May 14, 2025 • 33 mins
As tariffs and inflation drive up vehicle prices, both lenders and consumers are feeling the pressure to adapt. In this episode, host Lynn Sautter Beal speaks with Melinda Zabritski, Head of Automotive Financial Insights at Experian, and Mark Pregmon, VP of Consumer Lending at USAA, to explore how market shifts, financial pressures and evolving consumer demands are reshaping the auto financing landscape.
They discuss the impact of pricier vehicles on affordability, the surge in flexible loan terms to manage monthly costs and the growing role of refinancing—even without dramatically lower rates.
Join us as we discuss:
They discuss the impact of pricier vehicles on affordability, the surge in flexible loan terms to manage monthly costs and the growing role of refinancing—even without dramatically lower rates.
Join us as we discuss:
- How tariffs and inflation are influencing vehicle affordability and driving demand for flexible financing options
- Why lenders are extending loan terms to help borrowers manage payments in a tightening market
- The rise of auto refinancing—not just to secure better rates, but to re-amortize loans for lower monthly bills
- Strategies for risk management and customer care as consumers seek more personalized, adaptable finance solutions
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:04):
Hi everybody.
Speaker 2 (00:05):
This is Lynd Soderbil of Upstart, and welcome to another
episode of Leaders in Lending. I'm joined today by Melinda Zabritski,
who is the head of Automotive Financial Insights and Experience,
and Mark Pregman, who is a VP of Consumer Lending
for USAA. Thank you both for joining us today. Happy
to have you here. I think Melinda and Mark, i'd
(00:25):
love for you to just, you know, give our listeners
a little bit of a brief intro about your backgrounds
and kind of how you really became leaders in the
lending sector.
Speaker 3 (00:33):
Great, So, Melinda Zabritski, I've been with Experience going on.
I actually just completed my twenty first year here and
I've kind of started more in the product development area,
really focused on lender oriented you know, data products, mostly
around industry trends and what we're seeing happening in the industry.
And I started putting together a regular quarterly presentation on
(00:56):
state of the automotive finance market and have wrapped up
my up in the second quarterly presentation getting ready to
start number seventy three. So really just focusing on what
are we seeing in auto finance.
Speaker 4 (01:10):
And I'm Mark pregnant, so a general manager of consumer
lending at USA thirty plus years in the industry, so banking.
My whole career right out of college started with SunTrust,
which is true as spending today. I was a buyer
on the desk by an automobile paper, calling on car
dealers selling our products and services. But I also have
experience in other asset classes like home equity, credit card,
(01:34):
small business lending. So my whole career basically has been
what I would call consumer lending, not really commercial lending,
although I have some experience in that. My ninety percent
of experience have been lending to consumers. And so I
think twenty four years at Tourists, in nine years at
P and C Bank, and now here at USA for
almost five.
Speaker 1 (01:53):
Wow, so great.
Speaker 2 (01:54):
I think between the two of you, you've certainly seen
a pretty significant changes in the auto end history with
the rise of electric vehicles and and many other shifts
between domestic and international production. And who's kind of winning
the race at any given point. I think the interesting
thing and kind of everyone's hot topic right now are
(02:15):
the tariffs on many products, but particularly on auto imports
and auto parts. And so I've actually even seen some
marketing emails from dealers that are near me that I've
bought cars shop in the past, that are.
Speaker 1 (02:28):
Saying, hey, it's on our lot, come by it. These
things are terror free for now.
Speaker 2 (02:33):
So you know, certainly very disruptive to a lot of
industries and a lot of change to navigate to right now.
So how do you see this playing out in the
near term with manufacturers and dealers, and then how do
you see that kind of impacting the consumers and the
affordability of those of those cars.
Speaker 4 (02:52):
So I will start Melinda and I did a presentation
together Consumer Banker Association with CBA Live. It's a three
week weeks ago. Now Melynd don't lose the track of
time and terrors for the hot topic because they hadn't
started yet. I would say that anybody that was the
key word, key phrase we heard, any big intelligence, they
know what's going on, what's going to happen. They're lying
to you. They have no idea althothough I will tell
(03:13):
you since Lynda and I spoke to it at the
CBA Live, I have a little bit better handle on
it today because things have transpired, things have happened, and
I see that automobile industry, and the manufacturers are adapting.
They're trying to figure this out as well. And we're
seeing like Audi's leaving their cars at the port. They're
(03:35):
still delivered, but they're not taking delivery of them. We're
seeing the car dealers they're trying to push like you
got the email that they're trying to push sales. Now,
we're seeing an increase in our application volume. And I
was actually listening to sales calls at USA. They require
us to call y Cording, and what we do is
we listen into our service reps, whether they manufactor make
a loan, sell alone, or collect alone. We listen to
(03:57):
the whole life cycle to try to improve that experience
for our members. And I listened to some sales calls
and they were I'm trying to get in before the terriffs.
I heard that come through while they were taking the application.
So I think we're probably pulling some demand forward. How
it all levels out, I don't know, but I also think,
you know, the rhetoric on the terrorist is kind of
toned down a little bit with some pauses announced here lately,
(04:19):
so who knows what's going to happen. But I don't
think this gonna be as negative it was when Milan
and I were talking about this three weeks ago. So
on manufacturers and the dealers, well, they're adaptive. I mean
they even as adapt it's going to be a car dealers, Linda.
I don't know your take, but but we're seeing increased demand. Yeah.
Speaker 3 (04:34):
I actually just wrapped up last week to additional conferences,
and definitely this is the topic that everyone's talking about.
I saw some presentations from some economists that were trying
to estimate what they expect the stars to be, and
they were definitely reduced from what I had seen previously.
(04:55):
You know, anticipation of potentially reduced manufactur sharing profit, so
you know that that's something that I think that that
is still kind of up in the air, you know,
I think everyone pretty much agrees though that you know,
there will be an impact to affordability around you know,
loan amounts, and you know they're already extremely high, so
we can anticipate that going higher. And then of course
(05:18):
there's the anticipation of as prices increase on new and
very likely hit record peaks, shifting more consumers into used vehicles,
which are already at a little bit more of a
tight supply and that causing even perhaps more of a
ramp up demand for used and potentially increasing those used
values as well.
Speaker 2 (05:39):
Sure, and that's actually a topic that kind of hits
near and dear to my heart. I have I have
three kids, and two of them are drivers and out
of the house, and one is about to be a
driver within the next year, so I will be in
the market for a car, and my middle one was
kind of in need of a car right about that
the last spike in the used vehicle market during COVID,
(06:00):
So probably going to get hit twice twice by similar
economic factors, you know, with the vehicle prices you know,
still elevated even on new cars and use cars, and
potentially increasing on us KUIs with lower supply, do you
see lenders of adapting loan term structures to address that affordability?
Speaker 4 (06:22):
Yeah, I would say from a lender perspective, you're seeing
that across the market. It hasn't changed drastically because I
still think the consumers they may see that that seventy
two month or the eighty four months out there, but
they're looking at the rate they have to pay. It
really just comes down to a payment. I think that's
they're trying to back into a payment. But we are
seeing I think that Melinda you shaid, I think it
(06:43):
was like twenty percent of the Marcus three twenty plus
percent is now seventy three months are greater. But the
interesting thing, the average amount average term on the books
for a lender like ourselves is sixty eight months. So
it still has it changed that much. May have got up,
like from sixty six to sixty eight, but it hasn't
changed that much. So I think that there are we're
(07:03):
we're I think that we're seeing that focus out there,
but a lot of the consumers just aren't taking those
longer terms.
Speaker 3 (07:09):
So yeah, and that and the majority of financing it
really is seventy two months and above, you know, with
mostly right at seventy two and yeah, those averages, you know,
right around the sixty eight months. I think some of
the things that we're seeing on this is if you
think about it, you know, term really is the only
thing left to adjust to bring the payment down. You know,
if rates don't come down, loan amounts are going to
(07:29):
be going up. Term is really the only thing to pull.
But then again, you know how far out will lenders go.
