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Popular Inc.’s auto loan production is up 29% year over year as the territory’s consumer loan sector rebounds from the effects of the hurricane, the bank reported in second-quarter earnings.

Through June, new-car sales in the territory are up 20% compared with the same period the year prior, and while “it’s impossible to measure used car sales, they’re also strong in Puerto Rico right now,” President and Chief Executive Ignacio Alvarez said on the earnings call.

“The trends are encouraging with credit demand in some sectors like auto and personal loan continue to grow at a faster recovery compared to others such as mortgage,” Alvarez said. The Department of Housing and Urban Development has designated $20 billion in recovery funds for Puerto Rico but much of that money has yet to be dispersed, he added. “So, we do expect — as that money flows in the economy — demand for loan growth will pick up.”  

On top of already strong growth, Popular’s auto loan volume is poised for another boost as it recently cleared regulatory hurdles to purchase Wells Fargo Auto’s $1.8 billion loan portfolio in Puerto Rico under the name Reliable Financial. The company is targeting a closing date of August 1.

“We look forward to closing the acquisition of Wells Fargo’s auto loan business in Puerto Rico in the third quarter, which will contribute favorably to our earnings in the second half of the year,” Alvarez said. “Excluding the Reliable acquisition for 2018, we anticipate slight growth in overall loan balances with continued growth in the US and stable balances in Puerto Rico.”

The bank also finds itself with excess liquidity, which it plans to use towards acquiring higher yielding auto loans, Carlos Vazquez, chief financial officer for Popular, said during the call.

“On the margin, we are hoping to redeploy about $2 billion of cash shortly in the next weeks to much higher yielding auto-related loans,” he said.  

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.

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Sergio Marchionne, former chief executive, Fiat Chrysler Automobiles

Fiat Chrysler Automobiles announced the sudden resignation of longtime Chief Executive Sergio Marchionne, who stepped down due to health reasons. Michael Manley, the former head of Jeep Brand, was named Marchionne’s successor over the weekend.

Manley will follow through with the implementation of the 2018 – 2022 business strategy established on June 1, a plan that includes forming its captive finance arm, FCA said in a statement released Saturday. 

With a company insider taking the helm, the replacement further solidifies that no strategic plans will change, Jack Micenko, bank and auto finance analyst with Susquehanna Financial Group, told Auto Finance News. “Marchionne was a dynamic leader, but the decision to form a captive runs much broader and deeper than just one person,” he said.

The bigger question, Micenko said, is to ask, “Does this have an impact on FCA and Santander’s negotiation around what the value [of Chrysler Capital] will be?” While there is an active dialogue between FCA and Santander regarding what Chrysler Capital is worth, Micenko anticipates that the change in leadership won’t derail the negotiation process.

Micenko previously told AFN that he estimates the Chrysler Capital portfolio is worth $1.2 billion, even though Santander Consumer holds $40 billion in outstandings, about $15 billion of which is related to Chrysler.

Marchionne, 66, was the chief executive of Fiat when he brought Chrysler out of bankruptcy in 2009 following the Great Recession. The company said in a statement that “unexpected complications arose while Mr. Marchionne was recovering from surgery and that these have worsened significantly in recent hours.”

“As a consequence, Mr. Marchionne will be unable to return to work,” the statement said.

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Citizens One Auto Finance originated $12.5 billion worth of auto loans, a 6.7% decline year-over-year, according to the company’s Q2 earnings release today.

The bank held $62 million in non-performing auto assets during the quarter — up from $55 million the comparable quarter. Yet, improved recoveries helped off-set the increase as net charge-offs decreased to $18 million compared with $22 million the year prior.

Additionally, average loans and lease balances decreased by 6.6% year over year to $12.6 billion. Retail loan growth was partially offset by the planned reduction in auto lending, the report noted.

At the beginning of the year, the bank announced that it purposely decreased its auto portfolio by 5% in 2017 and expected another $2 billion to $3 billion runoff in the coming years to improve profitability, the company said.

