Singapore’s leading ride-hailing service Grab secured an additional $1 billion to fund its expansion in Southeast Asia into food delivery and payment systems, the company announced in a press release Thursday.
A number of financial institutions contributed to the funds including OppenheimerFunds, Ping An Capital, Mirae Asset – Naver Asia Growth Fund, Cinda Sino-Rock Investment Management Co., All-Stars Investment, Vulcan Capital, Lightspeed Venture Partners, and Macquarie Capital.
The investment brings the company’s total funding round to $2 billion, adding on to an earlier $1 billion investment from Toyota Motor Corp., which marked the largest investment ever from an OEM into a ride-hailing startup.
“We are honored to welcome these top-tier financial institutions into our roster of strategic investors and partners,” Ming Maa, president of Grab, said in the release. “We have seen overwhelming interest from global strategic investors and partners who are keen to partner with us to capture the region’s booming growth.”
Following Grab’s acquisition of Uber Technologies Inc.’s Southeast Asia operations earlier this year, Grab has pushed expansion in the region with products such as GrabFresh grocery delivery and the development of an open platform to encourage local payment transactions.
The company faces competition from Indonesian ride-hailing startup Go-Jek, which announced a $500 million investment in May to launch its services in Vietnam, Thailand, Singapore, and the Philippines. Go-Jek started as a bike ride-hailing service but, like Grab, has involved to include food delivery and a payment platform.
Go-Jek’s backers include Google, KKR & Co., Warburg Pincus, and Tencent Holdings Ltd.
Grab handles more than 7 million drivers, agents, and merchants across 225 cities in eight countries, and its app has been downloaded on more than 100 million mobile devices, according to Bloomberg.
Volkswagen Financial Services increased its penetration of automotive loan and lease products across China and India but saw Japan taper off, according to the captive’s half-year earnings report released Wednesday.
VW originated 413,000 new contracts in the Asia-Pacific region — an increase of 14.6% year over year, according to the report. The OEM’s financial services unit now holds 1.5 million consumer loan contracts on its balance sheet, up 4.5% since the period ending in December.
“In China, the proportion of loan-financed purchases rose year over year,” the company wrote in the report without disclosing how much it increased.
Still, licensing restrictions on vehicles in major cities across China are hampering sales.
“Despite increasing restrictions on registrations in metropolitan areas, there is considerable potential to acquire new customers for automotive-related financial services, particularly in the interior of the country,” the company noted in the report.
In the U.S., VW Credit added 451,000 contract originations — a 9.1% increase year over year. The total number of consumer financing and leasing contracts totaled 1.8 million.
Overall, the OEM’s global financial services unit grew to $244.8 billion outstanding as operating profits grew 5.7% to $1.4 billion. Noncurrent loans globally are up 4.4% compared with the previous period.
Financing deals in July with 0% interest were at their lowest levels since 2005 and are down 439 basis points year over year, according to a new report from Edmunds.
Zero percent financing deals accounted for 6.95% of sales in July, down from 11.34% compared to the same time last year. Typically, the summer is when these deals see an uptick as manufacturers are attempting to push out inventory and increase sales, according to Edmunds. However, with interest rates rising and the Federal Reserve planning for more two more hikes before yearend, 0% financing is becoming more expensive for automakers.
“A lot of it really is contingent on the rising interest rates that we are seeing throughout the market,” Jeremy Acevedo, Edmunds’ manager of industry analysis, told Auto Finance News. “As the APR rises for new vehicles, it becomes a more expensive endeavor for automakers to roll out the 0% financing deals.”
Sometimes when a customer is buying a car, they will have a 0% financing option. This means that they don’t pay any interest on the loan and the consumer is essentially paying the same amount as a cash buyer but spreading payments over a longer term. In this way, automakers are making money on the car rather than the financing deal.
Despite the decline, Acevedo does not see it becoming a trend month over month.
“I think that we might see a little more toward the end of the year, but I don’t think it’ll be those rates that we saw in 2017, especially not close to 2016 or the years before that,” Acevedo said. “As the year goes on, automakers are going to need to liquidate to their outgoing model year inventory, otherize it is going to become very expensive for them to move them if they have a bunch of 2018 lots when December rolls around.”
