Major Lenders Getting Careful On Car Loans, Tesla Cuts Prices in China, Not-So Hole-In-One

October 24, 2022
We’re firing up the engines (and batteries) this Monday as we cover the shifting landscape with auto loans. We also talk about the reasoning behind Tesla’s price cuts in China, as well as a lucky swing that turned unlucky for one Ford store.
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The tides are shifting for major auto lenders as an increase in write-offs and pull back in originations are noted across the country.

  • Wells Fargo & Co. - higher loss rates for loans it originated late last year led to an increase in write-offs for the period
  • Tightened underwriting standards when they saw last year's originations starting to have problems. This led to a 40% drop in origination

Ally Financial Inc. saw charge-offs for retail auto loans quadruple in Q3

  • Said charge off rates could climb to 1.6% from current 1.05% although still below pre-pandemic levels
  • Fifth Third Bancorp said it’s pulling back on originations citing dropping used car prices and risk of being upside down
  • Chief Credit Officer, Richard Stein said Fifth Third is seeing more consumers -- subprime credit scores, outside the companies typical borrower, try to get concessions from lenders to keep vehicles

Tesla cuts prices by over 9% on some on Model Y and Model 3 vehicles in China citing falling material prices and overcoming recent production glitches

  • Model Y now costs the equivalent of $39,880, down from about $43,750, while the long-range version has an even bigger discount. A standard Model 3 fetches about $36,710, down by about $1,930 bringing levels closer to what they were in March
  • This announcement came a day after CEO, Elon Musk warned of a “brutal recession” an an earnings call
  • Competition in the Chinese market is much hotter than it is in the US market where Tesla still holds a commanding lead in EV deliveries

A Ford dealer in Arkansas is in a legal battle with a consumer who sunk a hole-in-one at a golf tournament for, he thought, a brand new F150

  • Austin Clagett stood in front of the $53k pickup for a photo after sinking his hole-in-one on Oct. 8 at Morrilton Country Club
  • On its Facebook page, the Dealership said that it provided the truck "for display/advertising purposes only" because it didn't have enough lead time to obtain insurance for a giveaway. "Without our knowledge," the store wrote, "Morrilton Country Club promoted that this new truck would be available as a winning prize at the event despite our agreement that it would be for display purposes only."
  • Screenshots show the Country Club posted the contest and the Dealership liked the post which has since been deleted
  • Autoblog reported that Norwood provided video of a club employee calling Jay Hodge Ford after Clagett's hole-in-one. "Oh, don't tell me," a dealership worker said, and the club employee responded, "Unfortunately, it happened."
  • “Price indemnity insurance” and costs between 3-15% of the item based on the probability of a win
  • Pro Golfer 1 in 3k, Amaeur with -1 Handicap 1

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Kyle Mountsier, Paul Daly

Paul Daly  00:21

Yo, I don't know if you realize this, but the Phillies may be the world's major auto lenders with turning tides in auto loans because of a little bit of chargebacks. What do they do different things in the main

Kyle Mountsier  00:38

article? We'll talk about that in a second. You got you got charge offs, and then you got right x. And then you got cutbacks, and all of those things are real things. And they all have to do with like, you know, lending in the economy. So

Paul Daly  00:54

hey, go, it's been a good show. I hope you learned what you need to learn today.

Kyle Mountsier  00:58

You got all the words. You don't really know what they mean yet, though. But you know, if you're around, you can Google that. Hey,

Paul Daly  01:05

I hope you all had we both hope you all had a great Saturday of sales. You still have one left if you didn't realize lievable because it's a five Saturday month, Paul? Well, we mentioned that yet this year, there's no connection that they have coming off a beautiful weekend for most of the country. I think a lot of people to spend a lot of time outside, frankly, so nice. So nice here and we did I was like, Is this what it's like in Nashville in the fall? Because it was like, you know, 70 and sunny and gorgeous.

Kyle Mountsier  01:32

Actually, a national has been so temperamental this fall. It's been really annoying, like some days will be colder than Syracuse, and some days it'll be like,

Paul Daly  01:41

well, so. My name is

Kyle Mountsier  01:43

Brian Reese out today. Like that's not fall. That's that's early summer.

Paul Daly  01:48

That's when you're like, is this what falls like in Florida? Like right? Something like that? Okay, okay. Okay. A lot of good real quick.