In the coming years the portfolio will “gradually” decline to $10 or $11 billion, Chief Financial Officer John Woods said at the time.

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Capital One grew its auto portfolio in the second quarter while lowering charge-offs but still anticipates headwinds moving forward as competition ramps up, the company reported in earnings Thursday.  

Charge-offs were down 22% to $1.32 million, which allowed the bank to take back $77 million it had set aside for loss allowances.

“Recall that the second-quarter charge-off rate last year was elevated by changes in how we recognize bankruptcy-related charge-offs,” Chief Executive Richard Fairbank said on the earnings call. “Adjusting for these impacts, the auto charge-off rate still improved modestly year-over-year in the second quarter.”

The company’s auto outstandings grew 7.8% year over year to $55.8 billion on the quarter. Capital One managed that growth despite a $459 million dip in originations year over year to $7 billion originated.

Still, Fairbank noted during the earnings call that competition in the auto finance space is increasing, and he expects those charge-offs will start to “gradually” increase again “as the cycle plays out.”   

He noted that trade concerns and increasing tariffs could expose some auto lenders to more risk, but Capital One is not in that mix.

“Certainly relative to a number of auto lenders, our mix is more toward the used side because we do not have a big partnership with a captive auto finance [company], which for some of the banks out there can lead to very significant volumes of new loans,” he said. “So, with respect to [trade], we probably have less exposure than some others might.”

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Declining consumer demand to purchase cars is imminent if President Donald Trump raises U.S. duties to 25% on all imports of automobiles and auto parts, one dealer told Auto Finance News.

“Right now, people are more afraid to buy cars because of Trump,” Saif Kadri, sales manager of Carson Nissan, said. Tariffs on auto parts will have consumers seeing new vehicle prices increase by $4,400 on average, according to an analysis by the Center for Automotive Research (CAR).

“We are hoping a lot of it is just boisterous talking,” Paul Ritchie, president of Hagerstown Honda and Kia, told AFN in regards to the president’s comments. The possible tariff on imported auto parts is making dealers “nervous,” he added. “It can dramatically impact the economy if automobiles are restricted.”

Used-vehicle prices will also rise due to more consumers opting to purchase lower-priced cars, which will result in constricted supply, CAR notes. Additionally, holding on to an existing vehicle will become more expensive, too, due to higher prices of auto parts.

The dealer has to buy the vehicle from the manufacturer, so “right off the bat” there are increases for how much they are financing these vehicles and floor plan financing is going to go up,” Cody Lusk, chief executive of American International Automobile Dealers Association, told AFN. “It’s going to undermine the ability of American-based dealers.”

One solution is for dealerships to buy more cars up front, but that’s not realistic, Kadri said. “Dealers are never going to do that because the models change every year.”

Additionally, if a dealer has more cars in their fleet and they can’t sell those cars due to the drop in consumer demand, then after 180 days the dealer is financing the car through their lender and paying 2% interest on flooring.

Auto demand will fall by between 493,600 units to 2 million vehicle sales in 2018 as a result of the implementation of tariffs, according to CAR estimates.

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Kathleen Kraninger, nominee for director of the Bureau of Consumer Financial Protection

The nominee for the newly named Bureau of Consumer Financial Protection has been criticized for her lack of experience in the financial services sector, but today’s Senate hearing provided a slight glimpse into her views on rulemaking and how she would apply it to the auto finance space.

Kathleen Kraninger, an associate director for general government programs at the Office of Management and Budget, appeared before the Committee on Banking, Housing, and Urban Affairs to field questions about her readiness to lead the bureau.

Senator Pat Toomey (R-PA) used his time to ask Kraninger about former director Richard Cordray’s use of guidance to affect change in the auto finance industry.

“Under the previous regime the CFPB engaged in imposing policies that had the effect of being a rule without going through the Administrative Procedures Act,” Toomey said during the hearing. “The indirect auto lending case was such a case where the guidance was the mechanism they used to impose what should have gone through the rulemaking process, never did, Congress recognized that and had such repealed it. Will you commit to using the administrative procedures act when enacting new rules?”

