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ConsumerFi Podcast: The 2020 Q2 Finance Market Report with Experian’s Melinda Zabritski

July 1, 2022



Melinda Zabritski, Experian’s Senior Director of Automotive Financial Solutions stops by to break down the essential 2020 Q2 Finance Market Report, including changing consumer tastes, the surprising reduction in subprime loan amounts and how COVID-19 and online dealerships have changed the market.


[0 4:29:22 AM] You’re listening to the consumer FY podcast powered by Northbridge loan software. That acceleration

[00:00:20] Joel Kennedy: welcome everybody to the consumer five podcast. I am really excited today. To have Melinda’s a Brisky. Who’s the senior director of automotive financial solutions at Experian with us today, Melinda, first off, welcome to the podcast. Great. Thank you, Joel. Pleasure to be here. So Melinda, that last time you and I saw each other was at the end of one of the, I think it was the, a conference in Las Vegas and I probably had about 15 minutes to get to my flight and I got caught up in a conversation and you were so kind to come over and tap me on the shoulder and say, Joel, Um, I think you better get outta here and you saved me.

[00:00:58] You did, you saved me [00:01:00] from, from missing my flight. Don’t have to worry about that these days. That’s right. You haven’t been on a plane in some time, right? Um, March was the last time I was on a flight and, um, unfortunately I did get sick right after that light actually just recently did an antibody test and apparently I’ve got traced antibodies.

[00:01:19] So, um, very likely that was my last flight was COVID related. Oh my goodness. Well, thank God that everything’s all good with you and yours. So before, before you took on the role of senior director with Experian, you, you held some other roles at Experian. I don’t know if people know much about that, but I think it’s interesting to get to know the background of folks.

[00:01:37] Can you tell us a little bit about some of the stuff you did with experience? Sure, absolutely. So I’ve actually been with experience about 16 years, um, about. I think the last 14 and a half within Experian automotive or automotive business unit. Uh, but my career beforehand was always more in product marketing and product development.

[00:01:55] And I had a history of, and always on the credit side, I’ve had a history of working with [00:02:00] products that. Um, give you insights into, into market share and analytics and what’s happening in specific industry. And I was managing a product that did exactly that, you know, gave auto lenders a view in their, their market share of the industry.

[00:02:15] And, uh, just with any other product, you’re always fighting for development resources. And if you couldn’t get something developed, I thought, well, if I can’t come out with the new enhancements, I’m going to think of all the different ways that I can market this product and keep it top of mind for folks.

[00:02:28] Okay. Well, I started going through and mining the data and coming up with snippets that I thought were interesting, interesting data points and started sharing that with our sales folks and saying, Hey, why don’t you go talk to your lenders and share them, Hey, you know, they can get these types of insights if they subscribed to the product.

[00:02:43] And it just took on a life of its own. And it started with. You know, doing, doing those regular snippets, which led to being asked to come out to clients, to do some custom presentations looking at their market. So then doing some generic presentations that we kicked off in, I want to say [00:03:00] 2007, where every quarter looking at what’s happening in the industry.

[00:03:03] And that just took on a life of its own. And it’s really grown from there. And then I’ve had a few stints moving into sales and consulting and, um, spent a lot of times with, you know, looking at the industry and helping. Um, helping clients really figure out how to navigate the current industry and what’s happening and what’s, what’s coming for tomorrow.

[00:03:23] I love it. I love being able to see the friendly face when I’m out there on the, at the conferences, uh, CU there’s other people, um, for folks that are unfamiliar and I doubt there are many. You know, Melinda is one of the sessions that everybody has to go to. There’s so many people that go to conferences and you can only send so many people right.

[00:03:42] From every company. And they’re like, we want you to bring back what, what the market’s doing, what our competitors are doing it and what the forecast looks like. So it’s, it’s just, anyway, I I’m, I’m super stoked to have you on the show. Um, So the report came out back. It was a Q2, a summary of 2020 [00:04:00] that you call it the finance market report.

[00:04:02] The first thing, and I want to dive in on this. The first thing is that consumer tastes seem to be changing. And this, this to me was really interesting. It made sense, but it kinda didn’t, um, I’m not going to steal your thunder. You tell us what those consumer tastes are. And then I want to ask some questions.