I mean, there are lenders out there that do specialize
in things like ninety seven plus, you know, so you
do see that. Then of course there are much more
conservative lenders that don't do that. But I think ultimately yet,
(07:50):
you know, is term going to get even longer? You know,
who knows? You know, what happens if we increase you know,
increase loan amount by four or five thousand dollars, you know,
without pushing, that has a considerable impact on that monthly payment.
I mean new car payments right now, we're already starting
to see so far in Q one, like around seven
to fifty a month, and add a couple grand on that,
(08:11):
you're in the nine hundred range. And I mean we
already do see you know, fifteen sixteen percent of new
car payments are over one thousand dollars. And that doesn't
mean it's a you know, luxury vehicle. It just means
it's a forty thousand dollars vehicle at eight percent rate
for you know, sixty or seventy two months.
Speaker 4 (08:28):
Yeah, and I'll put some respective on that too, because
I've been in this bus, like I said, thirty plus
years when I was a buying paper from car dealers
on the desk. We were moving from forty eight to
sixty months, and we thought the world was going to
come to an end. We really they were like, oh
my gosh, the sky's niffe and it didn't. Okay, And
I think consumers adapt and they're smart. But I also
think too, is that cars are lasting longer today than
(08:51):
they were back then when I was when I first
got into the business, Like, you know, cars you really
had to worry about is this going to go one
hundred thousand and two one thousand miles? Right? And today
with the the quality of the cars being manufactured that
that's not an issue like it was before. The term
has had a lot to do with the useful life, right,
and so today it's with cars lasting longer and consumers
(09:11):
driving them longer, right, that term I don't think is
as big as it was before because it still has
useful life.
Speaker 2 (09:17):
Sure, it's an interesting point, ye. I think that's You
can certainly see plenty of cars on the road that
have been around for a long time.
Speaker 1 (09:23):
You maybe wonder a little bit how they're still running.
Speaker 2 (09:25):
And whenever you hear a noise with their own carer
like that one's out here, so I'm sure mine is fine.
What you know with the you know, other changes in
kind of the macroeconomic environment over the past year or so,
you know, rising inflation, higher home prices, sustained higher interest rates,
not interest rate cuts not being as deep as is
(09:45):
maybe we would have forecast.
Speaker 1 (09:48):
By this point. Are you seeing any notable changes in
delinquency rates or or even just kind of you know,
people who are slower to pay, or or changes autopay
where people may have been much more confident in their
cash flows in the past.
Speaker 4 (10:04):
I'll let Blinda, I'll let you answer that that was
the topic of discussion a couple of weeks ago, and
then I'll answer it from our perspective as well. So
let don't you just maybe talk to the general market.
Speaker 3 (10:12):
Sure, yeah, absolutely so over the last couple of years, Yes,
we have definitely seen delinquencies increase. The majority thing that
we tend to track is going to be sixty day
delinquency rates, and they certainly are increasing. You know, from
a sixty day rate, we're very similar to the peak
that we had back in two thousand and nine. I
think some of the big differences we're seeing, of course,
(10:34):
are you know, used values are still strong. So if
you are repoing and you know, take sell on that
card of the auction, sometimes the deficiency balance is it
a little bit better. The area that I think we're
seeing that that has get more focused on it has
been some of the increased delinquency more in the near
prime space. You know, credit scores six to six hundred
(10:55):
to six sixty. You know, those delinquencies are increasing at
a bit of a faster pace. But at the same time,
the increase of delinquency went hand in hand when all
of a sudden, you know, used values jumped up forty percent,
new car prices you know, increased thirty forty percent, and
those payments went from four hundred dollars to like I said,
seven hundred, And that definitely has had a result in
(11:18):
those rising delinquencies.
Speaker 4 (11:19):
And I would agree and tracking the industry that you've
seen a rise across all credit spectrums, whether it's prime,
super prime. Super prim really hasn't gone up that much,
but it's been more than the near prime and the
subprime is where that and so those are all up
and also repossession rates are up to as well. We're
singing that as well. But for us, we're a little unique.
You say, we are up, but we are not even
(11:40):
close to the industry. We're still tracking better the industry.
A lot of that has to do with our membership.
Is that about fifty little bit or fifty percent of
our members they get along for us, have a government paycheck,
so they their active duty, they're retired there, you know there,
and it's a lot of them are dual income, so
that I did my twenty years in the service or
retired to get my military paycheck coming in, and I'm
also reservist, but I'm also you know working on the
(12:02):
local police department as well, So we got a little
bit of that more employment stability. So I kind of
expect that out of our book and how the how
it performs.
Speaker 1 (12:10):
Yeah, that's a yeah.
Speaker 2 (12:11):
I think that's a good point about especially the potential
like retire after in a twenty twenty five years of
service and you're still you know working and of working
age to take on kind of a second career in
the private sector.
Speaker 3 (12:23):
Uh.
Speaker 1 (12:24):
You know, as you think about then, you know.
Speaker 2 (12:25):
Cars becoming more expensive and potentially more delinquencies are you
seeing I know we're seeing in the data and increase
in auto interested auto refy and refine those loans, maybe
not necessarily for a better rate, but to extend that term,
lower the payment, kind of reamortize it again, Are you
seeing that as well in the information you're reviewing.
Speaker 4 (12:47):
Yeah, so we actually having an increased loan demand on that.
I think it's I think it's the refi wave has
got delayed a little bit and just my experience, just
in my opinion, because rates aren't measured down. I mean
they're down, your average plays down that more than than
it was last year, but it's not meaningful enough because
I still think the consumers looking at my cash flow,
(13:08):
my what's my monthly payment? Right? And so I don't
think it's that advantageous for them now. Is fifty dollars
big for some consumers? It is for some consumers, it's
not right. So I think there's a little bit of that.
But we have seen a pick up. In matter of fact,
I've talked about that why courting. I listened to five
calls and two of those calls were refinances from another
institution and we had a better rate and it was
(13:29):
a meaningful difference for them, and we didn't advertise that.
They just on their own volition came to it, So
I think it's in their minds and so, but I
just don't I think the wave is kind of pushed
off because we're expecting more rate decreases this year. Now
it's two now, it could be more if we go
into recession. Who knows, but I but I know it's
on their minds just because of inflation and cash flow
(13:51):
and stuff like that. So, Londa, I don't know what
you're seeing.
Speaker 3 (13:52):
Yeah, Actually we joked about this at CBA because I
got my USAA auto loan reef I offer not too
far before, not too far in advance of the CBA,
being a USA member myself. But we do track for membership.
Speaker 4 (14:06):
By the way, you are very.
Speaker 3 (14:10):
But we do track and look at what we're seeing
happening and REFI, and yes, there's definitely REFI occurring. It's
not nearly as much as what it was when rates
were really low, you know, in twenty twenty and twenty
twenty one. But in what we're seeing as what you
just mentioned is you know a consumer who maybe booked
a seventy two month loan or you know, sixty five
on average, and then eighteen nineteen twenty months into the loan,
(14:34):
they're now refinancing again, So going from a seventy two
month loan to a sixty five but after already paying
you know, eighteen months and we are seeing in general
about a sixty six dollars payment savings, you know absolutely
it will have that consumer paying more over the overall
life of the loan. But again, if it's dropping that
payment sixty sixty to seventy dollars and they're able to
(14:58):
stay current on that loan, you know that that's definitely
a good thing. But obviously, yes, they're going to pay
more of the overall life alone. But if rates come down,
we do expect refin to pick up a lot more.
Speaker 4 (15:09):
And we do a lot of education to our members
on when is the right time for you, because you're right,
if you're twelve months in and you and you're you
do a sixty month loan, and you do another sixty
month loan and refinance, you'd essentially get to send me
two months, right, And so you got to look at
the total costs. So we try to educate them. But
I will tell you that a lot of just in general,
consumers are a lot of just manage their household cash
flow and when you know, we still of that inflation
(15:30):
we're dealing with, and then who knows you Like we
talked about terrorists what the impact might be on other
consumer goods out there right that may happen. So I
think it's I think it's on their minds and we're
seeing an uptick on it. Not the wave that we
thought it was going to be though, sure.
Speaker 2 (15:44):
But maybe maybe just more consumers instead of like people
being more advantageous about rates because there's not as much
margin there people who need the free cash flow and
maybe you're paying a little more long term, but are
making their day to day month months more affordable if
they're a little more Yeah.