Kraninger responded, “Yes, it’s critical for the process.”

Kraninger gave minimal color to her answers and often refused to give her opinion on pressing issues facing the bureau, yet she did give yes or no responses to various topics.

Senator Jack Reed (D-RI) asked if she supported the “stronger” military lending act rules that were enacted by the Department of Defense earlier this year and she responded in the affirmative.

Additionally, Senator Chris Van Hollen (D-MD) asked if Kraninger would reinstate the office of fair lending under the stronger structures that Cordray enforced.

“It’s unfortunate as discrimination should have to place in society let alone the markets, but it does exist,” Kraninger said. “Enforcing fair lending laws is a critical responsibility, but whether it happens in the division of supervision or whether it happens in a reconstituted fair lending office is something I can commit to you that I’ll look at it freshly.”

The hearing was still ongoing at press time, and Auto Finance News will be following Kraninger’s appointment as it progresses.  

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Craig Hewitt , chief executive of CarFinance.com (Photo via LinkedIn)

Flagship Credit Acceptance has announced the appointment of the first dedicated CEO of its direct lending arm CarFinance.com, the company announced in a press release this week.  

Craig Hewitt began leading the lender’s fintech arm on July 16, bringing 25 years of auto finance experience to the company.

Most recently, he held the role of senior vice president of dealer services at GM Financial. Prior to that, he held various positions at Open Dealer Exchange, HSBC Auto Finance, and Capital One Auto Finance. He even launched his own subprime loan origination company while attending graduate school at the University of North Carolina and wound up selling to join Summit Acceptance Corp.

“This is the perfect time for someone with Craig’s energy, vision, and leadership to join our team,” Michael Ritter, chief executive of Flagship Credit Acceptance and parent company FC Holdco, said in a press release. “CarFinance.com has enjoyed seven years of success because the market is increasingly rewarding companies that back superior customer experience with deep financial expertise. Craig’s entrepreneurial spirit and industry experience will provide leadership and guidance as the company continues to grow.”

CarFinance.com has originated $1 billion in auto loans since it launched in 2011, according to the release. The platform helps to pre-approve consumers for a dealer purchase, complete the documentation online, and matches consumers with a loan officer who can walk them through the process online.

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Alex Mallman, president and chief executive of AutoGravity

AutoGravity has announced the appointment of a new chief executive to lead the company as well as a new chief technology officer, following the departures from two of the company’s head brass.

Alex Mallmann was named president and chief executive today, taking over for Andreas Hinrichs who quietly left the company in May, according to a report from the Orange County Business Journal last week. Hinrichs’ LinkedIn page now simply lists him as a fintech entrepreneur and digital executive. AutoGravity declined to comment on the reason for his departure.

Jason Bonifay was also promoted to replace Sheng Wang as chief technology officer. Wang was one of the early leaders at AutoGravity serving as the company’s first Director of Product before being promoted to CTO in December 2017.

“I am taking a break from work and won’t be returning to AutoGravity,” Wang told Auto Finance News via LinkedIn. She and AutoGravity both declined to elaborate further on the reasoning for her departure.

Emerging from this transition, AutoGravity is gaining a CEO with deep auto finance experience. Before joining AutoGravity, Mallmann led Mercedes-Benz Auto Finance China as president and chief executive since 2014. He began his career in 1998 with Mercedes-Benz Brazil before moving on as the president and chief executive for Mercedes-Benz Financial Services in Spain and Mercedes-Benz Financial Services in Portugal.

“Alex has the unique ability to translate vision and strategy into world-class execution, which enables a compelling customer experience,” said Benedikt Schell, chief experience officer at Daimler Financial Services AG and chairman of AutoGravity’s board of directors. “With millions of users embracing AutoGravity, the company has paved unprecedented digital roads in the industry. Under Alex’s leadership, adoption of AutoGravity’s award-winning technology is expected to accelerate exponentially.”

