SAN FRANCISCO — Los Angeles-based car subscription service Borrow is building out a new platform to enhance the user experience by the end of the second quarter, Founder Jon Guzik told attendees at Auto Finance Innovation 2018 yesterday.
Since pivoting its business model to shorter three- to nine-month lease terms and changing its name, the company started parsing the data in its platform, discovering “what the hiccups were” and what consumers wanted, Guzik told attendees. As such, Borrow will revamp its platform to implement new services and a more “frictionless” system for onboarding consumers. Some of the services included in the new platform may be roadside assistance and better ways for consumers to manage their payments, he added.
The company, founded in 2015, started out as PrazoNow and allowed customers to lease a Ford C-Max hybrid for two years without going to a dealership. However, the startup soon learned that two years was still considered “too long,” and customers also wanted more variety. That’s when PrazoNow was born and its business model pivoted to offer all-electric cars for renewable three-, six-, or nine-month terms. Since then, the company has rebranded as Borrow in November to better emphasize the current business model. The company secured seed funding in June, led by Mucker Capital, and handed out its first subscription in early July 2017.
Borrow aims to utilize location-based data to better meet its users’ needs, Guzik said.
“[For example,] how do we offer them discounts on a variety of services, because we think that is the future of mobility,” he said. “Our customers aren’t your usual used-car buyer or new-car lessor … The users we are going after want someone different. … Once we build the systems, we can leverage the data. … For us it’s collecting as much data as possible and then seeing what we can do.”
Franz Reiner, chief executive of Mercedes-Benz Bank AG (Via Daimler AG)
The financial arm of Mercedes-Benz said today that it will soon launch a subscription service called “Mercedes me Flexperience.”
Mercedes said the pilot program will be launched through its Mercedes-Benz Bank in Europe “in the next few weeks.”
In January, reports surfaced that Mercedes-Benz was planning to pilot a car subscription service this year. Mercedes me Flexperience joins other subscription offerings from captives, including Book by Cadillac, Care by Volvo, and Porsche Passport.
Mercedes me Flexperience will give customers the option to drive up to 12 different vehicles for a year for a fixed monthly installment fee.
The rental price — which Mercedes did not disclose — includes all costs from insurance to service and repairs to tires, including driving rights for up to 36,000 kilometers a year.
According to Mercedes, the new offer is based on Mercedes-Benz Rent, the rental service from Mercedes-Benz Bank.
The joint project was developed by Daimler Financial Services and Lab1886, the innovation hub of Daimler AG.
The way it works is an app allows customers to choose their car. The customer picks it up at a dealership, drives it for a month and then returns the vehicle. Pilot operation will launch with two of the largest car dealer groups in the German Mercedes-Benz Cars Sales network, BERESA and LUEG.
“Whereas previously, our focus was on the financing of vehicles, it has now turned to every facet of automotive mobility,” said Franz Reiner, chief executive of Mercedes-Benz Bank AG and a board member for Daimler Financial Services AG, said in a press release. “The trend among our customers is towards flexible vehicle use and detailed billing that uses telematics to record the actual use.”
He detailed several additional mobility uses the company will focus on, including vehicle turn-in plans, flat rates with insurance and servicing included, and car rentals booked from smartphones.
“In the future, we will also integrate mobility services such as carsharing into our vehicle financing, in addition to making offers specifically for electrically powered vehicles,” he added.
Mercedes-Benz Bank’s loan and lease outstandings grew to $33.1 billion in 2017 — a 12% year over year increase, according to the release.
TD Auto Finance jumped into the online origination space on Monday through a partnership with AutoGravity, but this is just the beginning of its digital efforts, Chris Howard, TD Auto Finance’s head of U.S. product, told Auto Finance News.
“As we look at the space, it’s certainly exciting to announce this partnership with AutoGravity and looking to the future I’d say we’re continuing to look at other offers and opportunities,” Howard said. “From our standpoint, this is an opportunity to add an alternative channel for credit applications that is not available to us today through this platform.”
