the state of the subprime market september 2011 jim bass, ceo auto one acceptance corporation jack...
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The State of the Subprime MarketSeptember 2011
Jim Bass, CEO Auto One Acceptance Corporation
Jack Tracey, Executive Director National Automotive Finance Association
Jack Tracey
Executive Director
National Automotive Finance Association
State of the Below Prime Auto Financing Industry
• Funding availability issues diminishing -- even non-prime
• Innovation abounds
• Risk managers analyzing scorecard and FICO predictability
• Refinements in underwriting
• Collection effectiveness continues to deliver benefits
• Direct Internet financing challenging the indirect model
• Regulation -- Dodd-Frank requirements; CFPB formation
• Outsourcing/offshoring continues
• Dealer application portals expand capabilities
• Electronic processing picking up speed
Top Auto Financing Industry Trends and Events
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Year-over-Year Summary Metrics
YOY summary data for core respondent group (same 26 companies, 9 Small, 13 Medium, 4 Large)
Origination FICO
3 points
NEW
3 points
USED
Average Amount Financed
$916
NEW
USED
$754
30 Day $ Delinquency
57 bp
NEW
USED
56 bp
Unit Repo Rate
95 bp
NEW
USED
209 bp
Net $ Charge-off
Rate
49 bp
NEW
USED
352 bp
Average Term
NEW
USED
1 month
3 month
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2010 significant issues: Consolidation and alliances continue High Mortgage Defaults More Regulatory and Compliance Issues Returning Sources of Funding Competitive Opportunities
Non-Prime Industry Trends -- 2011 Update
New challenges but some continue….
2011 significant issues: Predictability of Scoring Models Regulatory Uncertainty Housing Crisis Lingers On High Unemployment Continues Re-engineering for growth
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2008 2009 20100%
20%
40%
60%
80%
100%
25% 26%35%
20%25%
32%
2008 – 2010 Booked Contract Distribution
61-72 mo% 49-60 mo
Trend of Used Extended Terms
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Used terms continue to extend
2008 2009 2010
0%
20%
40%
60%
80%
100%
2% 4% 2%6% 4%
2%
16%22%
18%
35%
47%
49%
22%
19%24%
17%
3% 4%
2008 – 2010 Booking Risk Distribution
< 500 500-549 550-619 620-679 680-719 720+
Trend of Originations by Risk Band
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0% 10% 20% 30% 40% 50% 60%
27%
56%
17%
22%
20%
38%
13%
17%
Year-to-Year Auto-Decision Trend(Percent Using)
2009 2010
SMALL
MEDIUM
LARGE
ALL
Auto Decision Update
Substantial increases in auto-decision usage in 2010
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Used0%
20%
40%
60%
80%
100%
28%
35%
32%
Origination Distribution
<=36 37 - 48 49 - 60 61 - 72 73 - 84
Up again from 51%
USED Originations by TERM
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Avg FICO
0
200
400
600
800
<=36 37 - 48 49 - 60 61 - 72 73 - 84 >84
Up substantially from 556
USED Originations by TERM
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Avg LTV
0%
50%
100%
150%
<=36 37 - 48 49 - 60 61 - 72 73 - 84 > 84
Down substantially from 126%
USED Originations by TERM
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Originations Increased credit availability spurs growth
Look-to-Book rates are up significantly especially for middle-tier applicants
Significant decrease in highest risks (<500) Significant increases in auto decisions Longer used contract maturities – mitigated by risk and LTV changes New-vehicle financing continues to expand (18% of booked vs 15% last
year) Verification procedures are intensifying Risk models are being refined to account for strategic defaulters
2010 NAF Survey Trends
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Interest Income Cost of Funds Pre-Tax Income
-5%
0%
5%
10%
15%
20%
25%
30%
22.65%
4.40% 7.30%
20.38%
3.88% 5.55%
19.63%
3.76%8.75%
20.55%
3.93% 6.56%
Small
Medium
Large
All
Pre-tax Income Up 184% -- lower losses and cost of funds offset lower interest income.
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Summary Profitability Metrics by Class Size
Small
Medium
Large
All
Repossession Account Rate
-5%
0%
5%
10%
15%
Overall average repo rates were down from prior year, particularly in the Small
group.
Repossession Avg Net Loss Per Account$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
Overall average net loss per repo was down $1,218 from
prior year.
Down from 14.2%
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Repossession
Portfolio Results Pre-Tax Income is up 184%
Lower losses and funding costs more than offset rate decreases Delinquency improving Repossession and bankruptcy losses beginning to decrease More effective collection operations continuing to pay off
Behavioral scoring taking hold Early intervention
Vintage delinquency and loss analysis is the norm
2010 NAF Survey Trends
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