Speaker 4 (16:01):
I also think too, it's a little bit of an
I don't know like ego things the right word, but
how people compare your Fyco score? I was planning golf,
get a couple of who my buddy goes. I know
you're packing. What's your Fyco score? I guess is my
higher than yours?
Speaker 1 (16:13):
Right?
Speaker 4 (16:13):
And I think people going what you get on your car?
Well I got nine percent? Well I got seven. You
know then you feel like, oh I got to go
out and get seven. Now you know what I mean,
so I think it's one of those things that's just like,
but I really think it's going to come down to
is it worth their time and effort to refinance and
is it going to make a difference. I think anything
where fifty dollars can be meanful for a lot of consumers. Yeah.
Speaker 3 (16:31):
Absolutely, It's funny we're talking about this. The score comparisons
totally isn't aside. At one of the conferences last week
at the evening reception, was hanging out with a couple
of clients and or just industry folks, and they said
the same thing. They sit there and compare their scores,
and they both whipped out the Experience app and were like, see,
see this is my score. Mine's better than yours.
Speaker 1 (16:52):
Yeah, that is funny, and it is. Everything's a little
bit gamified today.
Speaker 2 (16:57):
So well, you know, I know, like obviously there's a
lot more I mean, there's a you know, a pretty
solid trend for a while of people buying SUVs and
bigger SUVs, and even though they continued to go up
in price and many of them hit the one hundred
thousand dollars mark and more, you know, what are you
seeing on kind of trends and car buying behavior now
(17:20):
over the past year and you know into twenty twenty five,
particularly around like SUVs and then electric vehicles, which I know,
you know, depending on the manufacturer, have been have grown
at different rates. Like frankly, I had an Audi EV
for a few years and traded it on a kind
of went the opposite way. It went to a full
(17:42):
size Ford Bronco from an EV after a few years.
I could see using an EV in the future too,
but it really needed the suv space at the time.
So just are you seeing that any trends in buying
behavior there.
Speaker 3 (17:56):
It's it's definitely an suv market. When we look at
the kind of vehicles, especially on new cars well used
cars too, that consumers are purchasing. The majority of the
market's the suv over sixty percent of new vehicles or SUVs.
And it's not necessarily the luxury The biggest volume are
really the non luxury SUVs. It's the CRV, it's the
Raft four, you know, it's the Hyundais. So it's really
(18:19):
you know, that non luxury kind of small to mid
size suv that really dominates what drives the market. And
of course as new cars really switched over to SUV's
a handful of years ago. That's what the used cars
are too. Of course, on the U side, you know,
you've got a lot of the F one fifties, so
it's a lot of a lot of pickups and then
those SUVs. It's interesting on the EV front though, because
(18:42):
just as Mark was mentioning, kind of you know, a
ramp up of people rushing to the dealers to get
the car pre tariff, kind of the same thing I
believe is happening in the EV space about potentially you know,
losing the tax thread and the subsidies, because we saw
so far in Q one and EV's are almost ten
percent of new car purchases, and we ended last year
(19:07):
lower than that, like eight to nine percent. So we've
definitely seen a ramp up. And what was most notable was,
you know, last is leasing on EV. You know, last
year we ended you know, around forty percent of EV's released.
We're almost at sixty percent right now for Q one.
So I think there is that rush of people who
(19:27):
are in the market for an EV or interested in
getting an EV and getting it while they can still
take advantage of that least credit.
Speaker 4 (19:35):
I would say, that's a good point. I also think
getting back lou Itt to terraffs, I actually think EV's
will be impacted more because just because of terrifs in general, right,
and because we're the parts of manufacturers. But the prices
will even higher because the incentives are going away from
the federal government. Right. So I think the pain that
the price shock will be higher in the EV. So
(19:56):
who's to see what's going to happen there, but because
I think it's gonna hit EV's harder. On the suv,
we tracked just like everybody else. The number one of
truck finance f one fifty, that's our number one financed.
We're seeing that. I think that you've seen manufacturers are
dropping cars now. Passenger cars are going SUVs and trucks
and stuff. I think the same thing I just taught
(20:17):
about with the term and cars lasting longer, those SUVs
have gotten more economical because they're getting better gas miles day.
I remember back in the two thousand and early two thousand,
we had that recession when the card was asking and
set us to buy cars right there, pushing and the
suv sales went that. Yeah, remember that cash for colluctors
and then and then suv sales, I mean dropped off
the cliff because gas prices were like double and then
(20:40):
all of a sudden, gas prices went down and the
SUV's I mean, it was like, didn't you learn your lesson?
It's like, you're still going to have that issue. But
I think so, I don't think this is susceptible to
gas prices like it was before. And yeah, but but
yes they are expensive and so but I think also too,
those passenger cars, like those luxury cars, they're dropping their
entry levels now because they just want you're going to
(21:00):
get the fully loaded and the top of the line.
And so it's a little bit of a give and
take on that. But we are seeing, you know, the
more on the suv just because it's I think is
a more if you get a growing family, those types
of things.
Speaker 1 (21:11):
And once you get used to driving an suv, it's
very hard to go back to a sedan. I have found.
Speaker 2 (21:15):
So I've tried to do it now twice over and
over the past probably twenty years where I had an
suv for a period tried sedan, I've made it. I
think the longest was my My EV, My Out of EV,
which made it about two years. But I also work
from home, so I don't drive it a lot. And
we also had an SUV during that period that was
(21:36):
my husband.
Speaker 4 (21:36):
So no, and I'm the same way. I went from
the largest I had an expedition and it wasn't worried
about Gasmas for me, my choices. It was just too
big because kids were gone and they're they're they're on
their own now. So I went to Fort Bronco. It's smaller,
but it's still an suv, right.
Speaker 3 (21:50):
I wanted to space as really Yeah, because it fits
in my garage.
Speaker 1 (21:56):
Oh because yeah, I know.
Speaker 2 (21:57):
I I will say my Bronco takes up a lot
of space in the crash, So I have a.
Speaker 1 (22:02):
Pretty tall, big one and it fills fills the space
out there.
Speaker 4 (22:06):
Uh you know.
Speaker 3 (22:07):
But one thing I do want to bring up if
I can, So when we when we start talking about
how so much of the market is moved to SUVs,
you know that does have the definite spillover impact into
the used car market because one of the other trends
we're seeing that kind of ties to the affordability and
you know, the overall economics in the industry is because
more of the used inventory r SUVs. It is pushing
(22:30):
more consumers into older vehicles too, in order to get
to a more affordable payment. So you know, like nine
ten plus year old vehicles. You know, we're definitely seeing
an increased demand for that.
Speaker 4 (22:40):
And that used to be luxury, right, you see that
more in luxury if somebody got a nice antique mercee
or something like that. That's not the case today. It's
just it's affordability. And I'm gonna try to get SUV
and I have to go that back far in year
to get to fill my needs.
Speaker 2 (22:54):
Sure, And then you know, in switching back to electric
vehicles for a minute, maybe both mentioned the longevity of
the cars lasts longer, so potentially longer longer terms could
be could be in the horizon. But still I think
some concern with the EVS on battery life and then
what that means and the cost of replacing those batteries
(23:16):
if they if they die on the car. So you've
got less maintenance and regular maintenance. But but that's a
pretty big potential risk to to your electric vehicle. What
unique challenges do you see in auto financing around things
like residual values and and UH and the charging infrastructure
(23:36):
and lending for an electric vehicle.
Speaker 4 (23:39):
Well, let's yes, we don't lease, but I do know
that as a concern, I think it's keeping a lot
of buyers out of the market. On ev about Hey,
I got to really I got to put in four
thousand and five thousand charging in the microags right on
top of that, or I got to take it to
the grocery store and charge it up on your grocery
and w't get a full charge. Those type of things.
So most of it, I'll just tell you my experience.
(23:59):
My I circle closer. It's your third car, it's not
their primary car, or they're an urban dweller and they
live in where they have other modes of transportation to
get to the airport, you know, or that kind of thing,
or they But I just so I think that's still there,
and think about we talked about this at the CBA conference.