The average annual percentage rate for new vehicles in July was 5.74%, up from 4.77% during the same month last year. Used car interest rates were also up, increasing to 8.31% from 7.46% at the same time the year prior.
Subscription programs that allow for more flexible vehicle ownership could wind up being a bust, but if investments from just about every major OEM on the market, a handful of startups, and numerous dealerships are any indication, this is a fad that will be around for some time to come.
What “flexible ownership” means differs drastically for programs. Some offer total flexibility to swap in and out of cars whenever the consumer wants, but it comes at a hefty price. Others offer used vehicles and fewer amenities for a lower price. Some OEMs have traditional lease programs that add-on insurance and maintenance, while other dealerships are bypassing the manufacturers altogether.
It’s hard to tell if this trend will grow to 30% or more of the market like traditional leasing has, or if consumers will come to see it as a glorified rental.
Grayson Brulte, President of consulting firm Brulte & Co., told Auto Finance News back in January that these programs are largely going to serve as the testing grounds and starting point for a world in which fleets are 100% autonomous and the need for car ownership is largely diminished.
“On a traditional three-year lease, [the industry] knows how the system works, but if you’re on a one-month, two-month, three-month lease or you’re constantly swapping out vehicles, [the industry] has to learn,” Brulte said. “You’ll see interesting pilots pop up in cities around the country and you’ll know it’s working when they announce, ‘We’ve added two more cities to the platform.’”
Four Luxury OEM Programs Driving Subscriptions
Via press.porsche.com
This is the top end of the market where the trend started to take off at the beginning of 2017 with the introduction of General Motors’ Book by Cadillac program.
All of these programs allow consumers to swap cars within the OEM’s brand at will and do so through a white-glove concierge service, which delivers the car to the consumer’s home or desired location.
That level of service comes at a steep price. Services in this category such as Book by Cadillac, Porsche Passport, Access by BMW, and Mercedes-Benz Collection all start at or near $1,600 per month and can range as high as $3,000 per month.
Toyota’s forthcoming Lexus program and Fiat Chrysler Automobiles’ Jeep subscription program could fall into this category as well but pricing details have not been revealed yet. The Luxus program is scheduled to launch during the holiday season 2018 with Jeep coming in 2019. Carpe by Jaguar Land Rover also launched in June but it’s exclusive to the UK with no plans to expand into the U.S.
Edmunds found that consumers in these programs would pay on average a $27,124 premium for these subscriptions versus a traditional three-year lease. However, they also provide the greatest amenities and service for the price.
Finding a Fair Price
Fair’s consumers are only shown cars they can afford on a monthly basis. (Photo by William Hoffman)
The car subscription startup named Fair came onto the scene last year in a big way by adding $1 billion in capital from a group of investment banks in October 2017 and then buying Uber’s Xchange Leasing program to become the ridesharing company’s exclusive leasing partner.
Fair offers vehicles on its app from as low as $150 and $300 per month but can also get up to $1,000 or more depending on the vehicle.
Chief Executive Scott Painter explained to AFN late last year that the company is able to offer this lower price because it only offers used vehicles and focuses on affordability based on how much typical consumers spend on car payments and mobility combined as a percentage of their income.
“In our model, we must understand what you can afford and we constrain your shopping experience to that because we don’t’ show selling prices or cap costs on cars. Everything is shown in the form of a monthly payment and we don’t show you cars you can’t afford,” Painter said. “Everything we do at the beginning of the app experience from a data collection point of view is getting to the bottom of that question — how much can you afford? And it turns out everyone can afford something. You could be a single mom, working two jobs and you can only afford $150 to $300 a month. We’ll show you a ton of cars in that price range.”
Fair is expanding rapidly as it seeks to meet the demand of Uber drivers nationwide seeking temporary vehicles. Fair also addressed how it will deal with the used vehicles coming out of the subscription program with a partnership with Ally Financial and the SmartAuction platform. For more information on that partnership, click here.
Dealership Programs Turn to Three Tech Providers
If dealerships have the fleet financing arrangements from their bank partners, they don’t need the OEMs to offer a subscription program. However, most still look to partner with one of three technology providers offering a consumer interface and inventory system.
