Latest / Leaders in Lending / Tariffs, Terms and the Evolving Auto Finance Landscape

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Tariffs, Terms and the Evolving Auto Finance Landscape · Leaders in Lending

0:04
Speaker 1: Hi everybody.
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Speaker 2: This is Lynd Soderbil of Upstart, and welcome to another
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Speaker 2: episode of Leaders in Lending. I'm joined today by Melinda Zabritski,
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Speaker 2: who is the head of Automotive Financial Insights and Experience,
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Speaker 2: and Mark Pregman, who is a VP of Consumer Lending
0:19
Speaker 2: for USAA. Thank you both for joining us today. Happy
0:22
Speaker 2: to have you here. I think Melinda and Mark, i'd
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Speaker 2: love for you to just, you know, give our listeners
0:27
Speaker 2: a little bit of a brief intro about your backgrounds
0:30
Speaker 2: and kind of how you really became leaders in the
0:32
Speaker 2: lending sector.
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Speaker 3: Great, So, Melinda Zabritski, I've been with Experience going on.
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Speaker 3: I actually just completed my twenty first year here and
0:41
Speaker 3: I've kind of started more in the product development area,
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Speaker 3: really focused on lender oriented you know, data products, mostly
0:48
Speaker 3: around industry trends and what we're seeing happening in the industry.
0:53
Speaker 3: And I started putting together a regular quarterly presentation on
0:56
Speaker 3: state of the automotive finance market and have wrapped up
0:59
Speaker 3: my up in the second quarterly presentation getting ready to
1:04
Speaker 3: start number seventy three. So really just focusing on what
1:08
Speaker 3: are we seeing in auto finance.
1:10
Speaker 4: And I'm Mark pregnant, so a general manager of consumer
1:13
Speaker 4: lending at USA thirty plus years in the industry, so banking.
1:17
Speaker 4: My whole career right out of college started with SunTrust,
1:21
Speaker 4: which is true as spending today. I was a buyer
1:24
Speaker 4: on the desk by an automobile paper, calling on car
1:27
Speaker 4: dealers selling our products and services. But I also have
1:30
Speaker 4: experience in other asset classes like home equity, credit card,
1:34
Speaker 4: small business lending. So my whole career basically has been
1:37
Speaker 4: what I would call consumer lending, not really commercial lending,
1:41
Speaker 4: although I have some experience in that. My ninety percent
1:43
Speaker 4: of experience have been lending to consumers. And so I
1:48
Speaker 4: think twenty four years at Tourists, in nine years at
1:50
Speaker 4: P and C Bank, and now here at USA for
1:52
Speaker 4: almost five.
1:53
Speaker 1: Wow, so great.
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Speaker 2: I think between the two of you, you've certainly seen
1:56
Speaker 2: a pretty significant changes in the auto end history with
2:00
Speaker 2: the rise of electric vehicles and and many other shifts
2:05
Speaker 2: between domestic and international production. And who's kind of winning
2:09
Speaker 2: the race at any given point. I think the interesting
2:12
Speaker 2: thing and kind of everyone's hot topic right now are
2:15
Speaker 2: the tariffs on many products, but particularly on auto imports
2:20
Speaker 2: and auto parts. And so I've actually even seen some
2:24
Speaker 2: marketing emails from dealers that are near me that I've
2:27
Speaker 2: bought cars shop in the past, that are.
2:28
Speaker 1: Saying, hey, it's on our lot, come by it. These
2:30
Speaker 1: things are terror free for now.
2:33
Speaker 2: So you know, certainly very disruptive to a lot of
2:36
Speaker 2: industries and a lot of change to navigate to right now.
2:40
Speaker 2: So how do you see this playing out in the
2:43
Speaker 2: near term with manufacturers and dealers, and then how do
2:46
Speaker 2: you see that kind of impacting the consumers and the
2:50
Speaker 2: affordability of those of those cars.
2:52
Speaker 4: So I will start Melinda and I did a presentation
2:56
Speaker 4: together Consumer Banker Association with CBA Live. It's a three
2:59
Speaker 4: week weeks ago. Now Melynd don't lose the track of
3:01
Speaker 4: time and terrors for the hot topic because they hadn't
3:03
Speaker 4: started yet. I would say that anybody that was the
3:07
Speaker 4: key word, key phrase we heard, any big intelligence, they
3:09
Speaker 4: know what's going on, what's going to happen. They're lying
3:11
Speaker 4: to you. They have no idea althothough I will tell
3:13
Speaker 4: you since Lynda and I spoke to it at the
3:16
Speaker 4: CBA Live, I have a little bit better handle on
3:19
Speaker 4: it today because things have transpired, things have happened, and
3:25
Speaker 4: I see that automobile industry, and the manufacturers are adapting.
3:29
Speaker 4: They're trying to figure this out as well. And we're
3:32
Speaker 4: seeing like Audi's leaving their cars at the port. They're
3:35
Speaker 4: still delivered, but they're not taking delivery of them. We're
3:37
Speaker 4: seeing the car dealers they're trying to push like you
3:39
Speaker 4: got the email that they're trying to push sales. Now,
3:42
Speaker 4: we're seeing an increase in our application volume. And I
3:45
Speaker 4: was actually listening to sales calls at USA. They require
3:48
Speaker 4: us to call y Cording, and what we do is
3:51
Speaker 4: we listen into our service reps, whether they manufactor make
3:55
Speaker 4: a loan, sell alone, or collect alone. We listen to
3:57
Speaker 4: the whole life cycle to try to improve that experience
4:00
Speaker 4: for our members. And I listened to some sales calls
4:02
Speaker 4: and they were I'm trying to get in before the terriffs.
4:04
Speaker 4: I heard that come through while they were taking the application.
4:07
Speaker 4: So I think we're probably pulling some demand forward. How
4:11
Speaker 4: it all levels out, I don't know, but I also think,
4:14
Speaker 4: you know, the rhetoric on the terrorist is kind of
4:16
Speaker 4: toned down a little bit with some pauses announced here lately,
4:19
Speaker 4: so who knows what's going to happen. But I don't
4:21
Speaker 4: think this gonna be as negative it was when Milan
4:23
Speaker 4: and I were talking about this three weeks ago. So
4:25
Speaker 4: on manufacturers and the dealers, well, they're adaptive. I mean
4:29
Speaker 4: they even as adapt it's going to be a car dealers, Linda.