When TD Auto was shopping digital lending partners the two goals it looked to fulfill was a dedication to the indirect model, and the ability to grow at scale within the lender’s existing origination infrastructure technology, he added.
“AutoGravity checked both of those boxes — they are focused and centered on the indirect model as the primary way of which they are originating applications and they use the same system platforms that we use for our standard course of business,” Howard said. “Our dealer partners are critical to our success and we wanted to make sure that whatever we entered into in this digital space is something that kept the dealer at the center of the transaction.”
TD Auto Finance will not expand its credit risk profile as part of this partnership, he added. Loans originated through AutoGravity will conform to the lender’s current appetite for super prime, prime, and some near-prime loans.
Other 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, Nissan Motor Acceptance Corp., U.S. Bank, VW Credit and Westlake Financial Services.
TD Auto Finance joined the online marketplace AutoGravity to fund loans through the platform, the companies announced today in a press release.
When AutoGravity’s more than 1 million users search for vehicles on the app, TD Auto Finance could be one of the four personalized finance offers consumers see.
“We realize the impact that cutting-edge technology will have for our current and prospective dealer partners,” Andrew Stuart, president and chief executive of TD Auto Finance U.S., said in the release. “Given consumers’ desire for digital options, our partnership with AutoGravity positions us to reach car buyers right on their smartphones and will help to drive the next wave of innovation in our industry.”
Last week, AutoGravity announced another partnership with U.S. Bank in which the lender uses the startup’s technology as a white-label solution hosted on the bank’s website. In contrast, TD Auto will not utilize this white-label solution, an AutoGravity spokesman confirmed to Auto Finance News.
With more than $2 billion requested in financing on the app from a majority millennial audience, TD Auto looks to “further its reach to this set of consumers,” according to the release.
TD Auto Finance held $50.5 billion in indirect auto loans in the first fiscal quarter 2018, up from $47.9 billion the same time the year prior, according to the latest earnings report.
For more content like this, attend the third annual Auto Finance Innovation event, slated for March 7-8, at the Parc 55 in San Francisco. For information, or to register, visit autofinanceinnovation.com. For performance and compliance content, attend the Auto Finance Performance & Compliance event, slated for May 9-10, at the Omni Dallas. For information, or to register, visit autofinanceperformance.com.
The share of nonprime, subprime, and deep-subprime loans as a percentage of total outstandings hit a record low in the fourth quarter, according to Experian’s latest report.
New vehicle loans and leases to nonprime consumers fell to 19.64% of total outstandings compared with 19.77% during the same period the year prior. Similarly for used loans nonprime loans made up 20.39% of the market down from 20.43% in the fourth quarter 2016.
The decline comes at a time when several banks previously told AFN that they were focusing more on this nonprime space. For example, Ally Financial Inc. and BMO Harris are among the banks refocusing attention on the nonprime space.
Meanwhile, subprime marketshare is diminishing as banks such as Wells Fargo Auto pull back from the space. Subprime penetration of the used space fell to a record low of 18.82% compared with 19.56% the same quarter the year prior.
Deep subprime loans had also been on the rise in previous quarters, but in the fourth quarter declined by 39 basis points year over year.
The conference will take place May 9-10, at the Omni Dallas.
In this fireside chat, Brutti will discuss how risk teams play an integral role improving performance enterprise-wide. He will evaluate how financiers large and small can employ risk personnel to think more strategically about business operations, assess competitive threats, and analyze new customer trends.
As chief risk officer, Brutti oversees the consumer and commercial risk management and credit departments. He is responsible for the overall direction of the departments and controls the risk exposure and portfolio performance. Brutti directs the company’s efforts to assess and predict business results, as well as determine the strategies and practices that will improve the fundamentals, minimize losses, and maximize the profit and asset growth.