[00:04:18] You know, it was, it was very interesting. Uh, what happened in the second quarter? Because for the past two and a half, three years, the number one finance vehicle segment was the entry-level CUV. You know, that had been number one previously, we had seen, you know, the small economy car, you know, I’ve had pickup trucks, but the CUV had been reading the segment for, for a couple years and Q2 of this year.

[00:04:43] Really changed things. And there was a big shift to full-size pickup and that shift led to so many of the changes that we saw because people went from a CUV, which typically has an average loan amount of, you know, 25,000 to the [00:05:00] full-size pickup trucks, which have average loan amounts of 45,000. You know, it resulted in being.

[00:05:06] Uh, extreme record highs and loan amounts and growth in loan amounts that were significantly higher view of a year than what we had seen previously. Um, so it really changed a lot. But what was interesting though, is it seems so far to be. Really a, an empower result of the incentives that were around Q2 and really more of that COVID type response and reaction to the market.

[00:05:33] You know, there were heavy incentives in the second quarter and we saw more consumers move into new vehicles. You know, who previously would purchase used vehicles. They went, bought new. They bought these big trucks, finance, larger loan amounts for longer term. And then over the more recent last couple months, That shift is it’s changing yet again.

[00:05:52] So once again, that UV is back up there. So it seems to have been really more of a short-term response [00:06:00] to a lot of the incentives and the incentives did their job. They brought people to market and they did change what people bought move to the, to the, to the pickup trucks, the full-size pickup trucks.

[00:06:11] You know, in my brain, it’s not a very difficult story to, to put together to say, Oh, okay. So now I have nothing to do. And I’m going to just do all the stuff that I should have done and clear the brush in the back of my house and do all this other stuff in a pickup truck would really come in handy. I mean, is it really quite that simple?

[00:06:26] Do you know, have you, have you been able to dig into that at all as to what the driver was for that change in preference? Unfortunately, we’re looking at just the actual raw data, looking at the titles and what people purchase and how they purchase it. Um, not necessarily, unfortunately we can’t get into the, the survey of these tumors to ask them why does it purchase?

[00:06:45] Um, if we could, that would be fantastic. A lot of the anecdotal stuff we tend to get from the folks that work in the dealerships, which is, is, is very helpful. You know, the, the market players kind of shuffled around a bit as well. We saw some, [00:07:00] some segments grow and probably take some of the share of the others.

[00:07:03] I’m probably butchering how you would explain it. So I’ll, I’ll turn it over to you. What do you see in there in terms of who’s who’s kind of growing and who’s shrinking. In terms of issuers. Yeah. So, and there were some, there were some pretty big changes in, in Q2 as well. And, and again, a lot of that was Q2 was the first full quarter.

[00:07:22] And we look at the, I look at this information on a monthly basis, as well as a quarterly. We tend to only publish the quarterly reports. Um, but Q2 was the first rehab that full impact of COVID it also again with a very heavy accent. Sensitive time period. And with those incentives, you pull over those prime consumers who used to buy use.

[00:07:42] They take advantage of new, they have higher credit scores, and that share goes to the captive and the captive really gained market share considerably in the second quarter. We also saw a little bit of an uptick in finance company share. Uh, and mostly because when you look at the finance companies, they’re mostly, um, [00:08:00] doing loans for more subprime consumers time.

[00:08:04] You might’ve had some banks that might’ve pulled back a little bit from subprime, but the finance companies were still there and they were able to pick up some of that share. But yeah, the captives really did gain quite a bit of market share in the second quarter, but we did start seeing it again as the second quarter went over and we started rolling into early Q3 and we started to see those incentives drop back down again.

[00:08:24] The bank started picking up share, but from Q2 captives really did dominate. Hmm, let’s talk a little bit about some of the customer affordability. You know, we’ve, we’ve seen this being playing out for, for a long time and you’re, you’re in a great position to kind of inform us as to what you’ve been seeing with the extended loan terms.

[00:08:45] You saw the loan terms extending, but the coupons dropped as well. This focus on affordability. I view it as a positive, you know, how, how do, how are you kind of viewing this. Well, it’s definitely a positive from the standpoint that we [00:09:00] did see rape came down in a second, the quarter terms went up and I think the biggest reason terms went up and especially on the new vehicle side, new vehicle load saw a term go up again from a year, your standpoint at higher rates than we had in the past.