4:31
Speaker 4: I don't know your take, but but we're seeing increased demand. Yeah.
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Speaker 3: I actually just wrapped up last week to additional conferences,
4:39
Speaker 3: and definitely this is the topic that everyone's talking about.
4:43
Speaker 3: I saw some presentations from some economists that were trying
4:47
Speaker 3: to estimate what they expect the stars to be, and
4:51
Speaker 3: they were definitely reduced from what I had seen previously.
4:55
Speaker 3: You know, anticipation of potentially reduced manufactur sharing profit, so
5:01
Speaker 3: you know that that's something that I think that that
5:03
Speaker 3: is still kind of up in the air, you know,
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Speaker 3: I think everyone pretty much agrees though that you know,
5:08
Speaker 3: there will be an impact to affordability around you know,
5:11
Speaker 3: loan amounts, and you know they're already extremely high, so
5:14
Speaker 3: we can anticipate that going higher. And then of course
5:18
Speaker 3: there's the anticipation of as prices increase on new and
5:24
Speaker 3: very likely hit record peaks, shifting more consumers into used vehicles,
5:28
Speaker 3: which are already at a little bit more of a
5:30
Speaker 3: tight supply and that causing even perhaps more of a
5:35
Speaker 3: ramp up demand for used and potentially increasing those used
5:38
Speaker 3: values as well.
5:39
Speaker 2: Sure, and that's actually a topic that kind of hits
5:41
Speaker 2: near and dear to my heart. I have I have
5:43
Speaker 2: three kids, and two of them are drivers and out
5:46
Speaker 2: of the house, and one is about to be a
5:48
Speaker 2: driver within the next year, so I will be in
5:51
Speaker 2: the market for a car, and my middle one was
5:54
Speaker 2: kind of in need of a car right about that
5:57
Speaker 2: the last spike in the used vehicle market during COVID,
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Speaker 2: So probably going to get hit twice twice by similar
6:05
Speaker 2: economic factors, you know, with the vehicle prices you know,
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Speaker 2: still elevated even on new cars and use cars, and
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Speaker 2: potentially increasing on us KUIs with lower supply, do you
6:17
Speaker 2: see lenders of adapting loan term structures to address that affordability?
6:22
Speaker 4: Yeah, I would say from a lender perspective, you're seeing
6:24
Speaker 4: that across the market. It hasn't changed drastically because I
6:28
Speaker 4: still think the consumers they may see that that seventy
6:31
Speaker 4: two month or the eighty four months out there, but
6:33
Speaker 4: they're looking at the rate they have to pay. It
6:35
Speaker 4: really just comes down to a payment. I think that's
6:38
Speaker 4: they're trying to back into a payment. But we are
6:40
Speaker 4: seeing I think that Melinda you shaid, I think it
6:43
Speaker 4: was like twenty percent of the Marcus three twenty plus
6:46
Speaker 4: percent is now seventy three months are greater. But the
6:49
Speaker 4: interesting thing, the average amount average term on the books
6:52
Speaker 4: for a lender like ourselves is sixty eight months. So
6:54
Speaker 4: it still has it changed that much. May have got up,
6:57
Speaker 4: like from sixty six to sixty eight, but it hasn't
7:00
Speaker 4: changed that much. So I think that there are we're
7:03
Speaker 4: we're I think that we're seeing that focus out there,
7:06
Speaker 4: but a lot of the consumers just aren't taking those
7:07
Speaker 4: longer terms.
7:09
Speaker 3: So yeah, and that and the majority of financing it
7:11
Speaker 3: really is seventy two months and above, you know, with
7:13
Speaker 3: mostly right at seventy two and yeah, those averages, you know,
7:16
Speaker 3: right around the sixty eight months. I think some of
7:19
Speaker 3: the things that we're seeing on this is if you
7:22
Speaker 3: think about it, you know, term really is the only
7:24
Speaker 3: thing left to adjust to bring the payment down. You know,
7:27
Speaker 3: if rates don't come down, loan amounts are going to
7:29
Speaker 3: be going up. Term is really the only thing to pull.
7:33
Speaker 3: But then again, you know how far out will lenders go.
7:36
Speaker 3: I mean, there are lenders out there that do specialize
7:39
Speaker 3: in things like ninety seven plus, you know, so you
7:41
Speaker 3: do see that. Then of course there are much more
7:44
Speaker 3: conservative lenders that don't do that. But I think ultimately yet,
7:50
Speaker 3: you know, is term going to get even longer? You know,
7:52
Speaker 3: who knows? You know, what happens if we increase you know,
7:56
Speaker 3: increase loan amount by four or five thousand dollars, you know,
7:59
Speaker 3: without pushing, that has a considerable impact on that monthly payment.
8:03
Speaker 3: I mean new car payments right now, we're already starting
8:05
Speaker 3: to see so far in Q one, like around seven
8:08
Speaker 3: to fifty a month, and add a couple grand on that,
8:11
Speaker 3: you're in the nine hundred range. And I mean we
8:13
Speaker 3: already do see you know, fifteen sixteen percent of new
8:16
Speaker 3: car payments are over one thousand dollars. And that doesn't
8:19
Speaker 3: mean it's a you know, luxury vehicle. It just means
8:22
Speaker 3: it's a forty thousand dollars vehicle at eight percent rate
8:25
Speaker 3: for you know, sixty or seventy two months.