Cox Automotive’s Clutch Technologies, Flexdrive, and Mobiliti are the main players in this space selling the technology to dealerships. Cars usually start at around $1,000 per month, include maintenance and insurance but won’t be delivered to a consumer’s home like the luxury OEM models do. In this way, dealerships still become the mobility hubs for an individual’s city and increase the consumer loyalty.
“A vehicle subscription service is for people who want a car but aren’t ready for ownership,” Mobiliti CEO and Co-Founder Chance Richie told AFN in May. “It’s similar to a lease, but without the things consumers dislike most about leasing, including long-term contracts and upfront costs.”
New OEM Lease Offerings
New Volvo XC40 – exterior. (Photo by Volvo)
If the previous programs listed above are following the Netflix model of offering a monthly price for full access, there are other OEMs offering something closer to an annual Amazon Prime membership.
Hyundai Capital America and Volvo Cars are the primary players in this category.
Hyundai started with a pilot in California called Ioniq Unlimited+, which offers an electric vehicle for $275 per month, a 36-month term, no down payment, unlimited miles, and free charging. This year, Honda expanded to Ohio offering conventional combustion engine cars for the same price and terms as the Ioniq
Unlimited+ program but bundles maintenance and insurance instead.
Care by Volvo is a subscription program for the OEMs XC40 compact crossover but offers a shorter term — 24 months with the ability to swap to the newer model after a year — starting at $600 per month. Bank of America is the lender behind the program.
“It’s a more attractive price for the consumer,” Mark Abbasi, Hyundai’s vice president of product development, told AFN last month. “If you look at month-to-month programs it’s quite expensive — it’s a premium price and we wanted to come out with something that’s more affordable and provides more value to the consumer. That three-year term helps you get there.”
There’s also a small San Francisco-based startup dubbed Less, which offers consumers three cars during a 36-month contract starting at $550 per month.
Ford Launched Two Used-Car Subscription Models
Via Ford
Used cars are much easier to price because the initial depreciation of driving off the lot for the first time is already factored, Fair’s Painter explained to AFN. The industry is also flush with low-mileage used cars right now coming off record-high lease volume, which makes subscription programs a good way for companies to use up some of that volume, he added.
Ford Motors took the used-vehicle route with the launch of Canvas in May 2017 offering users access a number of off-lease Ford vehicles starting at $329 per month, according to the Canvas website. Ford looks to take a similar approach with its upcoming Lincoln subscription service, which will offer more luxury features on off-lease Lincoln vehicles.
“Our biggest challenge was simply seeing how customers responded to and used the product, and using that feedback to help refine it and add features that would better their experience,” a company spokesperson told AFN earlier this year. “For example, we found that features like adding a second driver are hugely popular with our customers.”
Two Programs Looking to Make a Splash
Courtesy of Carousell
Two companies are seeking to break into the car subscription space but either hasn’t found their niche yet or are seeking OEM partners to bring them to the next level.
Los Angeles- based Borrow is a car subscription service that rebranded from PrazoNow in November 2017. The company only offers electric vehicles starting at $499/ month on a three-month term. Likewise, Carma Car is part of the Techstars Mobility accelerator and is seeking expansion for its program starting at $400 per month for sedans such as the Ford Focus, Honda Accord, and Chevy Cruze in the base package.
Huntington Auto Finance managed to grow its portfolio 8% year over year despite a decrease in origination volume due to tighter lending standards, the bank reported during its second-quarter earnings call.
The Columbus, Ohio-based bank held auto balances of $12.3 billion during the quarter while originations declined 2% year over year to $1.6 billion. However, Huntington was able to drive the increase in revenue by “consistently increasing auto loan pricing, which slowed originations while optimizing revenue,” Chief Executive and President Steve Steinour said during the second quarter earnings call.
Additionally, dealer floorplan volume rose 1.23% year over year to $4.1 billion. Huntington’s indirect model has worked well because consumers still want to be able to go to the dealership, Rich Porrello, lead of the bank’s auto finance business, told Auto Finance News. The bank fares well in that process thanks to “speed” and “consistency,” Porrello said. “That’s why we’ve been able to grow at the risk metrics that make sense to us.”
