Beiqi Foton Motor Co. — a Chinese manufacturer of commercial utility vehicles and the consumer pick up truck Tunland — is planning to set up an auto finance joint venture with $385 million of capital, according to public filings.
Beiqi Foton will invest in Anpeng Leasing shares to jointly established Anpeng Zhongrong Co., according to the document. The Hong Kong-based lender was established in August 2014 and has traditionally specialized in aircraft financing.
Additionally, Foton Motors will invest in Xinrong Financial Leasing Co., which specializes in automotive rentals, to form a joint venture with capital of $387 million.
Delinquency rates are down for the auto finance industry overall, but captives and banks are showing increased rates, Melinda Zabritski, Experian’s senior director of automotive financial solutions, told Auto Finance News.
Industry-wide 30-day delinquencies dropped to 2.1% of total loans outstanding in 2Q18 compared with 2.2% a year ago. Meanwhile, 60-day delinquencies fell to 0.64% from 0.67% over the same period.
“Regarding the high-level macro number, delinquencies improved,” Zabritski said. “But that improvement was driven by a sharp decrease with the finance companies and decrease loss with the credit unions.”
Finance companies’ 30-day delinquencies decreased to 3.7% compared with 4.3% during the same time last year. Additionally, credit unions experienced a drop in delinquencies to 1.2% compared with 1.3% in 2Q17. Both finance companies and credit unions managed to lower late-stage delinquencies as well.
However, the captives and banks are still showing delinquency rate increases, Zabritski said. Those rates are starting to taper off as lenders reduce their subprime originations, which naturally leads to lower delinquencies.
“We’re not quite there with the captives and banks, but maybe in the next quarter or so [they too will see delinquencies fall],” Zabritski added.
Delinquencies 30 days past due increased to 2.14% for captives, compared with 2.08% last year. As for banks, the 30-day delinquency rate increased to 1.88% compared with 1.71% during the same time the previous year.
The industry has experienced a pullback in the subprime space for a while now. However, there are operational reasons behind a reduction in subprime. “For banks, it’s about right-sizing,” Zabritski said.
By right-sizing, Zabritski means that banks are looking at their portfolio and reevaluating how to strategically reduce share in auto originations, which helps large regional banks keep the auto portion of their balances in line with strategic plans.
Kevin Cullum, President of Nissan Motor Acceptance Corp.
Nissan Motor Acceptance Corp. has plans in the works to offer consumers a subscription service by its fiscal yearend in March 2019, company President Kevin Cullum told Auto Finance News.
“Our biggest opportunity is with subscription services,” Cullum said.
Although he said the subscription space is more of a “niche” need for specific markets — dense urban areas in particular — the captive is “looking at several options to support the opportunity,” Cullum said.
He did not provide specifics on the vehicles offered, the perks included in the subscription, or pricing.
While Cullum doesn’t believe subscriptions will have a substantial impact for another “20 to 25 years,” NMAC will join other OEM subscription services exploring the field, including BMW USA, Ford Motor Co., Hyundai Motor Co., and Volvo Cars.
In the near term, the captive’s main focus is more on risks that could impact the industry, specifically, rising interest rates.
“Dealers have operated at a low-interest rate environment for almost a decade, and as rates continue to increase it’s putting pressure on their operations and profitability,” Cullum said.
In a rising interest rate environment, it can be difficult for dealers to manage inventory to support subprime customers, who are more severely impacted by rising rates. “As a captive, we’ll continue to support the dealers to adjust their business models as we get back into a normal interest rate environment.”
Cullum was tapped as president in August 2017, replacing Mark Kaczynski who is now vice president of administration and finance for the company’s luxury brand Infiniti Motor Co.
Nearly a year after speculation of a possible consent order surfaced, Santander Consumer USA is close to settling allegations by the Consumer Financial Protection Bureau that it misled consumers about costs of certain loans and the coverage of ancillary insurance products, according to Reuters.