8:28
Speaker 4: Yeah, and I'll put some respective on that too, because
8:31
Speaker 4: I've been in this bus, like I said, thirty plus
8:33
Speaker 4: years when I was a buying paper from car dealers
8:36
Speaker 4: on the desk. We were moving from forty eight to
8:38
Speaker 4: sixty months, and we thought the world was going to
8:40
Speaker 4: come to an end. We really they were like, oh
8:43
Speaker 4: my gosh, the sky's niffe and it didn't. Okay, And
8:45
Speaker 4: I think consumers adapt and they're smart. But I also
8:48
Speaker 4: think too, is that cars are lasting longer today than
8:51
Speaker 4: they were back then when I was when I first
8:53
Speaker 4: got into the business, Like, you know, cars you really
8:55
Speaker 4: had to worry about is this going to go one
8:57
Speaker 4: hundred thousand and two one thousand miles? Right? And today
8:59
Speaker 4: with the the quality of the cars being manufactured that
9:02
Speaker 4: that's not an issue like it was before. The term
9:04
Speaker 4: has had a lot to do with the useful life, right,
9:07
Speaker 4: and so today it's with cars lasting longer and consumers
9:11
Speaker 4: driving them longer, right, that term I don't think is
9:14
Speaker 4: as big as it was before because it still has
9:16
Speaker 4: useful life.
9:17
Speaker 2: Sure, it's an interesting point, ye. I think that's You
9:20
Speaker 2: can certainly see plenty of cars on the road that
9:22
Speaker 2: have been around for a long time.
9:23
Speaker 1: You maybe wonder a little bit how they're still running.
9:25
Speaker 2: And whenever you hear a noise with their own carer
9:28
Speaker 2: like that one's out here, so I'm sure mine is fine.
9:31
Speaker 2: What you know with the you know, other changes in
9:35
Speaker 2: kind of the macroeconomic environment over the past year or so,
9:38
Speaker 2: you know, rising inflation, higher home prices, sustained higher interest rates,
9:43
Speaker 2: not interest rate cuts not being as deep as is
9:45
Speaker 2: maybe we would have forecast.
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Speaker 1: By this point. Are you seeing any notable changes in
9:51
Speaker 1: delinquency rates or or even just kind of you know,
9:57
Speaker 1: people who are slower to pay, or or changes autopay
10:00
Speaker 1: where people may have been much more confident in their
10:02
Speaker 1: cash flows in the past.
10:04
Speaker 4: I'll let Blinda, I'll let you answer that that was
10:06
Speaker 4: the topic of discussion a couple of weeks ago, and
10:08
Speaker 4: then I'll answer it from our perspective as well. So
10:10
Speaker 4: let don't you just maybe talk to the general market.
10:12
Speaker 3: Sure, yeah, absolutely so over the last couple of years, Yes,
10:16
Speaker 3: we have definitely seen delinquencies increase. The majority thing that
10:20
Speaker 3: we tend to track is going to be sixty day
10:22
Speaker 3: delinquency rates, and they certainly are increasing. You know, from
10:27
Speaker 3: a sixty day rate, we're very similar to the peak
10:29
Speaker 3: that we had back in two thousand and nine. I
10:32
Speaker 3: think some of the big differences we're seeing, of course,
10:34
Speaker 3: are you know, used values are still strong. So if
10:38
Speaker 3: you are repoing and you know, take sell on that
10:40
Speaker 3: card of the auction, sometimes the deficiency balance is it
10:42
Speaker 3: a little bit better. The area that I think we're
10:45
Speaker 3: seeing that that has get more focused on it has
10:49
Speaker 3: been some of the increased delinquency more in the near
10:51
Speaker 3: prime space. You know, credit scores six to six hundred
10:55
Speaker 3: to six sixty. You know, those delinquencies are increasing at
10:58
Speaker 3: a bit of a faster pace. But at the same time,
11:01
Speaker 3: the increase of delinquency went hand in hand when all
11:04
Speaker 3: of a sudden, you know, used values jumped up forty percent,
11:07
Speaker 3: new car prices you know, increased thirty forty percent, and
11:11
Speaker 3: those payments went from four hundred dollars to like I said,
11:14
Speaker 3: seven hundred, And that definitely has had a result in
11:18
Speaker 3: those rising delinquencies.
11:19
Speaker 4: And I would agree and tracking the industry that you've
11:23
Speaker 4: seen a rise across all credit spectrums, whether it's prime,
11:25
Speaker 4: super prime. Super prim really hasn't gone up that much,
11:28
Speaker 4: but it's been more than the near prime and the
11:29
Speaker 4: subprime is where that and so those are all up
11:32
Speaker 4: and also repossession rates are up to as well. We're
11:34
Speaker 4: singing that as well. But for us, we're a little unique.
11:38
Speaker 4: You say, we are up, but we are not even
11:40
Speaker 4: close to the industry. We're still tracking better the industry.
11:42
Speaker 4: A lot of that has to do with our membership.
11:44
Speaker 4: Is that about fifty little bit or fifty percent of
11:47
Speaker 4: our members they get along for us, have a government paycheck,
11:49
Speaker 4: so they their active duty, they're retired there, you know there,
11:53
Speaker 4: and it's a lot of them are dual income, so
11:54
Speaker 4: that I did my twenty years in the service or
11:57
Speaker 4: retired to get my military paycheck coming in, and I'm
11:59
Speaker 4: also reservist, but I'm also you know working on the
12:02
Speaker 4: local police department as well, So we got a little
12:04
Speaker 4: bit of that more employment stability. So I kind of
12:06
Speaker 4: expect that out of our book and how the how
12:09
Speaker 4: it performs.
12:10
Speaker 1: Yeah, that's a yeah.
12:11
Speaker 2: I think that's a good point about especially the potential
12:13
Speaker 2: like retire after in a twenty twenty five years of
12:16
Speaker 2: service and you're still you know working and of working
12:19
Speaker 2: age to take on kind of a second career in
12:21
Speaker 2: the private sector.
12:23
Speaker 3: Uh.
12:24
Speaker 1: You know, as you think about then, you know.
12:25
Speaker 2: Cars becoming more expensive and potentially more delinquencies are you
12:30
Speaker 2: seeing I know we're seeing in the data and increase
12:32
Speaker 2: in auto interested auto refy and refine those loans, maybe
12:37
Speaker 2: not necessarily for a better rate, but to extend that term,
12:41
Speaker 2: lower the payment, kind of reamortize it again, Are you
12:43
Speaker 2: seeing that as well in the information you're reviewing.