[00:09:14] You know, we went into, uh, you know, we wrapped up Q1 for example, than average new loan term of 69 months. Q2 average new loan term almost 72 months. So it did go up quite a bit at the same time. The right came down and it did help balance out and ended up with a result of monthly payment for new vehicle loans.

[00:09:35] Didn’t change that much. It was up year over year, but it didn’t change that much from Q1 to Q2 and the loan amount though did job, because again, you had consumers buying more pickup trucks. Thing is I was looking just comparing she’s single months. So comparing March to may, for example, you know, beginning of Q2 with part of the end of Q2 Q1, you had a [00:10:00] loan amount in, in March, for example, of 33,000 in may.

[00:10:05] You had an average new loan amount of 36,000, so big difference, but the payments stayed the same at five 65. Reese and why? Well, the term went up a couple months in the right. Came down, I think almost. Yeah, I think it was like 50 basis points. The rate came down. So essentially those consumers in may had the same monthly payment, but actually got a little bit more bang for their buck during that month, compared to those same consumers in March.

[00:10:28] So it was just that affordability aspect because without extending the loan term, that monthly payment and up, you know, looking like a mortgage. Yeah. It’s fascinating to me. And this is not to me. It’s hard for me to think about the competitive pressures that would force some of the lenders to behave this way.

[00:10:47] It seems to me to be, we are in a situation where there was a lot of forbearance. There was a lot of other things going on. It’s almost like the sanity kind of kicked in and it was, Hey, they’re, they’re buying these cars [00:11:00] based on the incentives that we’re giving, but let’s make sure that we do our part to make sure we’re, we’re putting a structure that has some better staying power into it.

[00:11:08] That’s, that’s kinda how I, how I was interpreting it. But. I just, I don’t know. I like to see the structure, the structure itself, I think has a lot to do. It is just my personal point of view. I think the structure has a lot to do, especially in the non-prime credits with, you know, putting the person in a winning position or maybe they might come back in a couple of months and say, shoot, you know what?

[00:11:28] I kind of signed a bad deal. And I’m not really as interested as staying on top of this as I was before. There again. Yeah. There’s so much structure involved. It’s one thing to just look at a single attribute and say, Oh, loan terms were up, but you know, you got to put all the pieces together. You know, you had also lenders saying more, um, more prudent with, you know, ensuring income.

[00:11:49] Um, we didn’t see that much change when it comes to loan to value. And actually we did see the LTV go [00:12:00] down. For the higher risk loan segment. So subprime deep subprime LTD is actually went down and I’m hearing anecdotally, you know, dealers are seeing, or having more of a need for, uh, for deep subprime for subprime consumers to put more money down, to get into that, into that deal.

[00:12:16] Uh, meanwhile, you’ve got the reverse happening though. More prime consumers. You actually saw, LTDs go up a little bit because with such low rate and the longer term wasn’t necessarily the need to put more money down and they could just, you know, catch up and say, you know, save a little bit money in their pocket, especially with the incentives, you know, kind of made sense.

[00:12:32] But we did start seeing, you know, the structures change a bit, especially the subprime you had, again, volumes were down for everybody. They were impacted more for subprime, but you did see those, the prime consumer, even though. No loan amounts grew for the entire, you know, the entire population. When you look at subprime and actually saw a reduction in loan amount.

[00:12:55] Uh, there was a reduction in loan amount. There was actually worked some of those, those higher risk [00:13:00] segments. There was an increase rate and you didn’t necessarily see term go up. So you did see a bit more strident loan structure around those higher risk segments. You guys also do. You do a fantastic job.

[00:13:13] I see you guys. It was probably all you, uh, Of breaking down also let’s drill down, you know, one level down into the new and used segments. So in the new space, um, you called out a couple of things that I thought were interesting. You have leases down coupons down and loan terms up. Whereas on the youth side, I saw loan amounts up higher tiers, feeling comfortable to move back to maybe some of the new, new, new, uh, collateral that may be settling in now.

[00:13:43] Terms still going up and rates down. I thought that was fantastic information to put in front. I mean, is there anything else that you would throw in to kind of dictate like. How the new and used markets are kind of moving well in the second quarter. What was interesting was, again, I think a lot of the [00:14:00] incentives and the programs that are running on the new car market, they, they changed some of the historical patterns that we had been seeing.