Marcelo comes to Hyundai Capital America from Santander Bank N.A., where he was also chief risk officer in charge of the risk management and compliance groups. Prior to joining Santander, he held senior leadership roles in the risk management units of TD Bank, Wells Fargo, and Visa Inc.
Brutti’s fireside chat will be followed by a “Regulators’ Roundtable,” where regulators will offer best practices, an update on rules and guidance, and subprime and discrimination compliance news.
Other sessions on the agenda include Auto Finance Economics & Climbing Yields; Portfolio Management to Strengthen Underwriting; Practical Guidance for Developing a Compliance Program; and Practical Strategies for Fighting Fraud.
The Auto Finance Performance & Compliance Summit is the essential industry event for education and networking focused on best practices in operations, management, and compliance. Formerly the “Auto Finance Risk & Compliance Summit,” this revamped event offers a top-notch conference experience tailored toward professionals motivated to explore new trends and network with the most influential decision-makers in the industry.
The Auto Finance Performance & Compliance Summit’s blend of panels and presentations are designed to educate attendees of every level on key issues. To register, or to learn more about the 2018 event, visit the event homepage here.
In 2016, Brutti joined AFN for a video interview to discuss the latest trends in the industry. Check out the clip below!
Dongfeng-Nissan Auto Finance Co. (DNAF) released its first securitization of 2018, and just as the China ABS market is heating up, according to Moody’s Investors Service.
The portfolio consists of renminbi-denominated floating-interest-rate auto loans granted by DNAF to private individuals in China. The renminbi is the official currency of China and converts to a portfolio balance of around $706 million. The portfolio is collateralized by new cars produced or imported by Dongfeng Nissan, Nissan China, Dongfeng Infiniti, Dongfeng Venucia, Zhengzhou Nissan, Dongfeng Renault, and Renault (in Beijing).
The portfolio is “highly granular,” according to the Moody’s report, consisting of 60,354 performing loans selected from the originator’s portfolio. “Typically, a more granular pool exhibits a less volatile performance.”
Roughly 23.2% of the pool are loans made to borrowers located in Guangdong Province. Additionally, 92.5% of the loans in the portfolio have a minimum down payment of 20%. The weighted-average down payment rate of the pool is about 29.4%.
“Typically, borrowers are less likely to default on loans where significant equity has built up in the underlying vehicle via down payments,” Moody’s wrote in the report.
Separately, Moody’s Investors Service reported on Wednesday that the issuance of Chinese securitization transactions for all asset classes rose in the fourth quarter of 2017 compared with a year ago, both in terms of number of deals and value, while loan performance was steady. Twelve auto loan ABS transactions with a total portfolio of 49.4 billion yuan (approximately $7.77 billion USD) were issued in 2017, five transactions more than the same period in 2016.
DNAF, which is the originator and servicer, is a joint venture that is — through direct and indirect ownership shares — 58% owned by Nissan Motor Co. Ltd. and 42% owned by Dongfeng Motor Group Co. Ltd. DNAF was established in 2007 and has issued seven China auto ABS transactions since 2014. DNAF uses a comprehensive set of data and database searches to assess borrower credit profiles and determine an internal credit scorecard.
For more content like this, attend the third annual Auto Finance Performance & Compliance event, slated for May 9-10, at the Omni Dallas. For information, or to register, visit autofinanceperformance.com.
Interest rates rose to an eight-year high in February and more consumers than ever are turning to leasing as a way to lower their monthly payments, according to a report from Edmunds.
Average new-vehicle annualized percentage rates (APR) hit 5.2% in February up from 4.9% last year, and 4.4% in 2013, according to the report. Used vehicles were not immune either as average APR among the category rose to 8.3% compared with 7.9% last year.
The increase in average interest rates are largely driven by an uptick in the number of mid-range new-vehicle APRs of 4% to 7%, Edmunds said. Meanwhile, rates above 7% and below 2% are expected to remain relatively steady.