12:47
Speaker 4: Yeah, so we actually having an increased loan demand on that.
12:49
Speaker 4: I think it's I think it's the refi wave has
12:54
Speaker 4: got delayed a little bit and just my experience, just
12:57
Speaker 4: in my opinion, because rates aren't measured down. I mean
13:00
Speaker 4: they're down, your average plays down that more than than
13:03
Speaker 4: it was last year, but it's not meaningful enough because
13:05
Speaker 4: I still think the consumers looking at my cash flow,
13:08
Speaker 4: my what's my monthly payment? Right? And so I don't
13:11
Speaker 4: think it's that advantageous for them now. Is fifty dollars
13:14
Speaker 4: big for some consumers? It is for some consumers, it's
13:16
Speaker 4: not right. So I think there's a little bit of that.
13:18
Speaker 4: But we have seen a pick up. In matter of fact,
13:21
Speaker 4: I've talked about that why courting. I listened to five
13:23
Speaker 4: calls and two of those calls were refinances from another
13:27
Speaker 4: institution and we had a better rate and it was
13:29
Speaker 4: a meaningful difference for them, and we didn't advertise that.
13:32
Speaker 4: They just on their own volition came to it, So
13:35
Speaker 4: I think it's in their minds and so, but I
13:38
Speaker 4: just don't I think the wave is kind of pushed
13:39
Speaker 4: off because we're expecting more rate decreases this year. Now
13:43
Speaker 4: it's two now, it could be more if we go
13:45
Speaker 4: into recession. Who knows, but I but I know it's
13:48
Speaker 4: on their minds just because of inflation and cash flow
13:51
Speaker 4: and stuff like that. So, Londa, I don't know what
13:52
Speaker 4: you're seeing.
13:52
Speaker 3: Yeah, Actually we joked about this at CBA because I
13:55
Speaker 3: got my USAA auto loan reef I offer not too
13:59
Speaker 3: far before, not too far in advance of the CBA,
14:01
Speaker 3: being a USA member myself. But we do track for membership.
14:06
Speaker 4: By the way, you are very.
14:10
Speaker 3: But we do track and look at what we're seeing
14:12
Speaker 3: happening and REFI, and yes, there's definitely REFI occurring. It's
14:16
Speaker 3: not nearly as much as what it was when rates
14:18
Speaker 3: were really low, you know, in twenty twenty and twenty
14:21
Speaker 3: twenty one. But in what we're seeing as what you
14:24
Speaker 3: just mentioned is you know a consumer who maybe booked
14:27
Speaker 3: a seventy two month loan or you know, sixty five
14:30
Speaker 3: on average, and then eighteen nineteen twenty months into the loan,
14:34
Speaker 3: they're now refinancing again, So going from a seventy two
14:37
Speaker 3: month loan to a sixty five but after already paying
14:40
Speaker 3: you know, eighteen months and we are seeing in general
14:44
Speaker 3: about a sixty six dollars payment savings, you know absolutely
14:49
Speaker 3: it will have that consumer paying more over the overall
14:52
Speaker 3: life of the loan. But again, if it's dropping that
14:54
Speaker 3: payment sixty sixty to seventy dollars and they're able to
14:58
Speaker 3: stay current on that loan, you know that that's definitely
15:01
Speaker 3: a good thing. But obviously, yes, they're going to pay
15:03
Speaker 3: more of the overall life alone. But if rates come down,
15:06
Speaker 3: we do expect refin to pick up a lot more.
15:09
Speaker 4: And we do a lot of education to our members
15:11
Speaker 4: on when is the right time for you, because you're right,
15:13
Speaker 4: if you're twelve months in and you and you're you
15:15
Speaker 4: do a sixty month loan, and you do another sixty
15:17
Speaker 4: month loan and refinance, you'd essentially get to send me
15:20
Speaker 4: two months, right, And so you got to look at
15:21
Speaker 4: the total costs. So we try to educate them. But
15:24
Speaker 4: I will tell you that a lot of just in general,
15:25
Speaker 4: consumers are a lot of just manage their household cash
15:28
Speaker 4: flow and when you know, we still of that inflation
15:30
Speaker 4: we're dealing with, and then who knows you Like we
15:33
Speaker 4: talked about terrorists what the impact might be on other
15:35
Speaker 4: consumer goods out there right that may happen. So I
15:38
Speaker 4: think it's I think it's on their minds and we're
15:40
Speaker 4: seeing an uptick on it. Not the wave that we
15:42
Speaker 4: thought it was going to be though, sure.
15:44
Speaker 2: But maybe maybe just more consumers instead of like people
15:47
Speaker 2: being more advantageous about rates because there's not as much
15:50
Speaker 2: margin there people who need the free cash flow and
15:53
Speaker 2: maybe you're paying a little more long term, but are
15:56
Speaker 2: making their day to day month months more affordable if
16:00
Speaker 2: they're a little more Yeah.
16:01
Speaker 4: I also think too, it's a little bit of an
16:03
Speaker 4: I don't know like ego things the right word, but
16:06
Speaker 4: how people compare your Fyco score? I was planning golf,
16:08
Speaker 4: get a couple of who my buddy goes. I know
16:10
Speaker 4: you're packing. What's your Fyco score? I guess is my
16:12
Speaker 4: higher than yours?
16:13
Speaker 1: Right?
16:13
Speaker 4: And I think people going what you get on your car?
16:15
Speaker 4: Well I got nine percent? Well I got seven. You
16:17
Speaker 4: know then you feel like, oh I got to go
16:18
Speaker 4: out and get seven. Now you know what I mean,
16:20
Speaker 4: so I think it's one of those things that's just like,
16:22
Speaker 4: but I really think it's going to come down to
16:24
Speaker 4: is it worth their time and effort to refinance and
16:26
Speaker 4: is it going to make a difference. I think anything
16:28
Speaker 4: where fifty dollars can be meanful for a lot of consumers. Yeah.
