LenderHub

In my previous blog post, I discussed how COVID-19 is impacting the auto lending industry. While industry analysts were not expecting 2020 to be a record year, with the widespread outbreak of COVID-19 in March, vehicle sales effectively dropped off a cliff, reaching their worst level, based on a seasonally adjusted rate since March 2010, during the Great Recession. Today, I want to provide some specific strategies your financial institution can deploy in order to supplement auto loan originations and increase loan volume.

What Happened

Equities had their second tough week in a row as some of the biggest winners of the “COVID Rally” have given up a portion of their gargantuan gains. The pull back in the big tech stocks continued this week. As an example, Apple is now only up 78% from mid-March. The horror!

“Just imagine that a bond is a slice of cake, and you didn’t bake the cake, but every time you hand somebody a slice of the cake a tiny little bit comes off, like a little crumb, and you can keep that. If you pass around enough slices of cake, then pretty soon you have enough crumbs to make a gigantic cake…golden cake. And Pierce and Pierce collect millions of marvelous,” she shrugged, “golden crumbs.” –Judy McCoy, Bonfire of the Vanities

What Happened

Last week was dominated by the “Big Tech Gets Theirs” story. The tech-heavy NASDAQ declined over 3% for the week, including a 5% rout on Thursday. The index is still up 65% from the COVID-inspired low set in March. Why? The story that has dominated the headlines was that the Japanese venture capital group Softbank had a tremendous upside option bet on the biggest of big tech, paying up to $4 billion in option premium, and now the trade is starting to turn against them.

No one could have foreseen the unprecedented challenges that businesses and individuals have had to face this year. A global pandemic, nationwide shelter-in-place orders, school closures, mass event cancellations, and an uncertain economic future hit America all at once, creating an environment of anxiety that has both businesses and consumers scrambling to keep up.

What Happened

Another week, another great week for stocks and corporate bonds. Sure, there was a noticeable amount of hand-wringing from “the experts” that the rally in equities is getting narrower and narrower, and the prospects for many major economic sectors such as banks, airlines, energy, retail, and leisure (to name a few) were pretty grim. That didn’t stop another round of healthy gains for major indices.

Maintaining auto insurance coverage is what most would consider “old news.” For borrowers and lenders alike, it is a necessary investment that protects all invested parties from experiencing loss. Specifically for lenders, getting borrowers to comply with the terms of their auto loan contract is particularly critical as a breach of contract could have an adverse effect on your bottom line.

The mighty U.S. Dollar, the coin of the realm (where the “realm” is the entire world), appears shaky for the first time in a long time. Replacements like the Euro, Yen, or crypto are periodically offered up (forget the Chinese Yuan, as it is not even a freely-floating, deliverable currency). At the end of the day, just about anything vital and strategic that a nation needs trades in U.S. Dollars. The USD, as measured by The Federal Reserve Trade Weighted Nominal Broad Dollar Index, has swooned 7.2% since March 23^rd of this year. During that same time, gold has hit new all-time highs and has increased 25%.

What Happened:

Another week and another high for stocks. The S&P 500 ground higher to hit an all-time high by week’s end, while the NASDAQ used more of an aerial attack to set its own all-time high on Friday. Corporate debt continues to tighten. Leveraged loans are still a problem, but instead of being radioactive—as they were in March—now their problem is that there are not enough of them for CLO demand.

One of the greatest things about my job here at SWBC, and as a former lending executive, is that I get to speak with financial institution leaders, more specifically, credit union lending executives, on a regular basis. In recent weeks, unfortunately, a lot of the conversations I've been having have not been as upbeat as we would typically like. And, that's primarily because of the effects of the COVID-19 outbreak on many parts of our organizations, but more specifically, significantly declining levels of auto loan originations and loan growth in the credit union space.