Was a lot of those buyers too. They are on
the sidelines. I live in an apartment complex and there's
(24:21):
nowhere to charge it, right, So it's just that. So
I think that once the infrastructure comes together, and I
think it's just I think it will naturally take off,
just like we went from horse and buggy to a
combustible engine. The government didn't mandate you had to get
off the worst and buggy to a car, right. And
I think that if the market force is right, supply
and demand, the right things come together, like infrastructure longer, charging,
(24:44):
you know, longer, I think, then the man will start
to pick up. Price points will come into play. I
think once that that starts to get worked out, the
market forces will work and I'll think we'll get some
type of equilibrium there.
Speaker 3 (24:55):
Yeah, And you know the point around residuals. You know,
there's a lot of questions around that with you know,
price drops that occurred among several manufacturers and what will
that used car value be when it comes back. And
I think that's also why we do see so much leasing.
I mean, like I said, when I'm looking at the
EV space right now, it's almost sixty percent leased, loans
(25:17):
on only a third and the rest of it's cash. So,
you know, I think leasing definitely has that comfort level
from a consumer standpoint in knowing that, hey, your lease
is up twenty four months from now, thirty six months
from now, you can you know, go and return it
and go back into another vehicle. So I think there
is definitely that comfort level. And one of the comments
that has come up over the last several conferences I've
(25:38):
been at, especially around EV, is you know, no single vehicle,
whether it's an ICE, an SUV, a Sedana convertible EV,
no single vehicle will be perfect for everybody, nor will
it meet you know, one hundred percent of your driving needs,
you know, so you find the one that fits the most.
And Mark's point frequently it's a second vehicle.
Speaker 4 (25:58):
I agree. I think the lease is attracted just because
of it's a payment issue, but I also think too
when we actually go and talk to our members and
ask them about their carbine experience, what they did and
what they end up doing, a lot of them I
choose the lease because I'm not sure if I want
to live with an EV for the you know, for
five years, I'll do it for two see that I
(26:19):
can make it work. So I think that's a big
part of the lease. In the sixty percent plus of
the market's leasing for EV, I think it's like I'm
not committed, right, So it's like I'm kind of partially dating,
right kind of thing. I don't keep my options, you know.
Speaker 2 (26:31):
So yeah, I made it two and a half years,
and I do believe I'll own an EV again. I
liked it, but again I'm that person. I live in
the suburbs, I have a garage. I have the charger
in my garage so I can plug it in when
I was home. If I go into our office, the
garage in our office has charge a road chargers. I
can charge it either place. And definitely more of a challenge.
(26:53):
I think the road trips and the infrastructure to get
from here to there and to not have to sit
and wait is certainly potential obstacle. And we were kind
of that bucket too, where you know, it was my car,
but we had a large SUV that we could also
drive that was more of our primary, primary family car.
But I am really hoping that the infrastructu improves because
(27:13):
I would love to have another one. And in the
middle of winter in Ohio, it's really nice to never
have to go to a gas station.
Speaker 4 (27:19):
Yes, it is, I would agree, Linn. I would add too,
I think, you know, for the consumers are, but they're
not there yet. A true plug in hybrid. I think
that which gave the option i'd go one hundred percent
electric or I can do get do that long trip
to see my family in two states over and not
have to worry about And as great as I'm all
electric and I'm going back and forth to work on
my daily chores, but when I want that line, I
(27:41):
want that true plug. But I mean that the longest
hybrid now is going like what forty miles on electric
and then has to go over to gas. And so
if that gets out to the two hundred three hundred
on a true hybrid plugin, I think that would generate demand.
I really do.
Speaker 3 (27:55):
Now.
Speaker 1 (27:55):
I think that's that would be a great, a great
new option to have.
Speaker 2 (27:59):
So you know, as you think about then, you know,
we talked a little bit about the tariffs and UH
supply and demand of what that may look like for
both new and used cars with rates you know coming
in during COVID, certainly a lot of supply chain chain
disruptions across every industry UH, and the price of used
cars UH spiked through the roof. You know, inventory levels
(28:23):
aren't necessarily fully back to normal.
Speaker 1 (28:24):
And then you know your comment.
Speaker 2 (28:26):
I think Mark was interesting about you know, Audi leaving
cars at the port in Maryland and not even moving
them UH to dealerships because they don't have buyers at
the moment. But how are you seeing that play out
with just the inventory? Uh, any supply chain disruptions you're
seeing because of the tariffs or or related to other
events going on globally, I.
Speaker 4 (28:46):
Think it's too soon. That's supply chain disruption. I heard
a couple of the auto analysts out there, you know,
on some of the on some of the business updates,
it's going to be six months until we start feeling
the impact. I think it's a longer than I thought.
It was. Four to six months, depends on the brand
to make four to six months, It depends on where
they're getting their parts from. But I just I think
(29:08):
it's going be six months. Hopefully we'll get this stuff
wrapped up before then so it doesn't make kind of
an issue. That's what I'm hoping over market. Yeah, and
I think there will be some short term things, but
not as I don't think it'll be as deep as
we thought it was going to be. But if we
blow through that six months, that's when I think we'll
start to see it could curb demand and pricing.
Speaker 2 (29:29):
Yeah, all right, well, I definitely appreciate you having it
on I think one last question that I'd like to
pose to each of you to kind of close this
out today. Forward looking, you know, obviously a lot of uncertainty,
lot of variability, things that are crapping up in every
area that maybe wasn't on the on the BINGO card
(29:51):
for twenty twenty five. But I like each of your
perspectives and what you see is maybe the top market
or regulatory shifts on the horizon that banks and lenders
should really be thinking about and tracking as they plan
their auto finance strategies for twenty twenty five or really
for the rest of twenty twenty five, since we're a
quarter in already.
Speaker 4 (30:12):
Yeah you, Linda, Yeah, I just.
Speaker 3 (30:16):
I think right now, like well, like we said earlier,
there's so much uncertainty that I don't think we can
anticipate or really know what we can expect to see.
I think people are just you know, from an mark
you can certainly speak better to this, but I think
lenders are just kind of putting more of the guardrails around,
keeping an eye on, you know, what are what are
the latest data trends, what's the latest information you're hearing
(30:37):
from dealers, what's the you know, the latest data points
that we're getting from the variety of data sources. But everyone,
I think wishes they had that crystal ball. But things
are changing so quickly and the forecasts are changing so
quickly that I think there's just really still a lot
of uncertainty as to exactly what we're going to be
seeing this year.
Speaker 4 (30:56):
Yeah, I'm and I'm less worried about regulatory and governmental
now with the administration we have. I mean, there are
things are thinker rolling back, so I'm less worried about that.
I'm more worried at the macro environment. I mean, it's
just the uncertainty there. I think that's more and what
the impact is. So we're we're putting together a playbook.
So if this were to happen, what's to happen? What
are the canary and the coal mine kind of metrics
(31:18):
we want to monitor, Like we start seeing even before
they walk into the dealership. Are they is the research
for what's my car worth? What's the new car going
to costly? Is that going down right or is it
going up? Is it staying flat? Before they hit the dealership,
we're talking to dealers, staying close to them, even though
we're a direct lender. What goes on there is really important.
They're part of our ecosystem and we're just trying and
(31:38):
then the health of that of that consumers that go
through there and they're making their payments, and so we are.
We've ready to tell lenders if advice is make sure
that you have the best experience, because the best. And
then if through the whole life cycle, through making it
loan service it alone, make it easy to change their
their due date, make it easy to change their payment amount,
whatever they want to change things. And then when you
have to collect them, when you make it easy to
(32:00):
get a hold of you so you can make arranges
to get them through that time. I'm more focused on
that than I but but I can't. You know, it's
like who what's going to happen. I'm more about macro
than I am about the internal stuff. We're just trying
to prepare our cells for which way what's going to happen,
and have scenarios for each one however it may play out.
And I think it's an accommodation all those things. I
(32:21):
don't think it's any one silver bullet.
Speaker 1 (32:23):
Yeah, control the things you can control and.