16:31
Speaker 3: Absolutely, It's funny we're talking about this. The score comparisons
16:35
Speaker 3: totally isn't aside. At one of the conferences last week
16:38
Speaker 3: at the evening reception, was hanging out with a couple
16:40
Speaker 3: of clients and or just industry folks, and they said
16:43
Speaker 3: the same thing. They sit there and compare their scores,
16:46
Speaker 3: and they both whipped out the Experience app and were like, see,
16:49
Speaker 3: see this is my score. Mine's better than yours.
16:52
Speaker 1: Yeah, that is funny, and it is. Everything's a little
16:56
Speaker 1: bit gamified today.
16:57
Speaker 2: So well, you know, I know, like obviously there's a
17:02
Speaker 2: lot more I mean, there's a you know, a pretty
17:05
Speaker 2: solid trend for a while of people buying SUVs and
17:07
Speaker 2: bigger SUVs, and even though they continued to go up
17:10
Speaker 2: in price and many of them hit the one hundred
17:13
Speaker 2: thousand dollars mark and more, you know, what are you
17:16
Speaker 2: seeing on kind of trends and car buying behavior now
17:20
Speaker 2: over the past year and you know into twenty twenty five,
17:24
Speaker 2: particularly around like SUVs and then electric vehicles, which I know,
17:29
Speaker 2: you know, depending on the manufacturer, have been have grown
17:32
Speaker 2: at different rates. Like frankly, I had an Audi EV
17:36
Speaker 2: for a few years and traded it on a kind
17:40
Speaker 2: of went the opposite way. It went to a full
17:42
Speaker 2: size Ford Bronco from an EV after a few years.
17:46
Speaker 2: I could see using an EV in the future too,
17:47
Speaker 2: but it really needed the suv space at the time.
17:52
Speaker 2: So just are you seeing that any trends in buying
17:55
Speaker 2: behavior there.
17:56
Speaker 3: It's it's definitely an suv market. When we look at
17:58
Speaker 3: the kind of vehicles, especially on new cars well used
18:01
Speaker 3: cars too, that consumers are purchasing. The majority of the
18:04
Speaker 3: market's the suv over sixty percent of new vehicles or SUVs.
18:08
Speaker 3: And it's not necessarily the luxury The biggest volume are
18:12
Speaker 3: really the non luxury SUVs. It's the CRV, it's the
18:15
Speaker 3: Raft four, you know, it's the Hyundais. So it's really
18:19
Speaker 3: you know, that non luxury kind of small to mid
18:22
Speaker 3: size suv that really dominates what drives the market. And
18:26
Speaker 3: of course as new cars really switched over to SUV's
18:29
Speaker 3: a handful of years ago. That's what the used cars
18:32
Speaker 3: are too. Of course, on the U side, you know,
18:34
Speaker 3: you've got a lot of the F one fifties, so
18:36
Speaker 3: it's a lot of a lot of pickups and then
18:38
Speaker 3: those SUVs. It's interesting on the EV front though, because
18:42
Speaker 3: just as Mark was mentioning, kind of you know, a
18:44
Speaker 3: ramp up of people rushing to the dealers to get
18:47
Speaker 3: the car pre tariff, kind of the same thing I
18:50
Speaker 3: believe is happening in the EV space about potentially you know,
18:54
Speaker 3: losing the tax thread and the subsidies, because we saw
18:57
Speaker 3: so far in Q one and EV's are almost ten
19:02
Speaker 3: percent of new car purchases, and we ended last year
19:07
Speaker 3: lower than that, like eight to nine percent. So we've
19:09
Speaker 3: definitely seen a ramp up. And what was most notable was,
19:14
Speaker 3: you know, last is leasing on EV. You know, last
19:18
Speaker 3: year we ended you know, around forty percent of EV's released.
19:22
Speaker 3: We're almost at sixty percent right now for Q one.
19:24
Speaker 3: So I think there is that rush of people who
19:27
Speaker 3: are in the market for an EV or interested in
19:30
Speaker 3: getting an EV and getting it while they can still
19:31
Speaker 3: take advantage of that least credit.
19:35
Speaker 4: I would say, that's a good point. I also think
19:37
Speaker 4: getting back lou Itt to terraffs, I actually think EV's
19:40
Speaker 4: will be impacted more because just because of terrifs in general, right,
19:45
Speaker 4: and because we're the parts of manufacturers. But the prices
19:48
Speaker 4: will even higher because the incentives are going away from
19:50
Speaker 4: the federal government. Right. So I think the pain that
19:53
Speaker 4: the price shock will be higher in the EV. So
19:56
Speaker 4: who's to see what's going to happen there, but because
19:58
Speaker 4: I think it's gonna hit EV's harder. On the suv,
20:01
Speaker 4: we tracked just like everybody else. The number one of
20:04
Speaker 4: truck finance f one fifty, that's our number one financed.
20:06
Speaker 4: We're seeing that. I think that you've seen manufacturers are
20:11
Speaker 4: dropping cars now. Passenger cars are going SUVs and trucks
20:14
Speaker 4: and stuff. I think the same thing I just taught
20:17
Speaker 4: about with the term and cars lasting longer, those SUVs
20:20
Speaker 4: have gotten more economical because they're getting better gas miles day.
20:24
Speaker 4: I remember back in the two thousand and early two thousand,
20:26
Speaker 4: we had that recession when the card was asking and
20:28
Speaker 4: set us to buy cars right there, pushing and the
20:30
Speaker 4: suv sales went that. Yeah, remember that cash for colluctors
20:34
Speaker 4: and then and then suv sales, I mean dropped off
20:37
Speaker 4: the cliff because gas prices were like double and then
20:40
Speaker 4: all of a sudden, gas prices went down and the
20:42
Speaker 4: SUV's I mean, it was like, didn't you learn your lesson?
20:44
Speaker 4: It's like, you're still going to have that issue. But
20:47
Speaker 4: I think so, I don't think this is susceptible to
20:49
Speaker 4: gas prices like it was before. And yeah, but but
20:52
Speaker 4: yes they are expensive and so but I think also too,
20:55
Speaker 4: those passenger cars, like those luxury cars, they're dropping their
20:58
Speaker 4: entry levels now because they just want you're going to
21:00
Speaker 4: get the fully loaded and the top of the line.
