David Gaynoe, Vice President, Global Sales & Marketing, RMS Automotive, A Cox Automotive Company

The reliability of used cars in China is regressing, according to a J.D. Power study released Thursday. The finding underscores the challenges for lenders seeking to increase their penetration into the second-hand market.

J.D. Power’s 2018 China Vehicle Dependability Study tracks the number of problems experienced per 100 vehicles (PP100) on 30- to 48-month-old vehicles and noted a “minor regression” over the last three years.

The country’s industry-wide vehicle dependability score dropped to 145 PP100 in 2018 compared with 141 PP100 in 2016. Between 2010 and 2015 the industry dramatically improved dependability scores but continued improvement has proven harder.

For example, the gap between domestic and international brands remains flat year over year at 30 PP100 (167 PP100 domestic and 137 PP100 international).

“The deceleration of improvement indicates that the automotive industry has been entering into a critical time frame when even tiny progress requires great effort,” Jeff Cai, general manager of auto product at J.D. Power China, said in a press release. “Frequently reported problems are the hardest to resolve for multiple reasons; however, given that what each customer experiences with vehicle dependability will very likely affect future repurchase intentions, automakers and dealers have to work together to figure out these recurring problems as soon as possible.”

Many executives at the Auto Finance Summit Asia noted the difficulties in entering the used-car financing space in China. One of the significant challenges is finding accurate vehicle valuations for pricing and transparent data to convince consumers they aren’t buying a lemon.

David Gaynoe, vice president of global sales and marketing for Cox Automotive’s RMS Automotive, noted that BitAuto is an excellent resource for online classifieds like an AutoTrader for China.

“The fact is that when you sell as many new cars as you have in China in the past five to seven years, it’s only going to lead to a massive used car marketplace,” Gaynoe said during a presentation at the conference. “We’re excited to get in early on that and shape what it’s going to look like.”

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HyreCar, a platform that provides rideshare drivers with a pool of shared vehicles, strategically partnered with GPS solutions provider PassTime, the company announced this week.

The partnership was made through an existing alliance with DriveItAway, a dealer-focused shared mobility company. Through these interweaving partnerships, HyreCar will allow its dealership partners to quickly enter and learn the mobility as a service (MaaS) business, the press release notes.

HyreCar’s alliance with DriveItAway already enabled dealers and fleet owners to use the HyreCar platform to enter the mobility market and now dealers can utilize PassTime’s vehicle asset tracking and management. 

PassTime has set up a special-order portal for DriveItAway, where HyreCar dealers can “obtain vehicle telematics units” and dealers can integrate all of the PassTime services within its vehicle administration platform for easy vehicle specific applications.

HyreCar has made a few announcements that leverage strategic partnerships to support the startup, especially since going public. Those partnerships include HopSkipDrive and the National Independent Automobile Dealers Association. The next alliance on HyreCar’s radar is with ridesharing giant Lyft.

“We have a great relationship with Lyft we are trying to partner with them,” Joe Furnari, chief executive, told Auto Finance News. “We don’t have anything imminent, but that is a key priority for us.”

Since its inception in 2015, the company raised $12.6 million in an initial public offering of 2.5 million shares that started trading June 27. At press time, the company’s market cap reached $33.1 million.

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Financial services technology solutions company Fiserv Inc. is officially rebranding its auto division with a new name — Sagent Lending Technology, the company announced today. The new identity is a move toward the company’s goal to turn its focus on the auto segment, Bret Leech, chief executive, told Auto Finance News.

“We needed to launch a new brand because under the Fiserv name we were limited,” Leech said. “We needed to compete with the other divisions on what information we could share.”

Due to the size of Fiserv and the many divisions under the brand, certain segments — like auto — couldn’t be constantly prioritized, he said. A joint venture between Fiserv and Warburg Pincus helped form Sagent Lending Technologies, which will give their captive and lender clients its full attention.

“We’re interested in that auto space and our existing clients will get the attention and recognition they deserve,” Leech added.

Now that the lending solutions company has the opportunity to focus 100% on auto, the brand is looking to further expand its diverse services into more segments including subscription services, powersports finance, and regional banks.

Sagent Lending declined to name the captives and lenders it works with but for reference, “look at the Big Wheels data top 10 list,” Charles Sutherland, chief product officer, told AFN. “Six out of the 10 largest lenders are our clients.

