, said they plan to spend less than $15,000 on their next vehicle purchase, while half of new-car shoppers (50 percent) said they plan to spend $25,000 or less on their next vehicle purchase.

Additionally, a majority (82 percent) of used-car shoppers and more than half (51 percent) of new-car shoppers said that incentive offers have no effect on the timing of their next vehicle purchase. In addition, 81 percent of used-car shoppers and 48 percent of new-car shoppers said that the availability of incentives have no effect on their specific vehicle choice (make/model).

And of those who intend to finance their next vehicle purchase, zero-percent financing was listed as the most appealing incentive offer at 30 percent, followed by low monthly payments at 21 percent. In addition, women were twice as likely to find low monthly payments the most appealing incentive offer when compared to men (32 percent of women vs. 16 percent of men).

“Incentives have loosened their tight grip on the American consumer, with more people deciding to purchase what they can truly afford versus what they can get with over-extended credit lines and incentive offers on the hood from manufacturers,” added Bell.

By far, the most popular loan term was 60 months, with 42 percent of respondents indicating they prefer to finance over five years. The second most popular term was 36 months at 21 percent, followed by 48 months at 20 percent. Only 11 percent preferred 72 months, and just five percent cited 24 months.

Researching before buying is also expected to pick up, with 57 percent of respondents indicating that they intend to research vehicle financing options online. Fifty percent of respondents said they plan to obtain pre-approval through a bank or credit union, while only 34 percent indicating that they plan to obtain financing at the dealership at the time of purchase.

Shoppers also cited control in negotiations as the top motivator (44 percent) behind financing through a bank or credit union, followed by low interest rate (34 percent). Shoppers, however, did acknowledge the convenience of in-dealership financing, with 54 percent of those surveyed saying it is the primary motivator behind financing at the dealership, followed by low interest rate (32 percent).

According to the survey, the average shopper has three vehicles in his or her consideration set and 83 percent of all survey respondents said they are still undecided on the make and model of their next vehicle. Younger car shoppers (age 34 and under) are more open to buying either a domestic or import brand (45 percent), compared with shoppers age 55-plus who are more likely to have decided upon either a domestic brand (39 percent) or an import brand (32 percent).

Among both new- and used-car shoppers, price and durability, reliability and quality tied at 33 percent as the top two deciding factors when considering a vehicle to purchase. The next-highest deciding factor was past experience with the brand, rated at 12 percent.

Shoppers also indicated that negotiating remains a crucial part of the car-buying process, with 62 percent indicating that they prefer negotiating to having a single set price. That number increases more among younger car buyers when examining the data demographically, as 73 percent of respondents age 34 and under feel that negotiating is a crucial part of the process, compared with 59 percent of respondents in the 35 to 54 and 55-plus age categories.

Additionally, 40 percent of respondents use the average transaction price as the starting point for vehicle negotiations, while 32 percent begin negotiating with the dealer invoice price. Only 9 percent of shoppers indicated they began negotiations with the manufacturer’s suggested retail price (MSRP). In addition, most consumers (38 percent) said that if they pay the average transaction price, they feel they have gotten a good deal.

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