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GM Financial Strengthens Ties With Blockchain Startup, First Products Revealed
GM Financial has expanded its partnership with Spring Labs through a $23 million Series A funding round, the startup announced on Wednesday. The round was led by GreatPoint Ventures “with significant participation from existing investors,” including General Motors Ventures, August Capital and RRE Ventures, among others, according to a press release.
Through the GM Ventures investment, GM Financial, along with more than 20 other financial institutions, is co-developing the first applications to be built on Spring Labs’ platform, called Spring Protocol. The first products being built on the blockchain platform are designed to tackle auto financing fraud, which has increased nearly five times between 2011 and 2018, the release noted. The products include an enhanced identity verification tool, a loan stacking prevention tool and a fraud monitoring and mitigation solution.
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“These products are designed to improve customer on-boarding processes” and “will deliver anonymous data to lenders in a variety of verticals, including unsecured consumer lending, small business lending, credit card issuance [and] secured auto lending,” according to the release.
Adam Jiwan, chief executive of Los Angeles-based Spring Labs, noted that GM Financial has played “an active role in the evaluation of products and use cases on the Spring Protocol.” In February, AFN reported that GM Financial joined Spring Labs’ blockchain network to strengthen fraud prevention and detection capabilities.
“GM Financial is excited to deepen its relationship with Spring Labs and we look forward to the launch of the Spring products, as we believe they have the potential to better protect our customers from fraudulent activity,” said Mike Kanarios, chief strategy officer at GM Financial, in the release.
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Tariffs Continue to Rattle Auto Industry
PLANO, Texas — The threat of tariffs on Mexican imports could have lasting implications for new-vehicle prices and vehicle value depreciation, said Cox Automotive’s Chief Economist Jonathan Smoke at the Nonprime Auto Finance Conference yesterday.
“Tariffs will be very detrimental to the market, leading to higher prices and fewer vehicles sold — essentially causing the affordability challenge to become even-more-so,” he said. “When you drill into where our vehicles come from, almost half — 47% — are assembled outside of the United States,” he added, noting that “Mexico is our strongest trading partner,” representing 15% of that figure.
In addition, the new tariff plan is making it look more likely that negotiations with China over mutually applied tariffs won’t work out, and that the United States will implement tariffs on European and Japanese markets later this summer or in the fall, Smoke said.
“If we have threats against Mexico, Japan, and Europe, you’re talking about the most important segments [for the auto industry],” he said. “The compact car segment probably doesn’t work anymore from a price-point perspective. Crossovers, which is where all the growth is in the new-vehicle market, suddenly become constrained. And, of course, the luxury market would be challenged by [any tariffs] added to Europe or Japan.”
The threat of tariffs on foreign-made automobiles and auto parts also affects vehicle price depreciation, he added. “Up until [last] Thursday at approximately 7 p.m. when my Twitter feed [showed] the President’s action on Mexico, I would’ve strongly said we were going to have normal appreciation for the first time in three years,” noting that the market was previously rattled by the hurricanes in 2017 and tax reform and tariffs in 2018.
President Trump’s proposed plan would impose a 5% tariff on goods coming from Mexico starting June 10, and increase 5% every month until they reach 25% in October, according to a White House press release. The announcement comes on the heels of the expected ratification of the new North American Free Trade Agreement, called the United States-Mexico-Canada Agreement.
“As of Wednesday, it was expected that the USMCA was going to be ratified by all three countries,” Smoke said. “Then you throw this tariff at Mexico, and even that is put into doubt.”
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More Prime Consumers Opt for Used Cars as Subprime Loses Share
As the percentage of prime and super-prime used-car buyers reached an all-time high in the first quarter, the percentage of subprime loan originations fell to a record low, according to Experian’s Q1 2019 State of the Automotive Finance Market Report published today.
“The trend of more prime consumers entering the used market is one we’ve seen now for several quarters,” Experian Senior Director of Automotive Financial Solutions Melinda Zabritski told AFN, noting that high leasing rates are driving consumers with stronger credit quality to the larger inventory of late-model used vehicles. Subprime used-car buyers, on the other hand, typically finance lower priced, older model vehicles.
The data showed that 62% of prime consumers and 45% of super-prime shoppers bought used vehicles in the first quarter. The average loan amount for a new vehicle surpassed $32,000 in the quarter, while the average loan amount for a used vehicle was $20,000. On a monthly basis, the average payment for a new vehicle was $554; for a used vehicle, it was $391.
As average loan amounts and average monthly payments increase, vehicle affordability continues to be a top issue for car buyers. “It’s important that lenders and dealers continue to monitor these trends so they can work with car shoppers to help them find the right vehicle with the right financing options,” Zabritski said.
Meanwhile, the percentage of loans originated to subprime borrowers for both new and used vehicles slipped to 19.33%, down 26 basis points year over year. Including leases in the mix, subprime originations dropped to 17.43%, down 11 basis points compared with the year-prior period.
Despite the lows, Zabritski pointed out that there are still a “good volume” of subprime borrowers in the used market. The record lows for subprime consumers can be attributed to a number of factors, she said, including an increase in average credit scores and more prime and super-prime borrowers in the market.