Speaker 4 (32:26):
Worry about that if you provide a great I mean
it's like I've always toe you when I used to
run collections, and I tell we want them to think
of us, to repay us. You're going to make it
easy and not make them feel embarrassed because it's a
normal event. Those things happen. They'll pay you before the
one that does the harder technique, right, I mean, just
we're all like they'll work with me. I'm willing to
work with you if you get that across. So prepare
(32:48):
yourselves those things you can control customer experience.
Speaker 2 (32:51):
Well, yes, definitely, Thank you, appreciate, appreciate both of you
for joining us today on the podcast.
Speaker 4 (32:58):
Thank you Lenn, Thank you Malinda Ba
Hi everybody.
Speaker 2 (00:05):
This is Lynd Soderbil of Upstart, and welcome to another
episode of Leaders in Lending. I'm joined today by Melinda Zabritski,
who is the head of Automotive Financial Insights and Experience,
and Mark Pregman, who is a VP of Consumer Lending
for USAA. Thank you both for joining us today. Happy
to have you here. I think Melinda and Mark, i'd
(00:25):
love for you to just, you know, give our listeners
a little bit of a brief intro about your backgrounds
and kind of how you really became leaders in the
lending sector.
Speaker 3 (00:33):
Great, So, Melinda Zabritski, I've been with Experience going on.
I actually just completed my twenty first year here and
I've kind of started more in the product development area,
really focused on lender oriented you know, data products, mostly
around industry trends and what we're seeing happening in the industry.
And I started putting together a regular quarterly presentation on
(00:56):
state of the automotive finance market and have wrapped up
my up in the second quarterly presentation getting ready to
start number seventy three. So really just focusing on what
are we seeing in auto finance.
Speaker 4 (01:10):
And I'm Mark pregnant, so a general manager of consumer
lending at USA thirty plus years in the industry, so banking.
My whole career right out of college started with SunTrust,
which is true as spending today. I was a buyer
on the desk by an automobile paper, calling on car
dealers selling our products and services. But I also have
experience in other asset classes like home equity, credit card,
(01:34):
small business lending. So my whole career basically has been
what I would call consumer lending, not really commercial lending,
although I have some experience in that. My ninety percent
of experience have been lending to consumers. And so I
think twenty four years at Tourists, in nine years at
P and C Bank, and now here at USA for
almost five.
Speaker 1 (01:53):
Wow, so great.
Speaker 2 (01:54):
I think between the two of you, you've certainly seen
a pretty significant changes in the auto end history with
the rise of electric vehicles and and many other shifts
between domestic and international production. And who's kind of winning
the race at any given point. I think the interesting
thing and kind of everyone's hot topic right now are
(02:15):
the tariffs on many products, but particularly on auto imports
and auto parts. And so I've actually even seen some
marketing emails from dealers that are near me that I've
bought cars shop in the past, that are.
Speaker 1 (02:28):
Saying, hey, it's on our lot, come by it. These
things are terror free for now.
Speaker 2 (02:33):
So you know, certainly very disruptive to a lot of
industries and a lot of change to navigate to right now.
So how do you see this playing out in the
near term with manufacturers and dealers, and then how do
you see that kind of impacting the consumers and the
affordability of those of those cars.
Speaker 4 (02:52):
So I will start Melinda and I did a presentation
together Consumer Banker Association with CBA Live. It's a three
week weeks ago. Now Melynd don't lose the track of
time and terrors for the hot topic because they hadn't
started yet. I would say that anybody that was the
key word, key phrase we heard, any big intelligence, they
know what's going on, what's going to happen. They're lying
to you. They have no idea althothough I will tell
(03:13):
you since Lynda and I spoke to it at the
CBA Live, I have a little bit better handle on
it today because things have transpired, things have happened, and
I see that automobile industry, and the manufacturers are adapting.
They're trying to figure this out as well. And we're
seeing like Audi's leaving their cars at the port. They're
(03:35):
still delivered, but they're not taking delivery of them. We're
seeing the car dealers they're trying to push like you
got the email that they're trying to push sales. Now,
we're seeing an increase in our application volume. And I
was actually listening to sales calls at USA. They require
us to call y Cording, and what we do is
we listen into our service reps, whether they manufactor make
a loan, sell alone, or collect alone. We listen to
(03:57):
the whole life cycle to try to improve that experience
for our members. And I listened to some sales calls
and they were I'm trying to get in before the terriffs.
I heard that come through while they were taking the application.
So I think we're probably pulling some demand forward. How
it all levels out, I don't know, but I also think,
you know, the rhetoric on the terrorist is kind of
toned down a little bit with some pauses announced here lately,
(04:19):
so who knows what's going to happen. But I don't
think this gonna be as negative it was when Milan
and I were talking about this three weeks ago. So
on manufacturers and the dealers, well, they're adaptive. I mean
they even as adapt it's going to be a car dealers, Linda.
I don't know your take, but but we're seeing increased demand. Yeah.
Speaker 3 (04:34):
I actually just wrapped up last week to additional conferences,
and definitely this is the topic that everyone's talking about.
I saw some presentations from some economists that were trying
to estimate what they expect the stars to be, and
they were definitely reduced from what I had seen previously.
(04:55):
You know, anticipation of potentially reduced manufactur sharing profit, so
you know that that's something that I think that that
is still kind of up in the air, you know,
I think everyone pretty much agrees though that you know,
there will be an impact to affordability around you know,
loan amounts, and you know they're already extremely high, so
we can anticipate that going higher. And then of course
(05:18):
there's the anticipation of as prices increase on new and
very likely hit record peaks, shifting more consumers into used vehicles,
which are already at a little bit more of a
tight supply and that causing even perhaps more of a
ramp up demand for used and potentially increasing those used
values as well.
Speaker 2 (05:39):
Sure, and that's actually a topic that kind of hits
near and dear to my heart. I have I have
three kids, and two of them are drivers and out
of the house, and one is about to be a
driver within the next year, so I will be in
the market for a car, and my middle one was
kind of in need of a car right about that
the last spike in the used vehicle market during COVID,
(06:00):
So probably going to get hit twice twice by similar
economic factors, you know, with the vehicle prices you know,
still elevated even on new cars and use cars, and
potentially increasing on us KUIs with lower supply, do you
see lenders of adapting loan term structures to address that affordability?
Speaker 4 (06:22):
Yeah, I would say from a lender perspective, you're seeing
that across the market. It hasn't changed drastically because I
still think the consumers they may see that that seventy
two month or the eighty four months out there, but
they're looking at the rate they have to pay. It
really just comes down to a payment. I think that's
they're trying to back into a payment. But we are
seeing I think that Melinda you shaid, I think it
(06:43):
was like twenty percent of the Marcus three twenty plus
percent is now seventy three months are greater. But the
interesting thing, the average amount average term on the books
for a lender like ourselves is sixty eight months. So
it still has it changed that much. May have got up,
like from sixty six to sixty eight, but it hasn't
changed that much. So I think that there are we're
(07:03):
we're I think that we're seeing that focus out there,
but a lot of the consumers just aren't taking those
longer terms.
Speaker 3 (07:09):
So yeah, and that and the majority of financing it
really is seventy two months and above, you know, with
mostly right at seventy two and yeah, those averages, you know,
right around the sixty eight months. I think some of
the things that we're seeing on this is if you
think about it, you know, term really is the only
thing left to adjust to bring the payment down. You know,
if rates don't come down, loan amounts are going to
(07:29):
be going up. Term is really the only thing to pull.
But then again, you know how far out will lenders go.
I mean, there are lenders out there that do specialize
in things like ninety seven plus, you know, so you
do see that. Then of course there are much more
conservative lenders that don't do that. But I think ultimately yet,
(07:50):
you know, is term going to get even longer? You know,
who knows? You know, what happens if we increase you know,
increase loan amount by four or five thousand dollars, you know,
without pushing, that has a considerable impact on that monthly payment.
I mean new car payments right now, we're already starting
to see so far in Q one, like around seven
to fifty a month, and add a couple grand on that,
(08:11):
you're in the nine hundred range. And I mean we
already do see you know, fifteen sixteen percent of new
car payments are over one thousand dollars. And that doesn't
mean it's a you know, luxury vehicle. It just means
it's a forty thousand dollars vehicle at eight percent rate
for you know, sixty or seventy two months.