[00:14:09] We had been seeing more prime consumers purchase used vehicles, Q2. They shifted back into new that led to a much greater year over year increase in score again because they purchased new and they purchased bigger vehicles that also led to, you know, those loan amounts going up because we’re prime consumers that are to qualify for more the incentive rates overall that did drop that average rate down the used vehicle side wasn’t impacted as dramatically.

[00:14:38] We still had loan amounts go up, which has been a trend that has just been ongoing. I don’t expect that trend to really go away anytime soon. Um, and we did see term go up too, but the, the actual just year over year changes for used vehicles weren’t as dramatic, the credit scores were a little more stable.

[00:14:56] Um, we did see. Subprime though, reach [00:15:00] for both new use, just some record loads, but that also has been a trend we had been seeing, but definitely the impact on Q2 and in the more recent months has been a little bit more severe for volumes in those, those lower credit scoring segments. You know, the other slice you guys did, and this is toward the end of your report was about you.

[00:15:19] You guys, you guys direct just directly touched on, on COVID. And I think that was fantastic as well. Um, You know, many of the, so I interviewed as many, uh, leaders of auto finance businesses through the duration of COVID anybody I could get on the phone, I was just thirsty for any kind of anecdotal evidence.

[00:15:38] Um, a lot of them said they saw a big spike in April. Uh, in their volume for many of them, it was a record month in terms of new loan originations. Um, and we saw this in your data as well. Didn’t we, there, there were some big volume hips and you did see some resolution of, of very likely, you know, pent up demand.

[00:15:56] Um, so yeah, there was, there were, there were a lot of [00:16:00] changes that depending on the month, um, in there, there were shifts in, you know, which, which months were impacted more severely, you know, volume, definitely down. And, and you thought. You know, as, as may rolled around, you know, you started to see a little bit more recovery.

[00:16:15] And I think universally, when you’re looking at, you know, the volume impacts of COVID, you know, auto seems to be one of the industries that recovered a little faster. So, you know, if you were to try to draw some sort of correlation to, you know, the great recession. Auto rebounded pretty quickly from that, you know, we were severely impacted so about a year, year and a half, but we rebounded, we rebounded pretty fast.

[00:16:36] And I think the same can be said here where, you know, auto and mortgage kind of were leading the recovery volumes, you know, still impacted in the more recent months. You know, we’re starting to see the volumes, um, get closer to where they were last year, but definitely still thought, I mean, we’re new and used, um, used right now.

[00:16:54] I think in the most recent time period I have used is still monthly down about, you know, five, 8% [00:17:00] from a volume standpoint, new obviously still down, quite a bit. And there’s a change in composition of like the cash that people are bringing to the table. Right? So in Q1, you called out that there were a lot more cash deals.

[00:17:12] Q2 you’re flipping over to more finance deals. And then we saw a bit of a hit in leasing as well. Yeah, the lead thing hit really was more of an impact of, of store closures. You know, we certainly had some States where dealers just couldn’t operate at all. Others were, dealers could only operate service centers and other States, which of course were just wide, you know, dealers could operate.

[00:17:33] Uh, regardless of, of what they were doing. Um, so the leasing impact, there was more of a result of consumers. Not necessarily being able to get back to a dealership when their current lease was coming due, because the loyalty of lease to lease is so high. You know, you have so many consumers that just go straight into their neck leaks and they couldn’t do that because they just couldn’t get to a store.

[00:17:54] Uh, we did start seeing in the more recent months of, you know, July and August, we thing is back [00:18:00] up to around. You know, around 30% of what it’s finance now, volumes that are still down, but we’re starting to see as a percentage we think coming back around. Okay. Yeah. Cause that’s, and that leads us into, uh, you know, one of the closing questions, which is really for us to understand, you know, obviously I have two big questions for you and I’ll ask I’ll, I’ll ask them sequentially.

[00:18:24] The first one is of all these changes that you’ve seen in this report. Cause you’ve been doing this for a while. You have these, these very clear COVID impacts, right? That leasing is a perfect example. People just couldn’t get to the store to renew the lease. So it’s going to cause a little drop now that people can get back in, we’re seeing it level back up.

[00:18:44] Right. So that, that makes sense. Do you have any point of view as to what changes we’re going to expect to see as we move forward that are more structural? Versus just these temporary shocks because of COVID. Do you think, like, are there any things where you’re like, yeah, online buying a [00:19:00] vehicles, omni-channel all that stuff is just here to stay.