Specifically, the subprime lender was accused in November 2017 of allowing borrowers to make interest-only monthly payments without explaining that this type of payment increases the total cost of the loan.
The CFPB also claimed that Santander failed to accurately explain to consumers guaranteed asset protection (GAP) policies. The lender allegedly neglected to inform consumers that GAP does not always cover the costs of replacing a car that’s destroyed in an accident.
“While we cannot comment on conversations with our regulators, Santander Consumer is committed to robust compliance and consumer practices,” a company spokeswoman told AFN. “We regularly review all of our practices, including consumer disclosures and call scripts, to ensure that the terms and conditions of our products and services are fair and appropriately disclosed.”
The Bureau was expected to levy a lawsuit against the lender in November 2017 in the waning days of former CFPB Director Richard Cordray’s tenure. However, as Mick Mulvaney took reigns of the agency from Leandra English — Cordray’s hand-picked temporary successor — the consent order never came.
Santander Consumer USA, which has $41.1 billion in assets, has agreed to pay a fine — though the amount was not disclosed.
Santander has run into trouble with regulators in the past. In February 2015, the company settled a $9.35 million suit with the Justice Department for violating the Servicemembers Civil Relief Act by improperly repossessing cars of active and retired military servicemen and woman. The bank also started getting hit with consent orders from the Fed for failure to pass its stress test that same year.
However, the company has been able to put a series of regulatory compliance issues behind them in 2018. Earlier this month, the Federal Reserve Bank of Boston released Santander from regulatory restrictions imposed in a written agreement in July 2015, according to a press release by the Fed on August 17. This week the lender’s parent bank was also released from a consent order issued by the Office of the Comptroller of the Currency.
Santander has also taken steps toward compliance revival since its troubles in 2015.
Three distinguished executives from Chase Auto Finance, USAA Bank, and State Farm Bank are set to discuss the state of direct lending at the 2018 Auto Finance Summit during a session entitled “Removing the Middleman.”
The discussion will take place during the Innovation Track on the second day of the summit — Thursday, October 25 at 2:40 p.m. at The Wynn, Las Vegas.
With technological innovations making major waves in the industry, it’s a revolutionary time for auto finance — especially in terms of the traditional lending model. More lenders are pushing into the direct lending space through partnerships or creating their own proprietary systems. But, is the industry ready to remove the middleman?
The panel will feature an open dialogue between Peter Gasparro, Managing Director, Business Development & Strategy, Chase Auto Finance; Renee Horne, Vice President of Consumer Lending Experiences at USAA Bank; and Chas Roscow, Director, Vehicle Lending & Agent Banking at State Farm Bank.
In recent years, companies have made strides in their direct lending portals. Chase Auto launched its Chase Auto Direct platform, which the company announced last year. In 2016, USAA Bank updated its online direct lending portal to allow members to search for cars based on their lifestyle choices and plans to make additional changes throughout the year.
“Understanding that there is a variety of [consumer] lifestyles and life stages, we help our members to really hone in on the right vehicle, and ultimately the right financing for their lifestyle,” Horne said.
The panelists will discuss other trends and best practices in the direct lending space, such as improving the dealer experience and converting online research into in-person sales.
To see the panelists discuss this topic and for more information on the agenda, visit www.autofinancesummit.com. To register for the event click here.
Toyota Motor Corp. is investing $500 million in Uber Technologies Inc. as the OEM continues its efforts to become a true competitor in the autonomous vehicle space, the companies announced on Monday.
Uber will combine its autonomous driving system with Toyota’s Guardian technology, which uses sensors to help human drivers avoid accidents, according to a press release. Uber’s system will be built into Toyota’s Sienna minivans, which are set to be deployed on Uber’s ride-hailing network by 2021.