Meanwhile, the average loan-to-value ratio was flat at 89% year-over-year, and the percentage of new vehicles financed rose to 47% compared with 45% in the same period the year prior.
Delinquencies more than 30 days past due accounted for 0.74% of the portfolio — a decrease compared with 0.80% the same time last year. Likewise, charge-offs accounted for 0.27% of the portfolio, down from 0.37% in the second quarter of 2017.
Although Kathy Kraninger — President Donald Trump’s nominee to lead the Bureau of Consumer Financial Protection — faced tough questions during her hearing last week there were no obvious obstacles to the Senate “ultimately confirming her,” Allen Denson, a partner with Hudson Cook LLP, told Auto Finance News.
Predictably, Democrats levied the harshest criticisms during the July 19 hearing. Sen. Catherine Cortez Masto, (D-Nev.), said Kraninger’s lack of candor and experience with financial consumer protection made her question the nominee’s qualifications to lead the bureau. Kraninger’s time as associate director of the Office of Management and Budget, “may be the only thing for the Senators to go off of,” Denson said. Kranginger’s lack of financial experience made it difficult for her to articulate her stance on certain CFPB policies, he added.
During the hearing, Kraininger did indicate that she’d adhere to the Administrative Procedures Act when rulemaking, and that she supports the “stronger” military lending act rules that were enacted by the Department of Defense earlier this year. Additionally, when asked if Kraninger would reinstate the Office of Fair Lending under the stronger structures that former director Richard Cordray enforced, she responded, “I’ll look at it freshly.”
Republican Senators argue that Kraninger has the management expertise to lead — and since the Senate majority lies with Republicans they could push a confirmation through. However, it could be a “lengthy process,” Chris Willis, partner for Atlanta, Georgia-based Ballard Spahr’s litigation and consumer financial services groups, told AFN.
Senator Mike Crapo (R-Id.) stated that Kraninger’s vote out of committee would likely be scheduled for next week, but a vote in the Senate could still take a month.
A debt collection law firm, Weltman, Weinberg & Reis Co., LPA, won its lawsuit against the Bureau of Consumer Financial Protection, in which the firm was accused of violating the Fair Debt Collection Practices Act.
“It was a challenging process being sued by the U.S. government, but it was gratifying to get the result we wanted,” Scott Weltman, managing partner, told Auto Finance News. Weltman wasn’t the only law firm hit with accusations by the bureau, Weltman said, but the firm chose to fight back because “nothing [the bureau] said was true.”
The bureau filed suit against the Cleveland, Ohio-based firm in April 2017 for allegedly making statements on collection calls and sending collection letters creating the false impression that attorneys had meaningfully reviewed the consumers file, when no such review has occurred.
However, Federal Judge Donald Nugent of the U.S. District Court for the Northern District of Ohio wrote an opinion in favor of Weltman’s case writing that the bureau’s lawsuit “lacked merit.” The opinion “thoroughly vindicates Weltman’s processes” and is a “complete rejection of the CFPB’s unfounded allegations,” said Weltman.
According to the opinion, Nugent found that the bureau offered no evidence to show that any consumer was harmed by Weltman’s practice of identifying itself as a law firm in its demand letters and Weltman attorneys were “meaningfully and substantially involved in the debt collection process both before and after the issuance of the demand letters.”
This case follows the Consumer Financial Protection Bureau v. RD Legal Funding, LLC lawsuit which resulted in the bureau’s structure ruled unconstitutional by a federal judge in June.
Other recent losses at the federal court level include: the January 2018 rejection of the bureau’s requests for both restitution and an injunction in Consumer Financial Protection Bureau v. CashCall, Consumer Financial Protection Bureau v. Borders & Borders, PLC in July 2017, and Consumer Financial Protection Bureau v. Universal Debt Solutions, LLC, in August 2017.
Daimler AG, the parent company of Mercedes-Benz is restructuring its financial services unit in order to better accommodate the rise of mobility services, the company announced in a press release.
Daimler Financial Services AG will be renamed Daimler Mobility AG in the first half of 2019 and its 13,000 employees will be tasked with managing services such as Car2go, Moovel, and Mytaxi, which have amassed 23.5 million customers worldwide.