[00:19:03] We’re not going to walk back from that. You know, touchless delivery is probably going to continue. Like, what do you think is going to happen? Whether it’s in the data or just your gut. I’m really interested to hear what you think. I think a lot of those trends will, can school continue, especially the way that consumers are making their purchases.

[00:19:19] You know, the, the online shopping, the online purchases, you know, we were monitoring not only dealer sales activity itself, but also dealer online activity. And you might’ve had dealer sales down, but the actual internet purchases and the online traffic within the stores was up considerably. And not only up, you know, week over week, as people were starting to then transact online more and more, but from a year over year standpoint, I don’t expect those trends to go away anytime soon.

[00:19:49] Um, if anything, I think consumers have really embraced the shift to more online technology and become much more comfortable with doing things online, whether it’s. You [00:20:00] know, online virtual showroom visits, being able to then transmit in-person activities at the dealership, I think are going to start taking more of a back seat.

[00:20:11] And then of course, you’ve got some of the online retailers with the car delivery, you know, entities like Carvana, just blowing it out of the water as far as, as, um, you know, just, just revenue reports and, and, uh, and. And just reports from that standpoint. And so I, I think we’ll continue to see those types of activities.

[00:20:30] I, like I said, I don’t expect the online, online activity to go away anytime soon. Yeah. Again, for me, for me, how I interpreted this is fantastic for me, how I interpreted your report is this is a market that has a substantial amount of resiliency. Um, they’ve kind of hung in there. Some things have blipped.

[00:20:49] They’re kind of working their way back to the norm of what they were before, but at least what I’ve heard and what I’ve learned is the folks that already had those [00:21:00] digital engagement and omni-channel setups in place, whether it’s dealing with, you know, dealers helping get customers in a new vehicles or, you know, having customers be able to deal with their servicer.

[00:21:13] In the fashion that that is most effective and, you know, for them to kind of keep on and keep the communication open to me, it’s just something where it’s like, Hey, we were already going in that direction. This is something that might have pushed a couple of the little chickies out of the nest at the end of the day there to, to really engage in that type of commerce.

[00:21:31] Yeah. I definitely agree. Definitely seen her. We’ve definitely seen more dealers coming online, taking advantage of various online tools and really doing more analysis and more analytical people using more analytical tools to reach the customers and the prospects within their market, things that consumer or that dealers might not necessarily have been doing in the past.

[00:21:55] And also to your point, doing more analytics and reaching out to the consumer the way that they [00:22:00] want to be communicated to. You know, some consumers will still be those that want to come on the site and, you know, kick the tires. And then there’s increasingly the will of consumers that just want to transact online then on the tech pick up their car and, and just move on to the next thing in their lives.

[00:22:16] Yeah, I think that’s, that’s definitely the direction we’re going. And the, you know, if you look at the silver lining, I think that this whole event has kind of forced us to, to make some moves we’re planning to make, but maybe we were a little lazy and complacent or whatever, you know, and now we’re, now we’re doing it.

[00:22:31] Yeah, well, the industry changes every, you know, every year it just seems to change so dramatically. And you know, this year has, I think really forced the industry to take on challenges that we’ve just not faced before. I mean, I, I can’t think of any other time that dealers were forced to close. You know, it it’s, it’s unprecedented.

[00:22:52] We keep on looking back at trying to correlate. Well, can we. Can we correlate the code, that activity to the industry, to what happened in the great [00:23:00] recession and, you know, 2008, 2009. Well, you really can’t, you know, in those time periods, you had lenders who didn’t have fun to, to make learn, but the store’s broken and this was the exact opposite.

[00:23:13] You had lenders with bond with funds, but consumers couldn’t go transact. Um, so very different than Arias. And it’s really, I think, caused so many changes to the industry. Fantastic. Well, well, Linda, thank you so much for spending time with us today. You do fantastic work. You are a mainstay of the industry.

[00:23:30] I can’t wait to get back out and see you and all of my other colleagues and folks at the conferences. I know we’re going to be getting back out there again soon. Once again. Thanks Melinda. Zabriskie. She’s a senior director of automotive financial solutions with Experian, Melinda. Thank you so much. Thank you, Joel pleasure to be here.

[00:23:49] The consumer five podcast has been brought to you by Northbridge loan software. That accelerates change. We’d also like to thank the national automotive finance association, the only trade [00:24:00] association, exclusively serving the non-prime auto financing index.

[00:24:09] Yeah.

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