Kyle Mountsier  01:55

I got two records to set straight just real quick. This is a little bit a little aside. first record, we dropped this thing live in Nashville, we put a little post out on on the LinkedIn and everybody was like, DM, DM, DM DM the, we're not sharing yet. We're not sharing yet.

Paul Daly  02:10

Stop DM me, we're not gonna tell

Kyle Mountsier  02:12

you. But I will. I will say there have been a couple of people that have already been like, my flights. I'm like, wow, we tell you what we're doing yet. So that's number one. Second is I posted on LinkedIn this morning, and I wore this shirt. You see it real quick, Paul,

Paul Daly  02:27

no crisis can win shirt for those on the podcast. Because here's the thing.

Kyle Mountsier  02:31

And as we get into this show, there's gonna be there's like a little bit of crisis, just as we get into it. There's this like,

Paul Daly  02:39

potential crisis, there's an undertone.

Kyle Mountsier  02:40

And I just want to say, no crisis can win. No matter what the news or whatever we're talking about, or what anything is talking about, like you can double down no crisis can when that happens with COVID or chip shortage or inventory shortage or potential recession or potential changing and lending. It doesn't have to change the way your business has the capacity to succeed. So don't miss that as we get started today. Sorry, let's roll those things. That's a

Paul Daly  03:06

that's a great level set. Because it really is the DNA of the auto dealership world. Yes. Whatever. Okay, we got it. We got it. Now, because that's so funny brought that thing up in Nashville. All right, let's talk about the first story. That is not a crisis that we can't beat. The tides are shifting for major auto lenders as an increase in write offs and a pullback in originations are noted across the country from some major lenders, Wells Fargo, said they've seen higher loss rates for loans that originated last year, right? So those are now like 12 months old. And it led to an increase in loans that they've written off, meaning that they're just going to consider it bad debt, right? It's not going to be paid back. What they've done actually is tighten their underwriting standards when they saw the origination from last year starting to show problems. And that actually led to at the data shows about a 40% drop in the amount of loans they are giving out. So the amount of origination that's Wells Fargo, Ally financial, they saw Now they call it charge offs. It's the same thing I think, for retail auto loans that are quadruple in quarter three what they were last year, they said they could they've climbed from 1.05% to 1.6%. Although still they are below what they were important point, pre pandemic, right. So we know we went through the pandemic era everything was the kind of but it's good to metric these things and hey, what was it like before we went into all the madness, so we're still below those levels. Finally, the third bank covered in the automotive news articles. His Fifth Third Bancorp said it's pulling back on origination citing dropping used car prices and the risk of being upside down. Chief Credit Officer Richard Stein said Fifth Third is seeing more consumers subprime credit scores. Outside the company's typical borrow, they're trying to get concessions from lenders. So they went into the subprime market more than they usually did. And now they're seeing those loan charge offs increasing and but what they are saying is Is that a lot of people are reaching out trying to still work with the lenders. So, hey,

Kyle Mountsier  05:04

let me let me real quick, just just just a little bit of like education here originally loan origination new loans being set out. So thank you. If if Wells Fargo is having a 40% drop in origination, it means they're giving out 40% less in overall loans. Second write offs. This means that the interest charged is lower than the interest rate that the bank is lending on or that they are gaining based on the investments of the the the lending that they're doing, which means they're having to write off on a quarterly basis, those losses. So you see a lot of this in like inventory and things like that, when you're writing down or writing off those losses, to accrue for losses, instead of just assuming losses. That's what's happening there charge offs, meaning, literally like things like vehicles being returned, or vehicles being brought back loans being charged off, gone, especially things like loan origination being charged off within a month or two for loan default payments. So when you think about 1.05 to 1.6, that's a doubling in the amount of people that are not even getting into their loan because of an incapacity to be able to make those payments. So that's kind of like that.

Paul Daly  06:15

I feel like we did infographics. We did an infographic that needed

Kyle Mountsier  06:19

to be like step one, step two, step three, and get your free white paper.

Paul Daly  06:25

Yes, we got to call our friends and allies. See if they're up for a little education, education, hey, here's here's how I process this from like, okay, consumers are showing up in your f&i office or in your software, and they're either getting something that's declined, or they're having a subprime conversation, or it's just not working, you are going to need to find a way to number one, put them in the right vehicle to begin with more than you usually would, right, because people were lending pretty freely. Right. And those early conversations are going to be the thing that serves your customers and you best in this scenario. I mean, that's just one point that came to mind. Right, I think of the human element, and the amount of conversations that have to happen, which the second you start to have those conversations, you're on your heels, everybody is Yep.