The company’s other business entities including Mercedes-Benz Bank in Europe, Mercedes-Benz Financial Services in the U.S., and Mercedes-Benz Auto Finance China — among others — will remain unchanged as they continue to service those brands.
During the second quarter, Daimler Financial grew originations 2% year over year to 501,000 new leasing and financing contracts for a total volume of $21.3 billion. Daimler’s mobility portfolio included more than 5 million vehicles at the end of June, which is equivalent to $170.9 billion.
All of that volume is also prior to a planned joint venture with BMW’s mobility unit that was announced in March and is still pending approval.
“We finance mobility, we insure mobility and with the new name, we are also making a strong statement with respect to the future of mobility,” said Bodo Uebber, a member of Daimler AG’s board of management responsible for Finance & Controlling and Daimler Financial Services. “Financial services remain a fundamental element of our business division.”
This week, Daimler Financial’s Car2go service launched a fleet of 400 Mercedes-Benz vehicles in Chicago for residents to rent off the streets via an app. There’s no registration fee and fuel, parking, insurance, and maintenance are all included in the pricing, which is based on time used and miles driven.
“Carsharing continues to gain momentum worldwide as more people move into dense urban cores and seek simple, on-demand, eco-friendly solutions for making short- or long-term trips,” said Olivier Reppert, chief executive of the car2go Group GmbH. “Chicago is a perfect match for a mobility service like ours, and the support we have received from city leaders to bring car2go to Chicago has been outstanding.”
The change won’t be set until shareholders vote on the new structure at the Annual General Meeting on May 22, 2019. The changes also include structural changes to the company’s car and van service as well as Daimler Truck AG.
Ally Financial’s net charge-off rate decreased by the largest margin since the company’s IPO in 2014 while the bank’s auto originations grew by double digits, the company stated in its 2Q18 earnings report.
The net charge-off rate for the second quarter was 1.04% of the total portfolio, down 16 basis points compared to the same time the year prior.
Meanwhile, Ally’s auto origination grew to $9.6 billion, up 11% compared with $8.6 billion the same period the year prior. This includes $4.9 billion of used-retail volume, $3.4 billion of new-retail volume, and $1.2 billion of leases.
The lender attributes the increase in auto loans to a strategy that began roughly two years ago of lending to a larger full-spectrum credit band. For example, the industry average for used FICO is 650, but Ally’s average is 680 resulting in originations at a tighter risk range, Chief Executive Jeffrey Brown said on the call.
“Our success in diversifying and optimizing the auto finance business helped drive higher risk-adjusted returns, with retail auto portfolio yield increasing 28 bps year-over-year,” Brown said in a press release. “Additionally, consumer originations increased by $1.0 billion versus the prior year period as we continued to diversify and grow our dealer relationships.
Delinquencies 60 days or more remained relatively flat, growing to 0.49% from 0.47% the previous year.
Santander Consumer USA drove origination growth by 45% in 2Q18, the company reported in its quarterly earnings call.
Total auto originations were $7.9 billion compared to $5.5 billion at the same time the year prior.
“We had a strong second quarter, with clear momentum in our business performance and continued regulatory progress,” Scott Powell, president and chief executive of Santander Consumer, said in a press release. “Earnings were up 26% from 2Q 2017, driven by strong originations across all channels, including Chrysler, and by strong credit performance.”
Auto loans from Chrysler Capital were a contributing factor to the growth, which Santander has been focusing on as a part of a strategy enacted last fall. Core retail originations increased by 15% to 2.6 billion year over year.
Chrysler Capital loan and lease origination each saw double-digit percentage increases year over year. Chrysler loan originations rose 51% to 2.7 billion while leases increased 84% to 2.6 billion.
The growth comes after Fiat Chrysler Automobiles Group initiated discussions to buy the Chrysler Capital portfolio from Santander in a bid for the OEM to start it own finance captive.
Meanwhile, net charge-offs decreased by 150 basis points to 6% of the portfolio. The delinquency ratio fell 100 basis points year over year to 4.2%.
For news on the latest auto finance trends in China and beyond, Royal Media is hosting the Auto Finance Summit Asia at the Grand Hyatt Shanghai on September 5-6. For more information and to register, click here.