21:02
Speaker 4: And so it's a little bit of a give and
21:04
Speaker 4: take on that. But we are seeing, you know, the
21:06
Speaker 4: more on the suv just because it's I think is
21:08
Speaker 4: a more if you get a growing family, those types
21:10
Speaker 4: of things.
21:11
Speaker 1: And once you get used to driving an suv, it's
21:13
Speaker 1: very hard to go back to a sedan. I have found.
21:15
Speaker 2: So I've tried to do it now twice over and
21:19
Speaker 2: over the past probably twenty years where I had an
21:21
Speaker 2: suv for a period tried sedan, I've made it. I
21:26
Speaker 2: think the longest was my My EV, My Out of EV,
21:29
Speaker 2: which made it about two years. But I also work
21:31
Speaker 2: from home, so I don't drive it a lot. And
21:34
Speaker 2: we also had an SUV during that period that was
21:36
Speaker 2: my husband.
21:36
Speaker 4: So no, and I'm the same way. I went from
21:39
Speaker 4: the largest I had an expedition and it wasn't worried
21:42
Speaker 4: about Gasmas for me, my choices. It was just too
21:43
Speaker 4: big because kids were gone and they're they're they're on
21:46
Speaker 4: their own now. So I went to Fort Bronco. It's smaller,
21:49
Speaker 4: but it's still an suv, right.
21:50
Speaker 3: I wanted to space as really Yeah, because it fits
21:55
Speaker 3: in my garage.
21:56
Speaker 1: Oh because yeah, I know.
21:57
Speaker 2: I I will say my Bronco takes up a lot
21:59
Speaker 2: of space in the crash, So I have a.
22:02
Speaker 1: Pretty tall, big one and it fills fills the space
22:05
Speaker 1: out there.
22:06
Speaker 4: Uh you know.
22:07
Speaker 3: But one thing I do want to bring up if
22:09
Speaker 3: I can, So when we when we start talking about
22:11
Speaker 3: how so much of the market is moved to SUVs,
22:14
Speaker 3: you know that does have the definite spillover impact into
22:17
Speaker 3: the used car market because one of the other trends
22:19
Speaker 3: we're seeing that kind of ties to the affordability and
22:23
Speaker 3: you know, the overall economics in the industry is because
22:27
Speaker 3: more of the used inventory r SUVs. It is pushing
22:30
Speaker 3: more consumers into older vehicles too, in order to get
22:33
Speaker 3: to a more affordable payment. So you know, like nine
22:36
Speaker 3: ten plus year old vehicles. You know, we're definitely seeing
22:39
Speaker 3: an increased demand for that.
22:40
Speaker 4: And that used to be luxury, right, you see that
22:42
Speaker 4: more in luxury if somebody got a nice antique mercee
22:45
Speaker 4: or something like that. That's not the case today. It's
22:47
Speaker 4: just it's affordability. And I'm gonna try to get SUV
22:49
Speaker 4: and I have to go that back far in year
22:52
Speaker 4: to get to fill my needs.
22:54
Speaker 2: Sure, And then you know, in switching back to electric
22:57
Speaker 2: vehicles for a minute, maybe both mentioned the longevity of
23:01
Speaker 2: the cars lasts longer, so potentially longer longer terms could
23:06
Speaker 2: be could be in the horizon. But still I think
23:10
Speaker 2: some concern with the EVS on battery life and then
23:13
Speaker 2: what that means and the cost of replacing those batteries
23:16
Speaker 2: if they if they die on the car. So you've
23:18
Speaker 2: got less maintenance and regular maintenance. But but that's a
23:22
Speaker 2: pretty big potential risk to to your electric vehicle. What
23:27
Speaker 2: unique challenges do you see in auto financing around things
23:31
Speaker 2: like residual values and and UH and the charging infrastructure
23:36
Speaker 2: and lending for an electric vehicle.
23:39
Speaker 4: Well, let's yes, we don't lease, but I do know
23:42
Speaker 4: that as a concern, I think it's keeping a lot
23:44
Speaker 4: of buyers out of the market. On ev about Hey,
23:47
Speaker 4: I got to really I got to put in four
23:48
Speaker 4: thousand and five thousand charging in the microags right on
23:51
Speaker 4: top of that, or I got to take it to
23:53
Speaker 4: the grocery store and charge it up on your grocery
23:55
Speaker 4: and w't get a full charge. Those type of things.
23:57
Speaker 4: So most of it, I'll just tell you my experience.
23:59
Speaker 4: My I circle closer. It's your third car, it's not
24:03
Speaker 4: their primary car, or they're an urban dweller and they
24:06
Speaker 4: live in where they have other modes of transportation to
24:08
Speaker 4: get to the airport, you know, or that kind of thing,
24:10
Speaker 4: or they But I just so I think that's still there,
24:13
Speaker 4: and think about we talked about this at the CBA conference.
24:16
Speaker 4: Was a lot of those buyers too. They are on
24:18
Speaker 4: the sidelines. I live in an apartment complex and there's
24:21
Speaker 4: nowhere to charge it, right, So it's just that. So
24:24
Speaker 4: I think that once the infrastructure comes together, and I
24:27
Speaker 4: think it's just I think it will naturally take off,
24:30
Speaker 4: just like we went from horse and buggy to a
24:33
Speaker 4: combustible engine. The government didn't mandate you had to get
24:36
Speaker 4: off the worst and buggy to a car, right. And
24:38
Speaker 4: I think that if the market force is right, supply
24:40
Speaker 4: and demand, the right things come together, like infrastructure longer, charging,
24:44
Speaker 4: you know, longer, I think, then the man will start
24:47
Speaker 4: to pick up. Price points will come into play. I
24:50
Speaker 4: think once that that starts to get worked out, the
24:51
Speaker 4: market forces will work and I'll think we'll get some
24:54
Speaker 4: type of equilibrium there.