“We’re starting to see a trickle-down effect from the rate increases happening at the federal level,” Jessica Caldwell, Edmunds’ executive director of industry analysis, said in a press release. “The Fed rate hikes directly affect unsubsidized loan rates offered by third-party lending institutions such as credit unions and banks, and as a result, we’re seeing loans that were formerly between 2% and 3% being pushed up into higher APR brackets.”
Higher interest rates and rising new-car prices contributed to record high lease penetration of 33.9% in February, Edmunds added. Average new-vehicle prices rose 2% year over year last month to $35,444, according to a report from Kelley Blue Book.
“Car shoppers tend to have tunnel vision when it comes to their monthly payments,” Caldwell said. “As average transaction prices and interest rates rise, we’re likely going to see more consumers explore the option of leasing. In some cases, this is a result of consumers simply seeking a way to cut down monthly payments, but for many others, this the only option available when they discover that they can no longer afford the costs of a new vehicle.”
Michael Vogan, automobile economist and associate director at Moody’s Analytics, will discuss the effects of rising interest on the industry at greater depth at the Auto Finance Performance and Compliance Summit slated to take place May 9-10 at the Omni Dallas. To register click here.
Axis Auto Finance, a Canadian used-vehicle lender, grew 2017 yearend lease receivables to $25.4 million, up $4.8 million year over year, the company announced in earnings yesterday.
The annualized loss rate for the company’s fiscal year second quarter ended Dec. 31, 2017, was 6.17%, “well within the management expectation,” according to the report. The loss rate can fluctuate between 5% and 10%. The annualized loss rate during the same period the year prior was 81-basis-points higher at 6.98%. Ilja Troitschanski, president of Axis Auto Finance, attributes this to improvements in the company’s underwriting through data analysis. “Data analysis allows us to better utilize predictive indicators and refine the decision-making process,” Troitschanski said.
Previously, during the nine-month period ending March 31, 2017, Axis attributed the company’s growth to assets acquired through the finalization of an acquisition of Verdant Financial Partners I Inc. in July 2016. The deal allowed the company to go public without issuing a traditional initial public offering. The company also sought an expansion of its credit facility to accommodate this growth. In February 2017, Axis renegotiated the maximum principal amount of the credit facility to $20 million, up from the $7.5 million it agreed on in October 2016.
More recently, Axis acquired Cars On Credit Financial Inc. for approximately $11 million in cash. Cars on Credit is a Canadian independent, nonprime auto finance company founded in 2006, and since inception has originated more than $120 million in loans and leases, with more than 400 active used-car dealers in its network, according to a press release. The acquisition is expected to double Axis Auto Finance’s portfolio to nearly $60 million, which will begin to be seen in the next quarter, Troitschanski said.
“Between the existing term debt facility and the two securitization facilities with Canadian Schedule 1 banks we inherited through the Cars on Credit Acquisition we have lots of runway to grow,” Troitschanski said, adding that they can “accommodate a fairly rapid expansion.”
New ownership and mobility models are popping up all over the auto finance space and that’s driving new innovations in the auto ABS market as well.
As more and more consumers switch to fleet-focused mobility offerings, it’s forcing investors and issuers to think differently about the assets they are securitizing. For example, some believe issuers will switch to traditional forms of fleet ABS, while others are looking at quantitative metrics for the utilization potential for specific vehicles in the fleet, analysts and executives told AFN.
However, there are many other innovations to come in the interim including electric vehicle securitizations, used leasing, and contending with the increased cost of ownership that is pushing riskier loans.
Here are five ways mobility is changing the secondary market:
1. Tesla’s First Lease Issuance
Earlier this year, the much-hyped electric car manufacturer Tesla Inc. issued its first lease securitization backed by $608 million worth of leases originated by the OEM’s finance arm.
It’s a big step for the company that is looking for additional funding amid production issues with its more-affordable sedan, the Tesla Model 3. However, there are big concerns about the residual values of the underlying assets, according to a Moody’s Investors Service pre-sale report.
Moody’s forecasts a 35% total loss in value of the collateral, primarily driven by uncertain resale values. Tesla only has data on 4,344 used Model S and Model X vehicles.