Toyota Motor and its captive finance arm Toyota Financial has taken an interest in the carshare and rideshare space with other ventures as well. Last week, carsharing app Getaround raised $300 million in funding led by investments by Toyota Motor Corp. In June, the OEM announced a $1 billion investment in the Southeast Asia mobility company Grab Holdings Inc. — the largest investment ever from an OEM into a ride-hailing startup.
Toyota Financial stepped into the autonomous space with the launch of a keyless carsharing technology pilot program through the Getaround partnership in January 2017 to see if it could enable car lessees to use the payments generated from Getaround to help pay their monthly bill. In April, Uber also partnered with Getaround to allow ride-hailing drivers access to car sharing.
For consumers who want their own car instead of a shared vehicle, Uber has a strategic partnership with startup subscription service Fair, which bought Uber’s Xchange Leasing portfolio in January. Toyota is following Daimler AG, which made its own investment into Uber to put Daimler’s self-driving cars in the ride-hailing network.
The deepening partnership between Toyota Motor and Uber is another strategic move by Uber’s Chief Executive Dara Khosrowshahi as he looks to develop autonomous vehicles through partnership rather than on its own.
Toyota in the past few months has clearly upped its investments into the self-driving and mobility space as competition mounts. For example, Waymo, a division of Google-parent company Alphabet, increased the size of its self-driving taxi fleet more than 100-fold with the order of 62,000 Chrysler Pacifica hybrid minivans from Fiat Chrysler Auto in June.
The White House announced a trade agreement today with Mexico that makes several changes to the North American Free Trade Agreement and could produce a wide range of outcomes for car prices in the U.S.
The tentative agreement proposes to change NAFTA to require 75% of auto content to be made in the U.S. and Mexico, compared with 62.5% currently and instructs automakers to ensure that up to 45% of that auto content be made by workers earning at least $16 per hour, according to Reuters.
It’s unclear how this would fully impact car prices and values moving forward, Eric Ibara, director of residual value consulting at Kelley Blue Book, told Auto Finance News. On one hand, prices could go up if cars made in the U.S. and Mexico fall below the 75% auto content standard and regional suppliers aren’t able to provide the same savings.
“My guess is that any vehicle that is not meeting the content requirements is they will just find new suppliers where possible because they will want to avoid tariffs as much as possible,” Ibara said. “The largest impediment will be in the case where engines are manufactured overseas or another major component that can not so easily be shifted to the U.S. or Mexico. But, given the severity of the tariffs, there will be a huge incentive to find suppliers.”
Still, the industry is reacting very favorably. The stock market is up following the news because it reduces the risks involved with a possible trade war with Mexico.
Concerns have swirled for nearly a year that tariffs with Mexico would raise car prices for consumers and reduce the industry’s ability to push metal, but this announcement — at least in the short term — is assuaging those concerns.
However, the proposed plan has a long way to go. Canada has not been involved in the latest round of negotiations and the White House said it will push to get a deal finalized with the neighbors to the North by weeks-end. Any deal will have to pass Congressional approval before it can be enacted.
“You can see that the market is very pleased with the announcement, we’re having a field day on Wall Street, which should please anyone with a retirement account,” Ibara said. “But, there still remains Canada and Europe and other countries to go and I’m very curious how that all plays out. If the market is this exuberant about Mexico, can you imagine [its] reaction to a deal with Europe?”
Consumers and dealers alike increasingly prefer the transparency and fast funding that comes with e-contracting as lenders who offer the service scored “considerably higher” on the J.D. Power 2018 U.S. Dealer Financing Satisfaction Survey.
Dealers scored captives 65 points higher on average while non-captives added 52 points to their overall score when e-contracting options were provided to their partners. The majority of dealers — 59% — cited faster funding as the top reason they desire e-contracting.
Consumers, on the other hand, want to know more about where their loan is coming from, James Houston, senior director of automotive finance at J.D. Power, told Auto Finance News.