“Just to put that at scale, last year we facilitated 20 million auto credit applications and 6 million contracts were booked on our system, and we support millions of more auto loans on our servicing product,” Sutherland added.

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Fair’s consumers are only shown cars they can afford on a monthly basis. (Photo by William Hoffman)

Used-car leasing app Fair is expanding rapidly through partnerships rather than spending funds on advertising straight to the consumer, Founder and Chief Executive Scott Painter, told AFN.

“Given our partnership with Uber Technologies Inc., our expansion is not based on [brand building], so we don’t have to worry about marketing dollars,” Painter said.

By having what Painter calls a “partnership model,” Fair differs from other online marketplaces such as AutoGravity, Carvana, and Vroom, which have to make appeals to the consumer for online purchases.

Fair’s expansion focuses on leveraging its partnerships to onboard more vehicles, subscribers, and roll into new markets. Just this month, Fair launched in Chicago, Nashville, Philadelphia, and the San Francisco Bay Area.

The company is targeting other dense markets with ambitions of serving consumers nationwide by yearend, Painter said. The company’s fleet grew with the acquisition of Uber’s Xchange Leasing book in January, and it’s volume of cars continues to expand through its partnership with dealer groups such as Penske Automotive Group, Painter said.

Fair also partners with Ally Financial Inc.’s dealer base, which sends consumers looking for alternatives to traditional financing to Fair.

“Ally is turning down hundreds of loan applications a week,” Painter said. “If [a consumer] doesn’t qualify for the car loan, they qualify for Fair.” Currently, the app has an estimated 15,000 paying subscribers, Painter said.

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Hyundai Capital America and Nissan Motor Acceptance Corp. accused a dealer group with operations across Pensylvania and Michigan of failing to repay floorplan loans and selling $10.5 million worth of vehicles out of trust, according to court documents.

The dealerships include Hazleton Hyundai and Hazleton Kia in Hazle Township, Pa. Additionally, NMAC filed lawsuits against three Nissan stores with one in Hazle Township and two in Detroit. The dealerships are owned by Michael Saporito and ex-NFL players Jessie Armstead and Antonio Pierce.

Dealership fraud has surfaced in several lawsuits over the last few months between lenders and their dealer partners, Josh Wortman, an analyst with General Forensics, told Auto Finance News.

“The focus on fraud is actually wrong,” Wortman said. “Fraud is too narrowly defined and too hard to pin down. By the time you must accuse a dealer of fraud it is too late, the damage has been done. The more useful, smart approach is to focus on spotting early indicators of suspicious behavior.”

A month prior, Ford Motor Credit Co. sued Texas-based Reagor-Dykes Auto Group for $41 million, claiming it defaulted on financing agreements by delaying payments on sold cars, falsifying records to obtain additional loans, and partaking in a fraudulent scheme related to inventory flooring.

However, the case for HCA began in August when the captive said the dealerships owned nearly $2.7 million on 184 vehicles, Automotive News reported. HCA also alleges the dealerships missed loan payments due Aug. 1. 

Additionally, an Aug. 29 court order allowed Hyundai’s captive to remove collateral from the two dealerships of about 90 vehicles valued at over $2 million.

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The depreciation of a new vehicle and its hidden costs for consumers could drive the market further toward subscription services.

“The market today is in good time [for consumers] to think about [subscription services] as an alternative,” Jonathan Banks, vice president of vehicle valuations and analytics at J.D. Power, told Auto Finance News.

Depreciation can account for around 40% of the cost of owning a new vehicle, or about $3,000 a year, making the length of car ownership as valuable as the sticker price, according to AAA’s 2018 “Your Driving Costs” study, noting that the most significant expense of purchasing a new car is, in fact, depreciation.

However, consumers fail to take depreciation into account as consumers typically focus more on getting a good deal off the bat.  “But, car owners that like to change vehicles frequently should be thinking about the resale value – not just the purchase price – when choosing their next ride,” said John Nielsen, AAA’s managing director of automotive engineering and repair, in a press release.

Subscription services benefit the consumer by providing a “short window of time to own a vehicle,” Banks added. “When I look at where the market is, we’ve hit a point that offers itself well to subscription services.”

Used-vehicle leasing app, Fair, is capitalizing on this depreciation cost by providing an alternative to long-term financing with its subscription model.

“We aren’t lending consumers money to borrow an asset that is going to depreciate,” Scott Painter, chief executive of Fair, told AFN. “We give [consumers] the ability to have a car without the complexity of ownership. Why get a loan for an asset that’s just going to depreciate?”