24:55
Speaker 3: Yeah, And you know the point around residuals. You know,
24:58
Speaker 3: there's a lot of questions around that with you know,
25:00
Speaker 3: price drops that occurred among several manufacturers and what will
25:04
Speaker 3: that used car value be when it comes back. And
25:07
Speaker 3: I think that's also why we do see so much leasing.
25:11
Speaker 3: I mean, like I said, when I'm looking at the
25:12
Speaker 3: EV space right now, it's almost sixty percent leased, loans
25:17
Speaker 3: on only a third and the rest of it's cash. So,
25:20
Speaker 3: you know, I think leasing definitely has that comfort level
25:23
Speaker 3: from a consumer standpoint in knowing that, hey, your lease
25:25
Speaker 3: is up twenty four months from now, thirty six months
25:28
Speaker 3: from now, you can you know, go and return it
25:30
Speaker 3: and go back into another vehicle. So I think there
25:32
Speaker 3: is definitely that comfort level. And one of the comments
25:35
Speaker 3: that has come up over the last several conferences I've
25:38
Speaker 3: been at, especially around EV, is you know, no single vehicle,
25:41
Speaker 3: whether it's an ICE, an SUV, a Sedana convertible EV,
25:45
Speaker 3: no single vehicle will be perfect for everybody, nor will
25:48
Speaker 3: it meet you know, one hundred percent of your driving needs,
25:51
Speaker 3: you know, so you find the one that fits the most.
25:54
Speaker 3: And Mark's point frequently it's a second vehicle.
25:58
Speaker 4: I agree. I think the lease is attracted just because
26:01
Speaker 4: of it's a payment issue, but I also think too
26:04
Speaker 4: when we actually go and talk to our members and
26:07
Speaker 4: ask them about their carbine experience, what they did and
26:10
Speaker 4: what they end up doing, a lot of them I
26:12
Speaker 4: choose the lease because I'm not sure if I want
26:14
Speaker 4: to live with an EV for the you know, for
26:16
Speaker 4: five years, I'll do it for two see that I
26:19
Speaker 4: can make it work. So I think that's a big
26:21
Speaker 4: part of the lease. In the sixty percent plus of
26:23
Speaker 4: the market's leasing for EV, I think it's like I'm
26:25
Speaker 4: not committed, right, So it's like I'm kind of partially dating,
26:28
Speaker 4: right kind of thing. I don't keep my options, you know.
26:31
Speaker 2: So yeah, I made it two and a half years,
26:33
Speaker 2: and I do believe I'll own an EV again. I
26:36
Speaker 2: liked it, but again I'm that person. I live in
26:38
Speaker 2: the suburbs, I have a garage. I have the charger
26:41
Speaker 2: in my garage so I can plug it in when
26:43
Speaker 2: I was home. If I go into our office, the
26:45
Speaker 2: garage in our office has charge a road chargers. I
26:48
Speaker 2: can charge it either place. And definitely more of a challenge.
26:53
Speaker 2: I think the road trips and the infrastructure to get
26:55
Speaker 2: from here to there and to not have to sit
26:56
Speaker 2: and wait is certainly potential obstacle. And we were kind
27:01
Speaker 2: of that bucket too, where you know, it was my car,
27:04
Speaker 2: but we had a large SUV that we could also
27:07
Speaker 2: drive that was more of our primary, primary family car.
27:11
Speaker 2: But I am really hoping that the infrastructu improves because
27:13
Speaker 2: I would love to have another one. And in the
27:15
Speaker 2: middle of winter in Ohio, it's really nice to never
27:17
Speaker 2: have to go to a gas station.
27:19
Speaker 4: Yes, it is, I would agree, Linn. I would add too,
27:21
Speaker 4: I think, you know, for the consumers are, but they're
27:25
Speaker 4: not there yet. A true plug in hybrid. I think
27:27
Speaker 4: that which gave the option i'd go one hundred percent
27:29
Speaker 4: electric or I can do get do that long trip
27:32
Speaker 4: to see my family in two states over and not
27:35
Speaker 4: have to worry about And as great as I'm all
27:37
Speaker 4: electric and I'm going back and forth to work on
27:38
Speaker 4: my daily chores, but when I want that line, I
27:41
Speaker 4: want that true plug. But I mean that the longest
27:42
Speaker 4: hybrid now is going like what forty miles on electric
27:45
Speaker 4: and then has to go over to gas. And so
27:47
Speaker 4: if that gets out to the two hundred three hundred
27:49
Speaker 4: on a true hybrid plugin, I think that would generate demand.
27:53
Speaker 4: I really do.
27:55
Speaker 3: Now.
27:55
Speaker 1: I think that's that would be a great, a great
27:57
Speaker 1: new option to have.
27:59
Speaker 2: So you know, as you think about then, you know,
28:02
Speaker 2: we talked a little bit about the tariffs and UH
28:04
Speaker 2: supply and demand of what that may look like for
28:06
Speaker 2: both new and used cars with rates you know coming
28:10
Speaker 2: in during COVID, certainly a lot of supply chain chain
28:13
Speaker 2: disruptions across every industry UH, and the price of used
28:17
Speaker 2: cars UH spiked through the roof. You know, inventory levels
28:23
Speaker 2: aren't necessarily fully back to normal.
28:24
Speaker 1: And then you know your comment.
28:26
Speaker 2: I think Mark was interesting about you know, Audi leaving
28:29
Speaker 2: cars at the port in Maryland and not even moving
28:31
Speaker 2: them UH to dealerships because they don't have buyers at
28:35
Speaker 2: the moment. But how are you seeing that play out
28:38
Speaker 2: with just the inventory? Uh, any supply chain disruptions you're
28:41
Speaker 2: seeing because of the tariffs or or related to other
28:44
Speaker 2: events going on globally, I.
28:46
Speaker 4: Think it's too soon. That's supply chain disruption. I heard
28:52
Speaker 4: a couple of the auto analysts out there, you know,
28:54
Speaker 4: on some of the on some of the business updates,
28:57
Speaker 4: it's going to be six months until we start feeling
28:59
Speaker 4: the impact. I think it's a longer than I thought.