Less than two years since its launch, AutoGravity also reached 2 million users on its platform, according to the press release, and has generated $2 billion in financing requests to date, the Orange County Business Journal reported.

Bonifay joined AutoGravity in May as vice president of engineering and just two months later has been named chief technology officer. Before joining AutoGravity, he was vice president of development for product and engineering at CDK Global, spent more than five years as vice president of software engineering at Bankruptcy Management Solutions (BMS), and was chief technology officer at Propero Software.

Lenders on the platform include CarFinance.com (the direct lending arm of Flagship Credit Acceptance), First Investors Financial Services, Global Lending Services, Hyundai Capital America — which does business as Hyundai Motor Finance, Kia Motors Finance, and Genesis Finance — Mercedes-Benz Financial Services, VW Credit, and Westlake Financial Services.

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A trio of securitizers pumped up ABS volume last week, bringing year-to-date issuance to $64.5 billion, according to Deutsche Bank.

Nissan, Mercedes-Benz, and CarMax combined for $3.21 billion of issuance last week, according to rating reports by S&P Global Ratings and Moody’s.

Nissan Motor Acceptance Corp. completed its second auto loan transaction of the year, a $1.13 billion deal.

The Mercedes-Benz securitization marks the captive’s first transaction for since 2016 — and its ninth prime auto loan securitization since 2009. Strong investor demand may upsize the transaction to $1.38 billion from $1.01 billion.

CarMax Auto Finance, meanwhile, issued its third securitization of the year. The transaction may be upsized to $1.43 billion from $1.20 billion, depending on market conditions. S&P Global’s expected loss range for the series 2018-3 pool is between 2.20% and 2.30%, which is the same as the initially assigned range for CarMax’s previous securitizations this year.

Additionally, last month Volkswagen’s U.S. captive finance arm, VW Credit Inc., reentered the prime ABS space with a $1 billion issuance, thanks to stronger collateral and credit enhancements, according to presale reports from S&P Global Ratings and Fitch Ratings.

Prime auto loan collateral performance was mostly positive in June, despite Kroll Bond Rating Agency’s forecast reporting that auto loan credit performance would start to deteriorate. However, “both prime and nonprime collateral performance is expected to worsen in July, as seasonal factors should push losses and delinquency rates incrementally higher each month through the remainder of the year,” the rating agency noted in its Prime Auto Loan Index.

In June, annualized net losses in KBRA’s Prime Auto Loan Index fell 0.53% year over year, while 60-day delinquency rates increased to 0.44% compared with the year prior. KBRA attributes the year-over-year improvement in index loss to “comps within the CarMax, Chrysler, and CRB Auto ABS shelves,” the report notes.

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Subprime lender Nicholas Financial is valuing “discipline” and “pricing” over volume in an effort to increase profits by utilizing branch offices to enhance relationships with independent dealerships, Chief Executive Doug Marohn told Auto Finance News.

“The focus is not on the quantity of business, but rather on the quality and profitability of what we originate,” Marohn said. That strategy is reflected in the company’s fiscal year results, released last month, which noted a 14.8% year-over-year drop in receivables — to $284.6 million — and a 33.1% drop in originations. “We will increase originations when and where we can, but we are content to sacrifice growth for profit,” Marohn added. By limiting its portfolio volume, Nicholas is too small to securitize.

“We do not want to be held to an arbitrary volume requirement,” Marohn said. Instead, Nicholas Financial will keep the focus on its 60 branches, which serves more than 20 markets. Marohn noted that competition in the sector is increasing, as near-prime lenders dip into the subprime market. However, if Nicholas Financial’s past is any indication, “history has shown that cannot last,” he said.

Back in 2015, Nicholas Financial started to go after larger dollar deals rather than longer terms and lower yields, with the intent of securing higher credit quality customers. “We were competing with the wrong lenders,” Marohn said. Soon, though, other lenders will “go back to their corner” and start buying within their traditional space, he predicted, adding that the move “should take some of the pressure off of deep-subprime.”

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