The depreciation of vehicles in the market today is influenced by some factors, AAA notes, including the shift in consumers’ preferences to SUVs and pickup trucks compared with sedans, as well as greater acceptance of electric vehicles.

Due to changing consumer taste in favor of SUVs and trucks over sedans, the depreciation costs for sedans increased year over year to 13%, AAA finds. Meanwhile, electric vehicles are growing in popularity with 20% of consumers saying they’d consider electric vehicles for their next purchase compared with 15% of consumers a year ago. EVs could provide consumers with other costs benefits such as lower refueling costs, repair, and maintenance bills, AAA says.

After calculating for the cost of fuel, maintenance, repairs, insurance, license/registration/taxes, depreciation and loan interest, AAA found that the average price to own and operate a new vehicle in 2018 is $8,849 per year.

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Once a consumer is locked into a car loan, it’s easy for them to habitually make the monthly payments without further consideration. But sometimes, it pays to hit pause and consider the potential benefits of refinancing an auto loan, for both lender and consumer. The key point is to evaluate and educate.

The Fed has already raised interest rates twice this year and is on schedule to raise rates two more times. This presents the opportunity to discuss refinancing with your customers. Make it a plan to educate customers on the value of refinancing after every Federal Reserve rate change.

Create communication calendars based on loan life-cycles. After 12 months, 24 months, and 36 months of continuous auto loan payments remind customers of the benefits of refinancing when in a better credit situation. Hard times can hit customers at any time, so plan on communicating the benefits of lowering auto loan payments through refinancing every couple of months.

Also, refinancing an auto loan gives the lender an opportunity to increase their non-interest-bearing income with consumer protection products. Providing complimentary consumer protection products, like a vehicle service contract or vehicle return, on an auto loan directly addresses consumer concerns about getting the best deal.

Never before have consumers held on to cars as long as they are now. After dealing with significant vehicle repairs, consumers are currently shopping for more than just APR. They are looking for the deal that provides the most for their money. With strategic F&I products paired with a loan, consumers will know that their investment is protected should an unforeseen mechanical breakdown or job loss occur.

When customers engage with a lender’s brand, they aren’t looking for another internet meme. They are looking for valuable information that could better their financial situation. Providing education on everything from the value of refinancing to how to protect their investment with consumer protection products is invaluable. This is the type of information and customer service that results in long-term customer relationships.

With more than 40 years of experience in innovating profitable solutions in the dealership space, EFG Companies knows how to differentiate lenders’ business and create sustained loan volume.

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Regional Acceptance Corp. (RAC), a subsidiary of BB&T Corp. specializing in the subprime space, is the most recent lender to outsource their title transfer process to Dealertrack Accelerated Title, the companies announced this week.

“We have several lenders on the product right now and several that have signed up that we are in the process of implementing,” Todd Hutto, vice president of DealerTrack, told Auto Finance News.

Namely, Chase Auto, Capital One, and Nissan Motor Acceptance are lenders currently working with Dealertrack’s title transfer product, which entered the marketplace in 2015 and debuted at the National Automobile Dealers Association in 2016.

The product creates cost savings by releasing titles to dealers by utilizing a banking innovation called automated clearing house (ACH), which electronically sends funds from one account to another similarily to direct deposit and payroll.

“Anything that [lenders] can do to streamline the process,” Hutto said, noting lenders are keeping an eye out on rising interest rates and what the potential tariff threat will impact captives.

The traditional method of title transfer requires calling for quotes, handwriting checks, mailing overnight and then waiting on title delivery. With the ACH system, lenders are reducing operating costs and “increasing cash flow because funds are available sooner than what would happen,” Hutto said.

Other benefits that come with the accelerated title product is that it reduces the number of days a dealer waits for a title to 4-6 days compared with 12-18 days. DealerTrack also notes that vehicles are nearly two times more likely to sell on the first pass through an auction lane when they have titles. Finally, it reduces fraud as it can provide dealers with title visibility to ensure the validity of the trade before the deal is finalized.

Dealertrack has over 53 million titles under its control, Hutto said.

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Students in Virginia without vehicles can now access subscription cars. (PRNewsfoto/Cox Automotive)

Dealers are increasingly torn between the old-school F&I business of local credit unions and the new-school subscription models.