Kyle Mountsier  07:09

Well, and like I think a lot of consumers even don't have this recognition of the way interest rates have gone like they've heard like, interest rate hikes, right? But not really understanding what that how that impacts like the payment they were looking at, because you think about typical purchasing timelines are like 60 to 90 days. So if someone started their search 90 days ago, and was looking at interest rates at that hill, assuming a payment based on a vehicle value at that point, like you're gonna have a that's gonna be a rude awakening when you get time to pencil those payments out.

Paul Daly  07:40

Yeah, no kidding. No kidding. So something to be aware of. If you're at the f&i desk, you already were aware of this, but I think broadly speaking, understanding that this is just a new dynamic that is, is in the field of play now, right? This is a substantial thing. This isn't maybe going to be a thing, this is a thing, it's going to continue to be a thing. As you know, things get cut back. Speaking of cutting things back segue. So Tesla's cutting prices by over 9% on some model Y and model threes in China, citing falling material prices and overcoming some recent production glitches, the model Y now has gone back under $40,000. So it's 39, eight down from 43. Seven, with the long ring with the long range version, at even a bigger discount. They said standard model three is down the 36 seven. So it's also down from just under 40,000. So the announcement came a day after CEO Elon Musk warned of a brutal recession in the earnings call competition in the Chinese market is obviously much hotter than it is in the US where Tesla still dominates the Evie market. But in China, and China, man the walls are closing

Kyle Mountsier  08:48

in are there there are some walls closing in for sure. Yep.

Paul Daly  08:52

Yeah. And so when when he's asked whether or not

Kyle Mountsier  08:55

okay, I finished that.

Paul Daly  08:58

When they asked whether or not Tesla was going to be adjusting prices globally, Mr. Musk said the only company was only watching its cost closely and lithium prices remained quote, crazy expensive. There, you can quote now

Kyle Mountsier  09:13

here's, here's, here's what I got. I just kind of throw this out there. I just gotta throw this out there. So you remember back when we had a whole bunch of inventory on ground and we needed to sell that inventory? I was an OEM was like, Yeah, we should reduce these prices to get this inventory. You know what they call it? You know, they caught it. They caught it. Telling me is the price change is a rebate. But we're not really saying that it would never, ever never say it that ever, ever rebate that

Paul Daly  09:47

they're, you know what this is? It's kind of strange because what this does is introduce a market volatility, adjustments into pricing into pricing, and I almost feel like from a manufacturer standpoint. Actually, I don't know, the reason to give. The reason you give a rebate is to keep your established price where it's at. Right? We

Kyle Mountsier  10:08

can do that you can incentivize all of the on ground inventory and you can't change the the actual sticker of a vehicle and so he will have a sticker. So yeah, so you gotta go put these. Yeah, it's really interesting.

Paul Daly  10:22

I don't have a sticker, right. It just changed it online like,

Kyle Mountsier  10:26

well, they have an MSRP. They have to have a sticker on the cars. They have to be delivered with a Maroney label.

Paul Daly  10:31

Yeah, but it doesn't have to be delivered until it's sold. Like no one's gonna see the sticker and

Kyle Mountsier  10:35

they have on ground inventory. They have inventory that is shipped in and has a Maroney label, oh, the hazard label. And if you go change all the Maroney labels, right, you get to know detail out there with a little scrape to spray some water and stick it back on up there. Right. I mean, we've done that before in the industry. But yeah, it's just kind of interesting how now you can see that new cars might have the potential to like have shifts in pricing, not just up but down and not be labeled a rebate. This is just a new market dynamic that we haven't dealt with in the past.

Paul Daly  11:07

It's interesting. Hey, do you know it's a little little fun fact for my detailer past?

Kyle Mountsier  11:12

We got? Did you notice?

Paul Daly  11:13

Did you know what the first name of the first company that offered the Monroney label service to to auto dealers where you know what it's called? It's great. It's probably something like stickers for you or something silly. No. Rolling Monroney rolling Monroney sounds like a food truck. Food Truck right rolling

Kyle Mountsier  11:35


Paul Daly  11:42

it's like a sub sandwiches only in Detroit right rolling Monroney

Kyle Mountsier  11:48

if someone doesn't do that right now, I'm mad. I'm so some dealer in Detroit News ever rolling Monroney food truck out on the line today.