Speaker 4 (08:28):
Yeah, and I'll put some respective on that too, because
I've been in this bus, like I said, thirty plus
years when I was a buying paper from car dealers
on the desk. We were moving from forty eight to
sixty months, and we thought the world was going to
come to an end. We really they were like, oh
my gosh, the sky's niffe and it didn't. Okay, And
I think consumers adapt and they're smart. But I also
think too, is that cars are lasting longer today than
(08:51):
they were back then when I was when I first
got into the business, Like, you know, cars you really
had to worry about is this going to go one
hundred thousand and two one thousand miles? Right? And today
with the the quality of the cars being manufactured that
that's not an issue like it was before. The term
has had a lot to do with the useful life, right,
and so today it's with cars lasting longer and consumers
(09:11):
driving them longer, right, that term I don't think is
as big as it was before because it still has
useful life.
Speaker 2 (09:17):
Sure, it's an interesting point, ye. I think that's You
can certainly see plenty of cars on the road that
have been around for a long time.
Speaker 1 (09:23):
You maybe wonder a little bit how they're still running.
Speaker 2 (09:25):
And whenever you hear a noise with their own carer
like that one's out here, so I'm sure mine is fine.
What you know with the you know, other changes in
kind of the macroeconomic environment over the past year or so,
you know, rising inflation, higher home prices, sustained higher interest rates,
not interest rate cuts not being as deep as is
(09:45):
maybe we would have forecast.
Speaker 1 (09:48):
By this point. Are you seeing any notable changes in
delinquency rates or or even just kind of you know,
people who are slower to pay, or or changes autopay
where people may have been much more confident in their
cash flows in the past.
Speaker 4 (10:04):
I'll let Blinda, I'll let you answer that that was
the topic of discussion a couple of weeks ago, and
then I'll answer it from our perspective as well. So
let don't you just maybe talk to the general market.
Speaker 3 (10:12):
Sure, yeah, absolutely so over the last couple of years, Yes,
we have definitely seen delinquencies increase. The majority thing that
we tend to track is going to be sixty day
delinquency rates, and they certainly are increasing. You know, from
a sixty day rate, we're very similar to the peak
that we had back in two thousand and nine. I
think some of the big differences we're seeing, of course,
(10:34):
are you know, used values are still strong. So if
you are repoing and you know, take sell on that
card of the auction, sometimes the deficiency balance is it
a little bit better. The area that I think we're
seeing that that has get more focused on it has
been some of the increased delinquency more in the near
prime space. You know, credit scores six to six hundred
(10:55):
to six sixty. You know, those delinquencies are increasing at
a bit of a faster pace. But at the same time,
the increase of delinquency went hand in hand when all
of a sudden, you know, used values jumped up forty percent,
new car prices you know, increased thirty forty percent, and
those payments went from four hundred dollars to like I said,
seven hundred, And that definitely has had a result in
(11:18):
those rising delinquencies.
Speaker 4 (11:19):
And I would agree and tracking the industry that you've
seen a rise across all credit spectrums, whether it's prime,
super prime. Super prim really hasn't gone up that much,
but it's been more than the near prime and the
subprime is where that and so those are all up
and also repossession rates are up to as well. We're
singing that as well. But for us, we're a little unique.
You say, we are up, but we are not even
(11:40):
close to the industry. We're still tracking better the industry.
A lot of that has to do with our membership.
Is that about fifty little bit or fifty percent of
our members they get along for us, have a government paycheck,
so they their active duty, they're retired there, you know there,
and it's a lot of them are dual income, so
that I did my twenty years in the service or
retired to get my military paycheck coming in, and I'm
also reservist, but I'm also you know working on the
(12:02):
local police department as well, So we got a little
bit of that more employment stability. So I kind of
expect that out of our book and how the how
it performs.
Speaker 1 (12:10):
Yeah, that's a yeah.
Speaker 2 (12:11):
I think that's a good point about especially the potential
like retire after in a twenty twenty five years of
service and you're still you know working and of working
age to take on kind of a second career in
the private sector.
Speaker 3 (12:23):
Uh.
Speaker 1 (12:24):
You know, as you think about then, you know.
Speaker 2 (12:25):
Cars becoming more expensive and potentially more delinquencies are you
seeing I know we're seeing in the data and increase
in auto interested auto refy and refine those loans, maybe
not necessarily for a better rate, but to extend that term,
lower the payment, kind of reamortize it again, Are you
seeing that as well in the information you're reviewing.
Speaker 4 (12:47):
Yeah, so we actually having an increased loan demand on that.
I think it's I think it's the refi wave has
got delayed a little bit and just my experience, just
in my opinion, because rates aren't measured down. I mean
they're down, your average plays down that more than than
it was last year, but it's not meaningful enough because
I still think the consumers looking at my cash flow,
(13:08):
my what's my monthly payment? Right? And so I don't
think it's that advantageous for them now. Is fifty dollars
big for some consumers? It is for some consumers, it's
not right. So I think there's a little bit of that.
But we have seen a pick up. In matter of fact,
I've talked about that why courting. I listened to five
calls and two of those calls were refinances from another
institution and we had a better rate and it was
(13:29):
a meaningful difference for them, and we didn't advertise that.
They just on their own volition came to it, So
I think it's in their minds and so, but I
just don't I think the wave is kind of pushed
off because we're expecting more rate decreases this year. Now
it's two now, it could be more if we go
into recession. Who knows, but I but I know it's
on their minds just because of inflation and cash flow
(13:51):
and stuff like that. So, Londa, I don't know what
you're seeing.
Speaker 3 (13:52):
Yeah, Actually we joked about this at CBA because I
got my USAA auto loan reef I offer not too
far before, not too far in advance of the CBA,
being a USA member myself. But we do track for membership.
Speaker 4 (14:06):
By the way, you are very.
Speaker 3 (14:10):
But we do track and look at what we're seeing
happening and REFI, and yes, there's definitely REFI occurring. It's
not nearly as much as what it was when rates
were really low, you know, in twenty twenty and twenty
twenty one. But in what we're seeing as what you
just mentioned is you know a consumer who maybe booked
a seventy two month loan or you know, sixty five
on average, and then eighteen nineteen twenty months into the loan,
(14:34):
they're now refinancing again, So going from a seventy two
month loan to a sixty five but after already paying
you know, eighteen months and we are seeing in general
about a sixty six dollars payment savings, you know absolutely
it will have that consumer paying more over the overall
life of the loan. But again, if it's dropping that
payment sixty sixty to seventy dollars and they're able to
(14:58):
stay current on that loan, you know that that's definitely
a good thing. But obviously, yes, they're going to pay
more of the overall life alone. But if rates come down,
we do expect refin to pick up a lot more.
Speaker 4 (15:09):
And we do a lot of education to our members
on when is the right time for you, because you're right,
if you're twelve months in and you and you're you
do a sixty month loan, and you do another sixty
month loan and refinance, you'd essentially get to send me
two months, right, And so you got to look at
the total costs. So we try to educate them. But
I will tell you that a lot of just in general,
consumers are a lot of just manage their household cash
flow and when you know, we still of that inflation
(15:30):
we're dealing with, and then who knows you Like we
talked about terrorists what the impact might be on other
consumer goods out there right that may happen. So I
think it's I think it's on their minds and we're
seeing an uptick on it. Not the wave that we
thought it was going to be though, sure.
Speaker 2 (15:44):
But maybe maybe just more consumers instead of like people
being more advantageous about rates because there's not as much
margin there people who need the free cash flow and
maybe you're paying a little more long term, but are
making their day to day month months more affordable if
they're a little more Yeah.
Speaker 4 (16:01):
I also think too, it's a little bit of an
I don't know like ego things the right word, but
how people compare your Fyco score? I was planning golf,
get a couple of who my buddy goes. I know
you're packing. What's your Fyco score? I guess is my
higher than yours?
Speaker 1 (16:13):
Right?
Speaker 4 (16:13):
And I think people going what you get on your car?
