2016 AUTO FINANCING MARKET OVERVIEW Presentation_Roger_Mitc… · Auto loans in Alberta are larger than the rest of Canada at each score band and have a riskier credit mix at originations

2016 AUTO FINANCING MARKET OVERVIEW

Equifax Canada Automotive

Roger Mitchell, BA, MA, MBA

Director, Financial Institutions and Commercial

September 22nd, 20162016 CFLA Annual Conference

1

Today’s Agenda

Overall Consumer Credit Picture

Overall Auto Trends

Delinquency Comparison

2

As of Q2-2016, Canadian consumer debt totals $1.67 Trillion, much of which is Mortgage debt.

Source: Equifax Database

$ 1,110B

$251B

$149B

$86B$64B

1

2

3

Robust growth in Auto lending

Key Observations of the

Quarter

Composition of Canadian

Consumer Debt

Credit Product YoY

Installment Loans

7.8%*

Mortgage 7.6%

Captive Auto 7.6%

Credit Cards 4.0%

Revolving Loans 0.5%

*Numbers reflect balance growth and new data reporters

Credit

PictureAuto Trends Delinquency Remarks1 2 3 4

Consumer delinquency is on the rise

• Oil Patch Province delinquency is a concern

Average consumer debt rose by 3.7% YoY

(non-mortgage credit)

• Total Non-Mortgage Debt is ~$550B

• Installment Loan Debt is $149B

• Auto Loan Debt is $64B

3

Mortgage

Revolving

Loans

Installment

Loans

Credit Cards Captive Auto

Overview of the Auto Financing Industry.

Credit

Picture

Auto

TrendsDelinquency Remarks1 2 3 4

66%

15%

32%

Q2-2009 Q2-2013 Q2-2016

Auto delinquency is low

4

Strong growth in auto lendingMarket Share is relatively stable

Banks60%

Captives40%

Indirect auto loans via banks dominate

the auto financing market

Leasing is coming back

Leases represents almost 1/3 of total

Auto debt

Auto financing accounts for roughly 13%

of all consumer debt

3 years

Bank or Captive lending have led the

way in terms of consumer non-mortgage

credit growth since 2013.

90 day delinquency figures shown

89 bps 71bps

Installment

Loan

Captive

Auto

Current economic conditions continue to support auto sales.

Consumer Affordability

Interest Rate %

Longer Terms

Avg. Age of Vehicles Avg. Canadian Home Prices

Pent-up Demand2Favorable Consumer

Credit Conditions1

Ascension of the

housing market3

Soaring

Housing

Prices

Purchase decisions

delayed by recession

Low monthly payments.

Consumers can buy

more cars

72Months+

2009 2016

Greater household

wealth

Source: DesRosiers Automotive Consultants Source: Equifax DatabaseSource: Equifax Database

9.3Years

$480K$320K

5Credit

Picture

Auto


Structure of the Canadian Light

Vehicle Retail Finance Market

New & Used Vehicles

The role of cash has diminished and auto financing has significantly increased allowing consumers to buy more car.

6

28% 26%

13%

18%

7%

12%

54%

68%75%

2006 2011 2016

73%69% 67%

63%

27%31% 33%

37%

Q2-2010 Q2-2012 Q2-2014 Q2-2016

Source: DesRosiers Automotive Consultants Source: Equifax Database

Average Amount Financed

New & Used Vehicles

Lease

Loan

Cash

-2% -13%

Over $30,000

Under $30,000

Credit

Picture

Auto


Year-to-date, Auto sales are up 4.7% when compared to the same time last year, however…

1,461

1,557 1,586

1,6761,745

1,8571,899

F2009 F2010 F2011 F2012 F2013 F2014 F2015

Canadian light vehicle sales confirm that the Canadian

auto market has been booming …

…to date, based on sales figures, 2016 will be another

record year for auto sales.

861

935 9491,013

1,0441,086 1,111

1,163

2009 2010 2011 2012 2013 2014 2015 2016

Numbers in 000’s

YTD Auto Sales

Source: DesRosiers Automotive

Consultants, August 2016 Sales

Historical Annualized Sales

Numbers in 000’s

2015 Sales

Record

7Credit

Picture

Auto


...concerns within the Oil Patch and consumer indebtedness may limit growth moving forward.

Province Average DebtYoY Delinquency Rate

Change

Alberta $27,753 40.3%

Saskatchewan $24,276 22.7%

Newfoundland $23,074 19.4%

Manitoba $18,193 12.9%

Prince Edward Island $21,822 5.4%

Nova Scotia $21,963 2.0%

New Brunswick $22,542 -1.6%

British Columbia $23,538 -3.3%

Quebec $18,489 -3.3%

Ontario $21,570 -3.9%

Canada $21,878 4.1%

Oil Patch

Provinces

On average, Alberta holds the most average debt when compared to other Canadian

provinces and even more alarming is the Year-over-Year change in delinquency.

Source: Equifax Database8Credit

Picture

Auto


Auto related inquiries have slowed but remain strong in the most recent quarter.

23% 25% 27%

12% 13% 13%

18%19% 19%

19%18% 18%

17% 15% 14%

201006 201306 201606

1,159

1,272

1,305

Q2-2014 Q2-2015 Q2-2016

Total Auto Inquiries

Q2-2016

Auto Inquiries by Risk Score Band

Q2-2016

+10%

+3%

While YoY inquiry growth is up, it has slowed

when compared to last year…

…but the majority of consumer inquiries still

come from the Subprime or below segments.