“Battery electric vehicles (BEVs) have higher residual value uncertainty than internal combustion engine (ICE) vehicles, because of the lower predictability … as a result of range anxiety and technology advancements,” according to the report. “These factors could affect the residual values of the BEVs more dramatically in the short run.”
On the other hand, investors flocked to the issuance due, in part, to the ambitions of the brand and its position in the future of electric vehicles.
“There’s an upside, if you believe in electric vehicles as the immediate next step in the future of autos, on our way to fully autonomous cars,” Joseph Cioffi, chair of the Insolvency, Creditors’ Rights & Financial Products Practice Group at Davis & Gilbert, told AFN. “If you do, all those EV-specific risks won’t matter so much, and you’d focus on the fundamentals — credit quality, credit enhancements, and coupon.”
The 2017 Nissan LEAF (Photo via Nissan)
2. Other EV Securitizers
Although Tesla is the first to securitize a pool entirely made up of BEVs, it isn’t the first to ever securitize those assets.
“Manufacturers such as Ford and Nissan have already included electric vehicles, hybrids, and plug-in hybrids in securitizations together with internal combustion models, but they’ve made up a small portion of the pool,” Cioffi said. “While the economy is strong, investors seem eager to tap new markets, making future EV deals an aspirational pursuit, but still, other manufacturers have some ways to go to reach the volume, product range, and allure Tesla has achieved.”
New affordable long-range BEVs are entering the market to compete with Tesla and those like-minded vehicles could make their way to the ABS market.
3. Switching to a Utilization Model
Robert McDonald, vice president at Goldman Sachs, at the 2017 Auto Finance Summit.
As expensive autonomous technology gets out of reach for the average consumer, manufacturers and banks are going to turn more toward fleet financing, Robert McDonald, vice president of structured finance in the investment banking division of Goldman Sachs, said at the 2017 Auto Finance Summit.
“You can see a model where you try and lend against the asset value, but the residual value for autonomous vehicles is going to be tough to understand and calculate,” McDonald said. “You can see it morph into lending against cash flow — less so the asset.”
Since multiple people will be sharing the same car in this autonomous future, values will have to be derived from how much revenue each vehicle in the fleet is generating, he added. That kind of model could wind up being more predictable than the status quo.
“You’ll see how much revenue is being generated off those vehicles,” McDonald said. “As you move more into autonomous vehicles, you’ll move into relatively predictable cash flows, at that point compared to the actual value of the underlying asset.”
4. DBRS Focuses on Fleet Management
Fleet lease volume on the secondary market increased 54% year over year to $7.6 billion in 2017, according to a February report from DBRS Inc.
That volume was driven primarily by a small cohort of rental companies including Enterprise Fleet Management Inc., the Hertz Corp., and Automotive Rentals Inc. (ARI). However, DBRS is expecting some new players to enter the fray.
“The fleet lease ABS market has historically been dominated by a select few issuers — Element Fleet Management Corp., Enterprise, ARI, Wheels Inc., and Hertz,” according to the report. “While these are five of the six largest fleet lessors by U.S. portfolio size, there is potential for smaller lessors to complete one-time ABS transactions.”
The rating agency expects fleet ABS volume to grow by 10% to 20% this year.
5. Mobility Challenges Assumptions of Ownership
The old adage in the auto finance industry since the great recession has been, “You can sleep in your car, but you can’t drive your house to work.” Meaning, in times of economic distress, consumers will sooner pay off their car loan than their mortgage or rent.
“I’m not so sure the auto loan will be the first thing borrowers will pay off,” he said. “We hear every day about the advances in technology and the expansion of ridesharing and ride-hailing services. Car ownership is not as desirable across the country as it has been in the past, there are alternatives. The writing is on the wall in that respect, it’s just a matter of time before the consumer trends catch up with the performance in the auto market, which will ripple through to auto remarketing and securitization.”