“What we are currently seeing in the marketplace is a trending switch to say, ‘I really want to start to interact before I go to the dealership,’” Houston said. “‘I want to maintain or manage my financial transaction outside the perusal of the dealership, I want to be preapproved, and I want to know my terms and conditions.”
Lenders have tried a variety of ways to get information to the consumer faster, such as a jacket folder delivered by the F&I manager or attaching information to the contract. One way lenders can ensure a better customer experience is by communicating to the dealer partner that they build brand loyalty when a consumer has a positive finance experience.
Lenders can also reach out to consumers who are already in the portfolio and make them “aware of who you are, what you do, and why you do the things you do prior to the finance experience,” Houston added.
Capital One Auto Finance’s Virginia-based affiliate banks must pay taxes on income earned from consumers in Oregon, despite not having a physical presence in the state, according to a decision made by Oregon’s Supreme Court this week.
After being audited by the state tax court for not sourcing revenue to the state despite advertising and providing services to Oregon residents, Capital One challenged the audit — arguing that these out of state banks did not have nexus in Oregon.
“Capital One took the position that the two banks in Virginia had no connection to Oregon since it is not selling a product to the state,” Mary Bernard, director of income and franchise tax at Ryan LLC, told Auto Finance News. “But because it’s not a tangible product, its a service. Services are not exempt from income tax just because [the bank] doesn’t have a physical store. And the supreme court decided that the state was right.”
Additionally, the ruling from the state tax court found that Oregon state law plainly illustrates that income tax applies to any business that earned in Oregon, regardless of any physical offices. The Department of Revenue asserted that the banks derived income from the state through finance charges, late fees, and over-the-limit fees charged to residents in the amount of $150 million per year.
Though Bernard did not know the exact amount of money Capital One may have to owe the state, there’s an assumption that the main reason the state was fighting Capital One is that the bank’s tax was going to go up.
“[Capital One] was going to owe more tax if they included this additional income to their tax liabilities to the state,” Bernard said. “I’d have to assume that this will cost Capital One some money.”
The court case is timely in light of the May 2018 Supreme Court decision in South Dakota v. Wayfair, which the court held that states may charge tax on purchases made from out-of-state sellers, even if the seller does not have a physical presence in the taxing state.
This is alarming because “states are getting aggressive,” Bernard said. As the auto industry moves more digital, it’s increasingly likely that financial services will sell products or services to a state where there may not be a physical location. If more states implement income taxes for out-of-state sellers, that could trickle down with increased taxes that financial services must charge consumers.
Consumer loans more than 90 days past due have been flat or declining for nearly all loan categories, with the exception of auto debt, according to the New York Federal Reserve’s second quarter Debt and Credit Report released earlier this month.
“The flow of 90+ day delinquency for auto loan balances has been slowly trending upward since 2012,” the Fed wrote in the report noting that credit card delinquencies have started to rise in the past year as well.
A specific delinquency rate for auto is not stated in the report, but Fitch’s U.S. Auto Index records subprime 60+ day delinquencies at 4.41% through June, while prime rates are at 0.3%. Both rates are down year over year by 8 basis points and 7 basis points, respectively.
Overall, consumer auto debt has ballooned, and industry players have noticed a shift since the 2008 financial crisis, Damon Edmondson, chief of analytics at Flock Specialty Finance, told Auto Finance News.
“If you go back to 2008 before the crisis, credit card debt was equal to the amount of outstanding auto loans, which makes sense because consumers were loading up their credit cards to maintain lifestyles and stave off the economic dislocation that was about to happen,” Edmondson said. “When you look at the numbers now auto loan debt is considerably higher than credit card debt. Auto loans at the end of the second quarter of 2018 stood at $1.24 trillion while credit card debt was only $830 billion. [Consumers] would have to increase their credit card debt by almost 50% — $400 billion — in order to equal the auto loan debt.”
Comparing auto loan debt year over year, balances are up 4.2%, according to the report. Meanwhile, the industry originated its highest quarterly amount since 2005 with $151 billion in originations.