Well I got nine percent? Well I got seven. You
know then you feel like, oh I got to go
out and get seven. Now you know what I mean,
so I think it's one of those things that's just like,
but I really think it's going to come down to
is it worth their time and effort to refinance and
is it going to make a difference. I think anything
where fifty dollars can be meanful for a lot of consumers. Yeah.
Speaker 3 (16:31):
Absolutely, It's funny we're talking about this. The score comparisons
totally isn't aside. At one of the conferences last week
at the evening reception, was hanging out with a couple
of clients and or just industry folks, and they said
the same thing. They sit there and compare their scores,
and they both whipped out the Experience app and were like, see,
see this is my score. Mine's better than yours.
Speaker 1 (16:52):
Yeah, that is funny, and it is. Everything's a little
bit gamified today.
Speaker 2 (16:57):
So well, you know, I know, like obviously there's a
lot more I mean, there's a you know, a pretty
solid trend for a while of people buying SUVs and
bigger SUVs, and even though they continued to go up
in price and many of them hit the one hundred
thousand dollars mark and more, you know, what are you
seeing on kind of trends and car buying behavior now
(17:20):
over the past year and you know into twenty twenty five,
particularly around like SUVs and then electric vehicles, which I know,
you know, depending on the manufacturer, have been have grown
at different rates. Like frankly, I had an Audi EV
for a few years and traded it on a kind
of went the opposite way. It went to a full
(17:42):
size Ford Bronco from an EV after a few years.
I could see using an EV in the future too,
but it really needed the suv space at the time.
So just are you seeing that any trends in buying
behavior there.
Speaker 3 (17:56):
It's it's definitely an suv market. When we look at
the kind of vehicles, especially on new cars well used
cars too, that consumers are purchasing. The majority of the
market's the suv over sixty percent of new vehicles or SUVs.
And it's not necessarily the luxury The biggest volume are
really the non luxury SUVs. It's the CRV, it's the
Raft four, you know, it's the Hyundais. So it's really
(18:19):
you know, that non luxury kind of small to mid
size suv that really dominates what drives the market. And
of course as new cars really switched over to SUV's
a handful of years ago. That's what the used cars
are too. Of course, on the U side, you know,
you've got a lot of the F one fifties, so
it's a lot of a lot of pickups and then
those SUVs. It's interesting on the EV front though, because
(18:42):
just as Mark was mentioning, kind of you know, a
ramp up of people rushing to the dealers to get
the car pre tariff, kind of the same thing I
believe is happening in the EV space about potentially you know,
losing the tax thread and the subsidies, because we saw
so far in Q one and EV's are almost ten
percent of new car purchases, and we ended last year
(19:07):
lower than that, like eight to nine percent. So we've
definitely seen a ramp up. And what was most notable was,
you know, last is leasing on EV. You know, last
year we ended you know, around forty percent of EV's released.
We're almost at sixty percent right now for Q one.
So I think there is that rush of people who
(19:27):
are in the market for an EV or interested in
getting an EV and getting it while they can still
take advantage of that least credit.
Speaker 4 (19:35):
I would say, that's a good point. I also think
getting back lou Itt to terraffs, I actually think EV's
will be impacted more because just because of terrifs in general, right,
and because we're the parts of manufacturers. But the prices
will even higher because the incentives are going away from
the federal government. Right. So I think the pain that
the price shock will be higher in the EV. So
(19:56):
who's to see what's going to happen there, but because
I think it's gonna hit EV's harder. On the suv,
we tracked just like everybody else. The number one of
truck finance f one fifty, that's our number one financed.
We're seeing that. I think that you've seen manufacturers are
dropping cars now. Passenger cars are going SUVs and trucks
and stuff. I think the same thing I just taught
(20:17):
about with the term and cars lasting longer, those SUVs
have gotten more economical because they're getting better gas miles day.
I remember back in the two thousand and early two thousand,
we had that recession when the card was asking and
set us to buy cars right there, pushing and the
suv sales went that. Yeah, remember that cash for colluctors
and then and then suv sales, I mean dropped off
the cliff because gas prices were like double and then
(20:40):
all of a sudden, gas prices went down and the
SUV's I mean, it was like, didn't you learn your lesson?
It's like, you're still going to have that issue. But
I think so, I don't think this is susceptible to
gas prices like it was before. And yeah, but but
yes they are expensive and so but I think also too,
those passenger cars, like those luxury cars, they're dropping their
entry levels now because they just want you're going to
(21:00):
get the fully loaded and the top of the line.
And so it's a little bit of a give and
take on that. But we are seeing, you know, the
more on the suv just because it's I think is
a more if you get a growing family, those types
of things.
Speaker 1 (21:11):
And once you get used to driving an suv, it's
very hard to go back to a sedan. I have found.
Speaker 2 (21:15):
So I've tried to do it now twice over and
over the past probably twenty years where I had an
suv for a period tried sedan, I've made it. I
think the longest was my My EV, My Out of EV,
which made it about two years. But I also work
from home, so I don't drive it a lot. And
we also had an SUV during that period that was
(21:36):
my husband.
Speaker 4 (21:36):
So no, and I'm the same way. I went from
the largest I had an expedition and it wasn't worried
about Gasmas for me, my choices. It was just too
big because kids were gone and they're they're they're on
their own now. So I went to Fort Bronco. It's smaller,
but it's still an suv, right.
Speaker 3 (21:50):
I wanted to space as really Yeah, because it fits
in my garage.
Speaker 1 (21:56):
Oh because yeah, I know.
Speaker 2 (21:57):
I I will say my Bronco takes up a lot
of space in the crash, So I have a.
Speaker 1 (22:02):
Pretty tall, big one and it fills fills the space
out there.
Speaker 4 (22:06):
Uh you know.
Speaker 3 (22:07):
But one thing I do want to bring up if
I can, So when we when we start talking about
how so much of the market is moved to SUVs,
you know that does have the definite spillover impact into
the used car market because one of the other trends
we're seeing that kind of ties to the affordability and
you know, the overall economics in the industry is because
more of the used inventory r SUVs. It is pushing
(22:30):
more consumers into older vehicles too, in order to get
to a more affordable payment. So you know, like nine
ten plus year old vehicles. You know, we're definitely seeing
an increased demand for that.
Speaker 4 (22:40):
And that used to be luxury, right, you see that
more in luxury if somebody got a nice antique mercee
or something like that. That's not the case today. It's
just it's affordability. And I'm gonna try to get SUV
and I have to go that back far in year
to get to fill my needs.
Speaker 2 (22:54):
Sure, And then you know, in switching back to electric
vehicles for a minute, maybe both mentioned the longevity of
the cars lasts longer, so potentially longer longer terms could
be could be in the horizon. But still I think
some concern with the EVS on battery life and then
what that means and the cost of replacing those batteries
(23:16):
if they if they die on the car. So you've
got less maintenance and regular maintenance. But but that's a
pretty big potential risk to to your electric vehicle. What
unique challenges do you see in auto financing around things
like residual values and and UH and the charging infrastructure
(23:36):
and lending for an electric vehicle.
Speaker 4 (23:39):
Well, let's yes, we don't lease, but I do know
that as a concern, I think it's keeping a lot
of buyers out of the market. On ev about Hey,
I got to really I got to put in four
thousand and five thousand charging in the microags right on
top of that, or I got to take it to
the grocery store and charge it up on your grocery
and w't get a full charge. Those type of things.
So most of it, I'll just tell you my experience.
(23:59):
My I circle closer. It's your third car, it's not
their primary car, or they're an urban dweller and they
live in where they have other modes of transportation to
get to the airport, you know, or that kind of thing,
or they But I just so I think that's still there,
and think about we talked about this at the CBA conference.
Was a lot of those buyers too. They are on
the sidelines. I live in an apartment complex and there's
(24:21):
nowhere to charge it, right, So it's just that. So
I think that once the infrastructure comes together, and I
think it's just I think it will naturally take off,
just like we went from horse and buggy to a
combustible engine. The government didn't mandate you had to get
off the worst and buggy to a car, right. And
I think that if the market force is right, supply
and demand, the right things come together, like infrastructure longer, charging,
(24:44):
you know, longer, I think, then the man will start
to pick up. Price points will come into play. I
think once that that starts to get worked out, the
market forces will work and I'll think we'll get some
type of equilibrium there.
