Can you give an overview of Huntington’s Vehicle Finance Group?
Huntington offers bank financing or indirect lending in the vehicle finance space, auto being a part of it. We have been committed to the auto finance business for over 75 years and have provided over US$13 billion in loans to commercial dealers to provide them financing for their inventory, real estate, etc., and we also have a significant portfolio for lending to consumers through dealers in the auto finance space. Huntington is funding auto loans in 33 states today, and we have been reported to be the ninth-largest auto loan lender bank in the US.
Can you speak to the current context in vehicle finance and how it has evolved over the years?
Overall, in the prime and super prime space we play in, the market has been quite steady and rational and all the lenders’ books and portfolios are performing well. We have seen delinquencies and net charge-offs increase with the Q1 results of 2023, but to level-set, 2021 and 2022 were some of the best years we have seen in the space based on how consumers and ultimately lenders performed. Huntington is comparing the performance of our portfolio to that of 2019 as that is a good state to level-set. While our delinquencies continue to normalize, our net charge-offs year-to-date are still less than half of what they were in 2019. Our consumers are positioned well, which is why I believe the competitive nature in the markets in the prime and super prime space and there are great opportunities for consumers to still purchase.
From an OEM perspective, inventory levels are increasing with anything from 20% to 70%, which is increasing incentive spend. In April 2023, incentive spending was approximately US$1,600 compared to US$900 a year ago, which is ultimately better for the consumer. The credit markets, at least in the prime and super prime space, are very open for consumers to finance and purchase.
How will new technologies and dynamics in the automotive sector affect Huntington’s business?
New technologies, whether electric or hydrogen, do not change how we finance vehicles. It could change the risk profile which is important to how we manage values, but what the vehicle is at the end of the day does not change.
What differentiates Huntington from its competitors?
What sets Huntington apart from other lenders is consistency. We have been committed to the business for 75 years and consistency has allowed us to innovate for dealers and consumers. We have focused our innovation on finding ways to take the friction out of the buying and financing process. For example, when consumers make a purchase, they want to get in and out of a dealership as fast as possible with as little friction as possible. We have focused our innovation on providing fast decisions, offering multiple options when we decide a contract, and then allowing customers to sign contracts digitally.
Before the pandemic, less than 15% of our total contracts were signed digitally, but today, over 60% are signed digitally.
Historically, when a consumer finances a vehicle at a dealership, they sign their paperwork, a week later we fund their contract to the dealer and the consumer then gets a payment book. We have innovated for the consumer where we ask the consumer at the funding stage how they would want to interact with us – do they want a payment book, do they want to go completely paperless, do they want electronic notices, do they want as few or as many notices as possible. We believe this is a game changer for our consumers as we put the consumer in the driver's seat, not only of the vehicle but for the financing process as well.
How do you approach risk management in this process?
Huntington is a prime and super prime lender focused on credit quality. We have a multi-dimensional system that focuses on all the metrics important from a credit point of view, and this allows us to be extremely fast when we get an application. This system allows us to continue to innovate as market conditions change and take the friction out of the process to be fast in the decisioning.
What are Huntington’s main objectives for the coming years?
Huntington will continue to innovate to make the vehicle financing process as seamless as possible. We are in an industry where delinquencies are rising, we are in a rising rate environment, and there are headwinds for the consumer. I believe Huntington will perform well as we have in the past, but delinquency and losses will increase over time. A macroeconomic factor that impacts us more than anything is unemployment, and as unemployment goes up, the industry will have more delinquency, but I believe we are poised to be successful even in a more difficult environment. We will continue to innovate around risk management and continue finding ways to be faster with decisioning whilst ensuring we are approving the right loans.
