Steve Thibodeau, CEO Global Lending Services

Global Lending Services is in the midst of establishing a direct lending business, a move Chief Executive Steve Thibodeau calls “the next gear of [the company’s] growth engine.”

While the Atlanta-based auto lender is keeping short-term aspirations in check — Thibodeau said he does not see the direct business as a significant driver of volume for the next year — he expects it to be a critical component to the long-term success of the organization.

Read the full Q&A on AutoFinanceExcellence.org by clicking here.

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Investors love growth, and as we approach the longest sustained period of growth in the history of the United States, the business climate has been almost unprecedented. The Dow Jones Industrial Average is hovering around record highs and unemployment is at its lowest level in nearly two decades.

These robust economic conditions have supported and stimulated lending activity as well as an explosion of interest in the financial technology arena. Venture capital-backed financial technology companies disrupting traditional banking by effectively unbundling products and services have raised a record $40 billion from investors globally in 2018, up 120% from the previous year, according to research by data provider CB Insights.

However, as we enter the last six months of 2019, signals suggest that economic and regulatory changes could expose the fundamental weaknesses of many consumer lenders.  This is exacerbated by growing fears of a prediction recession arriving before 2021; concerns compounded by the most recent trade war with China and slow wage growth that has been largely offset by inflation.

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Used-car leasing app Fair has closed a $100 million debt facility and equity investment led by Ally Financial. With Ally’s investment, the three-year-old vehicle subscription company has raised $1.6 billion in funding over 10 rounds. The funds will be used to purchase more vehicles for Fair’s fleet.

The Ally investment comes on the heels of Fair’s $50 million debt facility backed by Silicon Valley Bank, which closed on January 24. Late last year, SoftBank led a $385 million Series B round with additional investments from Exponential Ventures, Munich Re Venture’s ERGO Fund, G Squared and CreditEase. Other investors in the startup include Credit Suisse and Goldman Sachs. 

Ally Financial — which boasts an $80.6 billion auto portfolio — entered a “strategic alliance” with Fair in 2018. Since establishing the partnership, Fair has leveraged Ally’s SmartAuction to acquire and remarket vehicles, as well as Ally’s direct and digital financing platform Clearlane.

“This deal is the latest evidence that institutional debt markets are highly receptive to the way Fair is transforming vehicle financing,” said Georg Bauer, co-founder and chairman of Fair. “It’s clear we’ll be able to continue to access the capital we need in order to connect dealers and consumers through a fully digital end-to-end experience.” 

Since its inception in August 2017, Fair has provided cars for 45,000 users through its 3,000 dealer partners in 30 markets across the country, the company noted.

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The average residual value expected in auto lease securitizations this year dropped to a level unseen since 2007, according to a report published last week by Moody’s Investors Service.

Residual value risk, as measured by securitizations’ residual value settings, was set at an average of 46.2% of MSRP, down from 47.1% in 2018. “The lower the residual value setting, the more difficult for the ABS to have residual value loss,” the report stated.

Spurred, in part, by rising used-car prices, actual residual values increased 7.1% in the second quarter, after notching a 5.8% gain in the first quarter. Manheim’s Used Vehicle Value Index reached 139.5 last quarter from 135.5 in the prior period.

While large volumes of off-lease vehicles returning to the market are anticipated to pressure used-vehicle prices, potential tariffs may be a boon for the used market. If tariffs raise new-vehicle prices, buyers on the fence between new and used may purchase used, the report said.

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Tricolor Auto Acceptance adds a personal touch to its innovation initiatives when working on new products, President and Chief Operating Officer Don Goin told Auto Finance News.

“When we’re working on new products, we use a customer-centric design thinking concept, which includes feedback from customers,” Goin said.

Specifically, Tricolor employs a focus group approach when testing new products. Chief Product and Strategy Officer Mauricio Delgado’s team will bring in current and potential customers — “we’ll sit with them, we’ll do side-by-sides, we’ll show them the screens and interfaces and collect feedback [from them],” Goin said, adding that their responses guide development moving forward.

“In order to see if our communication tools are working, we primarily look at change in conversion,” Goin added. “So when a person goes shopping for a vehicle, and we are able to find them the right inventory that matches their needs and we’re able to provide them with financing that they need, we’ve succeeded in the product,” he said.

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