29:01
Speaker 4: It was. Four to six months, depends on the brand
29:03
Speaker 4: to make four to six months, It depends on where
29:05
Speaker 4: they're getting their parts from. But I just I think
29:08
Speaker 4: it's going be six months. Hopefully we'll get this stuff
29:10
Speaker 4: wrapped up before then so it doesn't make kind of
29:12
Speaker 4: an issue. That's what I'm hoping over market. Yeah, and
29:16
Speaker 4: I think there will be some short term things, but
29:19
Speaker 4: not as I don't think it'll be as deep as
29:22
Speaker 4: we thought it was going to be. But if we
29:24
Speaker 4: blow through that six months, that's when I think we'll
29:26
Speaker 4: start to see it could curb demand and pricing.
29:29
Speaker 2: Yeah, all right, well, I definitely appreciate you having it
29:32
Speaker 2: on I think one last question that I'd like to
29:36
Speaker 2: pose to each of you to kind of close this
29:38
Speaker 2: out today. Forward looking, you know, obviously a lot of uncertainty,
29:44
Speaker 2: lot of variability, things that are crapping up in every
29:47
Speaker 2: area that maybe wasn't on the on the BINGO card
29:51
Speaker 2: for twenty twenty five. But I like each of your
29:55
Speaker 2: perspectives and what you see is maybe the top market
29:58
Speaker 2: or regulatory shifts on the horizon that banks and lenders
30:01
Speaker 2: should really be thinking about and tracking as they plan
30:04
Speaker 2: their auto finance strategies for twenty twenty five or really
30:09
Speaker 2: for the rest of twenty twenty five, since we're a
30:11
Speaker 2: quarter in already.
30:12
Speaker 4: Yeah you, Linda, Yeah, I just.
30:16
Speaker 3: I think right now, like well, like we said earlier,
30:19
Speaker 3: there's so much uncertainty that I don't think we can
30:21
Speaker 3: anticipate or really know what we can expect to see.
30:26
Speaker 3: I think people are just you know, from an mark
30:28
Speaker 3: you can certainly speak better to this, but I think
30:30
Speaker 3: lenders are just kind of putting more of the guardrails around,
30:33
Speaker 3: keeping an eye on, you know, what are what are
30:35
Speaker 3: the latest data trends, what's the latest information you're hearing
30:37
Speaker 3: from dealers, what's the you know, the latest data points
30:41
Speaker 3: that we're getting from the variety of data sources. But everyone,
30:44
Speaker 3: I think wishes they had that crystal ball. But things
30:47
Speaker 3: are changing so quickly and the forecasts are changing so
30:51
Speaker 3: quickly that I think there's just really still a lot
30:53
Speaker 3: of uncertainty as to exactly what we're going to be
30:56
Speaker 3: seeing this year.
30:56
Speaker 4: Yeah, I'm and I'm less worried about regulatory and governmental
31:00
Speaker 4: now with the administration we have. I mean, there are
31:02
Speaker 4: things are thinker rolling back, so I'm less worried about that.
31:06
Speaker 4: I'm more worried at the macro environment. I mean, it's
31:09
Speaker 4: just the uncertainty there. I think that's more and what
31:11
Speaker 4: the impact is. So we're we're putting together a playbook.
31:14
Speaker 4: So if this were to happen, what's to happen? What
31:16
Speaker 4: are the canary and the coal mine kind of metrics
31:18
Speaker 4: we want to monitor, Like we start seeing even before
31:21
Speaker 4: they walk into the dealership. Are they is the research
31:24
Speaker 4: for what's my car worth? What's the new car going
31:27
Speaker 4: to costly? Is that going down right or is it
31:29
Speaker 4: going up? Is it staying flat? Before they hit the dealership,
31:32
Speaker 4: we're talking to dealers, staying close to them, even though
31:34
Speaker 4: we're a direct lender. What goes on there is really important.
31:36
Speaker 4: They're part of our ecosystem and we're just trying and
31:38
Speaker 4: then the health of that of that consumers that go
31:41
Speaker 4: through there and they're making their payments, and so we are.
31:43
Speaker 4: We've ready to tell lenders if advice is make sure
31:46
Speaker 4: that you have the best experience, because the best. And
31:50
Speaker 4: then if through the whole life cycle, through making it
31:52
Speaker 4: loan service it alone, make it easy to change their
31:54
Speaker 4: their due date, make it easy to change their payment amount,
31:56
Speaker 4: whatever they want to change things. And then when you
31:58
Speaker 4: have to collect them, when you make it easy to
32:00
Speaker 4: get a hold of you so you can make arranges
32:03
Speaker 4: to get them through that time. I'm more focused on
32:05
Speaker 4: that than I but but I can't. You know, it's
32:08
Speaker 4: like who what's going to happen. I'm more about macro
32:11
Speaker 4: than I am about the internal stuff. We're just trying
32:13
Speaker 4: to prepare our cells for which way what's going to happen,
32:15
Speaker 4: and have scenarios for each one however it may play out.
32:19
Speaker 4: And I think it's an accommodation all those things. I
32:21
Speaker 4: don't think it's any one silver bullet.
32:23
Speaker 1: Yeah, control the things you can control and.
32:26
Speaker 4: Worry about that if you provide a great I mean
32:28
Speaker 4: it's like I've always toe you when I used to
32:30
Speaker 4: run collections, and I tell we want them to think
32:33
Speaker 4: of us, to repay us. You're going to make it
32:35
Speaker 4: easy and not make them feel embarrassed because it's a
32:38
Speaker 4: normal event. Those things happen. They'll pay you before the
32:41
Speaker 4: one that does the harder technique, right, I mean, just
32:43
Speaker 4: we're all like they'll work with me. I'm willing to
32:45
Speaker 4: work with you if you get that across. So prepare
32:48
Speaker 4: yourselves those things you can control customer experience.
32:51
Speaker 2: Well, yes, definitely, Thank you, appreciate, appreciate both of you
32:56
Speaker 2: for joining us today on the podcast.
32:58
Speaker 4: Thank you Lenn, Thank you Malinda Ba