Paul Daly  11:57

Oh man, I don't know where to go with that one for this. Week. I'm having fun all right. You want to drop this one because this is the one that's gonna leave you smiling and then awkward at the same time.

Kyle Mountsier  12:12

A Ford dealer in Arkansas is in a legal battle. Yes, a legal battle with a consumer who sunk a hole in one and a golf tournament for what the consumer thought a brand new F 150. The story goes like this A $53,000 f150 is sitting outside of a hole at the Morrison at the morrilton Country Club. And it's interesting because what happened was the dealership has said they said that they could have the car out there for display purposes only. But the country club for their fundraiser throughout Hey, we're doing this for a hole in one competition. So they got their you know, their wires crossed just a little bit. Screenshots actually showed that the country club posted the contest and the dealership liked the post which has since been deleted naturally. What's funny, okay, okay, okay, you know that the social media person who's just liking anything that comes through thing, right? I mean, but now you got to think you got what every interaction at your company has has something going on. And hey, screenshots are forever even if you can edit tweets. Autoblog reported that the Norwood that Norwood provided a video of the club employee calling J. Hodge Ford after Clagett holding one. Oh, don't tell me a dealership worker said and ignore Norwood, by the way is the guy who hit the hole in one, right? And the club employee responded. Unfortunately, it happened.

Paul Daly  13:32

So all right, so what what this means is, this is probably what happened. Hey, we're gonna do a truck. Right? We're gonna do a truck. It's gonna be a hole in one thing, no one's ever gonna win it, right? We didn't get the insurance. So if you don't know, whenever there's a sweepstakes, the company doesn't actually commit to giving away there's something called price indemnity insurance, which is like if I want to give away a truck, I buy this insurance that based on the probability of it actually happening and the rules of the contest, you pay just a fraction of the cost and if someone wins it the insurance actually pays for the vehicle. Well, apparently that was not in place. And so everybody's kind of in this backpedaling mode, right of like, and just imagine that, like, I don't want to I don't want to I don't want to speculate but I'm going to the chances of this happening were so low if you couldn't get in place you might be like, Yeah, I won't risk it. No, no, no,

Kyle Mountsier  14:25

you you you put it in place every time I've done this before you put it in place. No, no, no,

Paul Daly  14:31

I think I think it was in motion. I just don't think it ever like got through to completion. So I guess

Kyle Mountsier  14:36

you have to literally the Country Club has to write the contract with the insurance on it like it's it's it's

Paul Daly  14:45

tracked. I think if there's a contract it probably would have been produced at this point. I'm thinking it was probably like out let's just do the thing. Got to do the thing. This tape paperwork, this wouldn't even be an order.

Kyle Mountsier  14:59

It doesn't even matter because I don't care if I'm a dealership This is the best $53,000 in marketing spend that I could potentially have. Because I'm gonna slap this on everything I'm gonna write a story about it I'm gonna do a video on putting this guy all over social you literally showroom the whole nine yards and it's gonna be a well worth it spend especially at this point because you my man is not happy, you know? And

Paul Daly  15:24

look, you know what happens when the public opinion is going to shift behind this guy like it's going to happen. He's getting a truck, like I'm just telling right now he's getting a truck. The insurance on this, you don't have of course I had to look it up. It's usually between three and 15% of the cost of vehicle based on the probability here's the probability right? A pro golfer has a one in 3000 chance of making a hole in one on a course. Someone with a one negative one handicap has a one in 5000 chance a novice like Kyle has a one and 12,000 chance and someone like me can't even reach the hole if I launched it out of a cannon so as a 0% chance so I don't know I was trying to think of like how would I How would I fix this? I think like a middle ground is like let's give this guy a lease for like three years. Let's say probably probably the way to get out of it right? That's good doesn't cost you 53,000 He's gonna be happy. photo ops are the key like you know when solutions something messed up, but we can fix it and then I would follow Kyle's prescription for you put this sucker everywhere all the time make him an unbelievable hero. And then you know there's probably some Happy Gilmore things we could do have a little driving contest to the next thing it's over Yep. Because like we said in the beginning don't crisis kid when Kyle no give the guy a no crisis can win t shirt for give

Kyle Mountsier  16:42

him a shirt. Give him a love people more than you love cars shirt. Let's go

Paul Daly  16:47

what we can love you more than you love cars shirt while you're giving him a no crisis can win shirt and everybody wins. We help you go out there and win money because we got another Saturday coming and this week is just getting started.

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