Subprime

Deep Subprime

Super Prime

Prime

Near Prime

37% 40%

Source: Equifax Database9Credit

Picture

Auto


Auto loans in Alberta are larger than the rest of Canada at each score band and have a riskier credit mix at originations.

New Auto Loan Average Financed

Amount by Score BandQ2-2016

New Auto Loan Origination Mix

by Score BandQ2-2016

3% 6%5%

8%

17%

23%

36%

36%

39%

28%

National View Alberta

+12%

-11%

Subprime

Deep Subprime

Super Prime

Prime

Near Prime

$17,312 $20,726

$21,876$27,476

$25,651

$31,929

$27,361

$33,069

$28,584

$34,817


The originations mix for National auto loans

are of higher quality when compared to

Alberta auto loans.

While on average, Alberta auto loans are

$5,500 higher than the National View.

+21%

+21%

+24%

+26%

+20%

10

Subprime

Deep Subprime

Super Prime

Prime

Near Prime

Source: Equifax DatabaseCredit

Picture

Auto


There are key differences in the “buying mix” in Alberta vs. the Rest of the Country.



by Loan/ LeaseQ2-2016


by AgeQ2-2016

26%36%

24%

27%

24%

21%

17%

11%

10%4%


34%

16%

66%

84%


$26,014 $30,960

$27,168

$31,473


New Auto Loan Average

Financed Amount

By Loan/ LeaseQ2-2016

+10%

-12%

<35

36-45

46-55

56-65

>65

+18%+16%

In Alberta, new auto loan

originations skew towards

millennials…

…who tend to prefer to

finance their vehicles rather

than lease…

…on more expensive

vehicles when compared to

the rest of the country.

Lease

Loan

Lease

Loan

+20%

11

-22%

Credit

Picture

Auto


Auto delinquency is among the lowest when compared to other credit products.

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2010 2011 2012 2013 2014 2015 2016

Installment Revolving Credit Cards Auto Mortgage


Product Level Delinquency Trends

90+ DPD rates

Key Observations

• As of Q2-2016, overall consumer delinquency was

1.14%

• Mortgage debt is the largest form of consumer debt

and the associated delinquency is roughly 22bps.

• Equifax is starting to see real regional differences as

it relates to delinquencies specific to the Oil Patch,

Alberta, Saskatchewan and Newfoundland (the

largest increases coming for Alberta)

• Auto delinquency has been relatively stable

throughout the observed time period (around 1%)

• Although, auto delinquency within Captives have

begun to increase since Q2-2013

12Credit

PictureAuto Trends Delinquency Remarks1 2 3 4 Source: Equifax Database

Delinquency in Alberta had outpaced the rest of Canada as stagnation in oil prices continue to affect the labour market…

1.11%1.09%

1.14%

Q2-2014 Q2-2015 Q2-2016

0.89%

0.99%

1.39%

Q2-2014 Q2-2015 Q2-2016

National Viewpoint90+ Delinquency (excl. Mortgage)

Q2-2016

Province of Alberta 90+ Delinquency (excl. Mortgage)

Q2-2016

Overall National delinquency is now at

1.14% as of Q2-2016, which represents

about a 5% YoY increase.

Alberta related delinquencies rose 40% from

Q2-2015 levels which is significantly higher

than the national average.

+5%

+40%

Credit

PictureAuto Trends Delinquency Remarks1 2 3 4 13 Source: Equifax Database

Delinquency in Alberta rose across all products, with 30% rise in Auto being the lowest increase while the rest of Canada increased 4.4%.

On a National basis, Installment and Auto

loan related delinquency were up 6.4% and

4.4% respectively.

Alberta is the only province to display double

digit delinquency growth across all credit

products.

Province of Alberta 90+ Delinquency (excl. Mortgage) Year-over-Year

Q2-2016

National Viewpoint90+ Delinquency (excl. Mortgage) Year-over-Year

Q2-2016

6.4%

-2.1%

5.0% 4.4%

InstallmentLoans

RevolvingLoans

Credit Cards Auto

47.7%

37.1%

42.6%

30.3%

InstallmentLoans

RevolvingLoans

Credit Cards Auto

Credit

PictureAuto Trends Delinquency Remarks1 2 3 4 14 Source: Equifax Database

Alarmist no, realist yes.

Credit

PictureAuto Trends Delinquency Remarks1 2 3 4

Previous supportive factors may

impede future growth

• Subprime growth may translate into

higher incidents of delinquency

• Favourable consumer credit conditions

may promote longer terms and hence

negative equity consequences

Themes of the Presentation

Auto lending growth will lead all

forms of credits in 2016

• Strong auto sales have been

accompanied by strong auto lending

partial due to favourable consumer credit

conditions

Commodity dependent provinces

are driving increased delinquency

• The combination of higher debt levels,

increasing unemployment and the large

proportion of debt within the non-prime

segment represent potential future risk

Strong auto lending growth to date has not materially resulted in delinquency but mild

delinquency changes in Alberta is concerning. Riskier loan characteristics and higher LTV

should be proactively monitored.

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Documents

2016 AUTO FINANCING MARKET OVERVIEW Presentation_Roger_Mitc… · Auto loans in Alberta are larger than the rest of Canada at each score band and have a riskier credit mix at originations