Gary Duncan, one of the owners of the Duncan Automotive Group in Christiansburg, Va., told Auto Finance News that some of his best business is coming from credit unions that can meet the needs of local customers through strong face-to-face interactions. At the same time, Duncan is exploring the latest industry innovations such as subscription models.

His auto group signed on with Flexdrive to offer consumers a competitive all-inclusive monthly price for car ownership that includes “everything except the gas,” he said. His target price of $600 to $800 a month is designed to target the local college population he serves.

“This business is changing at the speed of light,” he said. “With us being in a college town we think it is a perfect fit. Virginia Tech is the largest state university here, and we think it’s a perfect program for foreign students to be able to have a car with an all-inclusive service while they are here.”

Duncan Automotive will mostly offer used vehicles and maybe some new Honda models because otherwise, Duncan said it’s hard to make the program profitable and affordable to the average consumer.

“I don’t see how the manufacturers at $40,000 and $50,000 cars can make subscriptions work,” he said. “I’m anxious to see how that comes about because it looks like the sweet spot is around $14,000 to $18,000 used cars to make it affordable.”

Amidst all this innovation, he’s also focused on back-to-the-basics auto lending with the local credit union Member One. The credit union is “blowing everyone away,” including the banks and captives, Duncan said.

“Credit Unions are back the way it was when I started,” he explained. “They know the local banker, they know the customer, they are not just putting them in a computer to see what their score is. Also, they are looking at the potential to get this customer to make their deposits in the credit union.”

Across the country in Seattle, Shannon Harnish, President of Harnish Auto Family, is experiencing the same dichotomy as a dealership that increasingly relies on credit unions but has also signed up with the used-car leasing startup Fair as well as the online car sales platform JoyDrive.

“We’ve had some success with [Fair],” she said. [It’s] more like being a middle-man where we’re just a wholesaler, and I’m curious how it works with their residuals.”

Boeing is one of the largest employers in the area, and that translates into strength for the corporate credit union.

“During the recession, the credit unions saved us because the captives were going through issues — in particular, GMAC — and they didn’t have the buying power,” Harnish said. “We had a very difficult time in 2009 dealing with GMAC, and so Boeing Credit Union and Kitsap Credit Union found a little niche and were able to build their portfolio strong through those years, and it’s remained strong.”

As the industry changes, dealers are going to have to navigate these changes by having one foot in the future and one in the past. So far, Duncan said, “We’re excited about what it’s going to do for us in our local market.”

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Via NOAA

Hurricane Florence’s inevitable impact on the auto industry is still uncertain as the storm makes it way through the east coast, but early estimates predict North Carolina could lose 20,000 to 40,000 cars if the storm maintains its current path, said Jonathan Smoke, chief economist for Cox Automotive.

Economist and analysts are basing their forecasts on the results of 2017’s hurricanes Harvey, Maria, and Irma.

“Following the hurricanes last fall, there was a very rapid price appreciation in the used-vehicle market in September and October,” Smoke told Auto Finance News. “Then, we saw prices come back down and correct itself. It was a temporary imbalance in the market.”

Hurricane Florence is set to hit Raleigh, N.C.; Virginia Beach, Va.; Columbia, S.C.; Charleston, S.C.; Myrtle Beach, S.C.; Savannah, Ga.; and Fayetteville, N.C. In these areas, however, vehicle densities are about half of Houston, Texas where Hurricane Harvey hit. Therefore anticipated losses aren’t as extreme as last year.

The path area of Hurricane Florance is home to 9 million vehicles in operation, with a “vehicle density of 162 vehicles per square mile,” Smoke noted in an insights blog post on Cox’s website. By contrast, Houston has 326 vehicles per square mile.

CNBC is reporting that the storm has the potential to inflict record flooding, which is particularly damaging to vehicles in the region — as opposed to wind damage.

So far, lenders Ally Financial and Chase are already offering their help and support through their websites and via Twitter, though no specifics are noted yet as to what financial relief will be provided.

Manufacturers are suspending operations at factories located in the path of the storm. OEMs Daimler AG and Volvo Car Group have both suspended operations due to Hurricane Florence, Bloomberg reported earlier this week.

Click here to see how some lenders provided financial relief last year in the wake of Hurricane Harvey.

For more content like this, check out the 18th annual Auto Finance Summit, which will take place on Oct. 24-26 at the Wynn Las Vegas. To learn more about this year’s event — or to register — visit the Summit’s homepage here. 

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Turn Your Bulk Auto Notes Into Cash