Speaker 3 (24:55):
Yeah, And you know the point around residuals. You know,
there's a lot of questions around that with you know,
price drops that occurred among several manufacturers and what will
that used car value be when it comes back. And
I think that's also why we do see so much leasing.
I mean, like I said, when I'm looking at the
EV space right now, it's almost sixty percent leased, loans
(25:17):
on only a third and the rest of it's cash. So,
you know, I think leasing definitely has that comfort level
from a consumer standpoint in knowing that, hey, your lease
is up twenty four months from now, thirty six months
from now, you can you know, go and return it
and go back into another vehicle. So I think there
is definitely that comfort level. And one of the comments
that has come up over the last several conferences I've
(25:38):
been at, especially around EV, is you know, no single vehicle,
whether it's an ICE, an SUV, a Sedana convertible EV,
no single vehicle will be perfect for everybody, nor will
it meet you know, one hundred percent of your driving needs,
you know, so you find the one that fits the most.
And Mark's point frequently it's a second vehicle.
Speaker 4 (25:58):
I agree. I think the lease is attracted just because
of it's a payment issue, but I also think too
when we actually go and talk to our members and
ask them about their carbine experience, what they did and
what they end up doing, a lot of them I
choose the lease because I'm not sure if I want
to live with an EV for the you know, for
five years, I'll do it for two see that I
(26:19):
can make it work. So I think that's a big
part of the lease. In the sixty percent plus of
the market's leasing for EV, I think it's like I'm
not committed, right, So it's like I'm kind of partially dating,
right kind of thing. I don't keep my options, you know.
Speaker 2 (26:31):
So yeah, I made it two and a half years,
and I do believe I'll own an EV again. I
liked it, but again I'm that person. I live in
the suburbs, I have a garage. I have the charger
in my garage so I can plug it in when
I was home. If I go into our office, the
garage in our office has charge a road chargers. I
can charge it either place. And definitely more of a challenge.
(26:53):
I think the road trips and the infrastructure to get
from here to there and to not have to sit
and wait is certainly potential obstacle. And we were kind
of that bucket too, where you know, it was my car,
but we had a large SUV that we could also
drive that was more of our primary, primary family car.
But I am really hoping that the infrastructu improves because
(27:13):
I would love to have another one. And in the
middle of winter in Ohio, it's really nice to never
have to go to a gas station.
Speaker 4 (27:19):
Yes, it is, I would agree, Linn. I would add too,
I think, you know, for the consumers are, but they're
not there yet. A true plug in hybrid. I think
that which gave the option i'd go one hundred percent
electric or I can do get do that long trip
to see my family in two states over and not
have to worry about And as great as I'm all
electric and I'm going back and forth to work on
my daily chores, but when I want that line, I
(27:41):
want that true plug. But I mean that the longest
hybrid now is going like what forty miles on electric
and then has to go over to gas. And so
if that gets out to the two hundred three hundred
on a true hybrid plugin, I think that would generate demand.
I really do.
Speaker 3 (27:55):
Now.
Speaker 1 (27:55):
I think that's that would be a great, a great
new option to have.
Speaker 2 (27:59):
So you know, as you think about then, you know,
we talked a little bit about the tariffs and UH
supply and demand of what that may look like for
both new and used cars with rates you know coming
in during COVID, certainly a lot of supply chain chain
disruptions across every industry UH, and the price of used
cars UH spiked through the roof. You know, inventory levels
(28:23):
aren't necessarily fully back to normal.
Speaker 1 (28:24):
And then you know your comment.
Speaker 2 (28:26):
I think Mark was interesting about you know, Audi leaving
cars at the port in Maryland and not even moving
them UH to dealerships because they don't have buyers at
the moment. But how are you seeing that play out
with just the inventory? Uh, any supply chain disruptions you're
seeing because of the tariffs or or related to other
events going on globally, I.
Speaker 4 (28:46):
Think it's too soon. That's supply chain disruption. I heard
a couple of the auto analysts out there, you know,
on some of the on some of the business updates,
it's going to be six months until we start feeling
the impact. I think it's a longer than I thought.
It was. Four to six months, depends on the brand
to make four to six months, It depends on where
they're getting their parts from. But I just I think
(29:08):
it's going be six months. Hopefully we'll get this stuff
wrapped up before then so it doesn't make kind of
an issue. That's what I'm hoping over market. Yeah, and
I think there will be some short term things, but
not as I don't think it'll be as deep as
we thought it was going to be. But if we
blow through that six months, that's when I think we'll
start to see it could curb demand and pricing.
Speaker 2 (29:29):
Yeah, all right, well, I definitely appreciate you having it
on I think one last question that I'd like to
pose to each of you to kind of close this
out today. Forward looking, you know, obviously a lot of uncertainty,
lot of variability, things that are crapping up in every
area that maybe wasn't on the on the BINGO card
(29:51):
for twenty twenty five. But I like each of your
perspectives and what you see is maybe the top market
or regulatory shifts on the horizon that banks and lenders
should really be thinking about and tracking as they plan
their auto finance strategies for twenty twenty five or really
for the rest of twenty twenty five, since we're a
quarter in already.
Speaker 4 (30:12):
Yeah you, Linda, Yeah, I just.
Speaker 3 (30:16):
I think right now, like well, like we said earlier,
there's so much uncertainty that I don't think we can
anticipate or really know what we can expect to see.
I think people are just you know, from an mark
you can certainly speak better to this, but I think
lenders are just kind of putting more of the guardrails around,
keeping an eye on, you know, what are what are
the latest data trends, what's the latest information you're hearing
(30:37):
from dealers, what's the you know, the latest data points
that we're getting from the variety of data sources. But everyone,
I think wishes they had that crystal ball. But things
are changing so quickly and the forecasts are changing so
quickly that I think there's just really still a lot
of uncertainty as to exactly what we're going to be
seeing this year.
Speaker 4 (30:56):
Yeah, I'm and I'm less worried about regulatory and governmental
now with the administration we have. I mean, there are
things are thinker rolling back, so I'm less worried about that.
I'm more worried at the macro environment. I mean, it's
just the uncertainty there. I think that's more and what
the impact is. So we're we're putting together a playbook.
So if this were to happen, what's to happen? What
are the canary and the coal mine kind of metrics
(31:18):
we want to monitor, Like we start seeing even before
they walk into the dealership. Are they is the research
for what's my car worth? What's the new car going
to costly? Is that going down right or is it
going up? Is it staying flat? Before they hit the dealership,
we're talking to dealers, staying close to them, even though
we're a direct lender. What goes on there is really important.
They're part of our ecosystem and we're just trying and
(31:38):
then the health of that of that consumers that go
through there and they're making their payments, and so we are.
We've ready to tell lenders if advice is make sure
that you have the best experience, because the best. And
then if through the whole life cycle, through making it
loan service it alone, make it easy to change their
their due date, make it easy to change their payment amount,
whatever they want to change things. And then when you
have to collect them, when you make it easy to
(32:00):
get a hold of you so you can make arranges
to get them through that time. I'm more focused on
that than I but but I can't. You know, it's
like who what's going to happen. I'm more about macro
than I am about the internal stuff. We're just trying
to prepare our cells for which way what's going to happen,
and have scenarios for each one however it may play out.
And I think it's an accommodation all those things. I
(32:21):
don't think it's any one silver bullet.
Speaker 1 (32:23):
Yeah, control the things you can control and.
Speaker 4 (32:26):
Worry about that if you provide a great I mean
it's like I've always toe you when I used to
run collections, and I tell we want them to think
of us, to repay us. You're going to make it
easy and not make them feel embarrassed because it's a
normal event. Those things happen. They'll pay you before the
one that does the harder technique, right, I mean, just
we're all like they'll work with me. I'm willing to
work with you if you get that across. So prepare
(32:48):
yourselves those things you can control customer experience.
Speaker 2 (32:51):
Well, yes, definitely, Thank you, appreciate, appreciate both of you
for joining us today on the podcast.
Speaker 4 (32:58):
Thank you Lenn, Thank you Malinda Ba
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