2016 AUTO FINANCING MARKET OVERVIEW

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1 2016 AUTO FINANCING MARKET OVERVIEW Equifax Canada motive Roger Mitchell, BA, MA, MBA Director, Financial Institutions and Commercial September 22 nd, CFLA Annual Conference 1

2 Today s Agenda Overall Consumer Overall Comparison 2

3 As of, Canadian consumer debt totals $1.67 Trillion, much of which is Mortgage debt. Composition of Canadian Consumer Debt Key Observations of the Quarter Cards Captive 1 Robust growth in lending Installment Loans $86B $64B $149B Product Installment Loans YoY 7.8%* Mortgage 7.6% Captive 7.6% Cards 4.0% Revolving Loans $251B Revolving Loans 0.5% $ 1,110B Mortgage 2 *Numbers reflect balance growth and new data reporters Average consumer debt rose by 3.7% YoY (non-mortgage credit) Total Non-Mortgage Debt is ~$550B Installment Loan Debt is $149B Loan Debt is $64B 3 Consumer delinquency is on the rise Oil Patch Province delinquency is a concern 3

4 Overview of the Financing Industry. Market Share is relatively stable Indirect auto loans via banks dominate the auto financing market Strong growth in auto lending financing accounts for roughly 13% of all consumer debt Banks 60% Captives 40% 3 years Bank or Captive lending have led the way in terms of consumer non-mortgage credit growth since Leasing is coming back Leases represents almost 1/3 of total debt delinquency is low 90 day delinquency figures shown 66% 15% 32% 89 bps 71bps Installment Loan Captive Q Q

5 Current economic conditions continue to support auto sales. 1 Favorable Consumer Conditions 2 Pent-up Demand 3 Ascension of the housing market Consumer Affordability Avg. Age of Vehicles Avg. Canadian Home Prices Interest Rate % Longer Terms 72 Months+ 9.3 Years $320K $480K Soaring Housing Prices Low monthly payments. Consumers can buy more cars Purchase decisions delayed by recession Greater household wealth Source: DesRosiers motive Consultants 5

6 The role of cash has diminished and auto financing has significantly increased allowing consumers to buy more car. Structure of the Canadian Light Vehicle Retail Finance Market New & Used Vehicles Average Amount Financed New & Used Vehicles Over $30,000 27% 31% 33% 37% Loan 54% 68% 75% Lease 18% 7% Under $30,000 73% 69% 67% 63% Cash 28% 26% -2% -13% 12% 13% Q Q Q Source: DesRosiers motive Consultants 6

7 Year-to-date, sales are up 4.7% when compared to the same time last year, however 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 Sales Record 1,857 1,899 1,461 1,557 1,586 1,676 1, ,013 1,044 1,086 1,111 1,163 F2009 F2010 F2011 F2012 F2013 F2014 F Historical Annualized Sales Numbers in 000 s YTD Sales Numbers in 000 s 7 Source: DesRosiers motive Consultants, August 2016 Sales

8 ...concerns within the Oil Patch and consumer indebtedness may limit growth moving forward. Province Average Debt YoY Rate Change Alberta $27, % Oil Patch Provinces Saskatchewan $24, % Newfoundland $23, % Manitoba $18, % Prince Edward Island $21, % Nova Scotia $21, % New Brunswick $22, % British Columbia $23, % Quebec $18, % Ontario $21, % Canada $21, % 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. 8

9 related inquiries have slowed but remain strong in the most recent quarter. 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. +3% +10% 1,305 Super Prime 17% 15% 14% 1,272 Prime 19% 18% 18% Near Prime 18% 19% 19% 1,159 Subprime 12% 13% 13% Deep Subprime 37% 40% 23% 25% 27% Q Q Total Inquiries Inquiries by Risk Score Band 9

10 loans in Alberta are larger than the rest of Canada at each score band and have a riskier credit mix at originations. 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. Super Prime 39% -11% 28% Super Prime $28, % $34,817 Prime 36% 36% Prime Near Prime $27,361 $25, % +24% $33,069 $31,929 Near Prime Subprime Deep Subprime 17% 23% 8% 5% 3% 6% National View +12% Alberta Subprime Deep Subprime $21,876 $27,476 $17,312 $20,726 National View +26% +20% Alberta New Loan Origination Mix by Score Band New Loan Average Financed Amount by Score Band 10

11 There are key differences in the buying mix in Alberta vs. the Rest of the Country. 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. >65 10% 4% 11% % % -12% 21% Loan 66% +18% 84% +16% $31,473 27% Loan $27, % <35 26% +10% 36% Lease 34% -22% 16% Lease $26, % $30,960 National View Alberta National View Alberta National View Alberta New Loan Origination Mix by Age New Loan Origination Mix by Loan/ Lease New Loan Average Financed Amount By Loan/ Lease 11

12 delinquency is among the lowest when compared to other credit products. Product Level 90+ DPD rates 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Key Observations As of, 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) delinquency has been relatively stable throughout the observed time period (around 1%) Although, auto delinquency within Captives have begun to increase since Q % 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 Q Installment Revolving Cards Mortgage 12

13 in Alberta had outpaced the rest of Canada as stagnation in oil prices continue to affect the labour market Overall National delinquency is now at 1.14% as of, which represents about a 5% YoY increase. Alberta related delinquencies rose 40% from Q levels which is significantly higher than the national average. +40% 1.39% +5% 1.11% 1.09% 1.14% 0.99% 0.89% Q Q Q Q National Viewpoint 90+ (excl. Mortgage) Province of Alberta 90+ (excl. Mortgage) 13

14 in Alberta rose across all products, with 30% rise in being the lowest increase while the rest of Canada increased 4.4%. On a National basis, Installment and 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. 47.7% 42.6% 37.1% 30.3% 6.4% 5.0% 4.4% -2.1% Installment Loans Revolving Loans Cards Installment Loans Revolving Loans Cards National Viewpoint 90+ (excl. Mortgage) Year-over-Year Province of Alberta 90+ (excl. Mortgage) Year-over-Year 14

15 Alarmist no, realist yes. Themes of the Presentation lending growth will lead all forms of credits in 2016 Previous supportive factors may impede future growth Commodity dependent provinces are driving increased delinquency Strong auto sales have been accompanied by strong auto lending partial due to favourable consumer credit conditions Subprime growth may translate into higher incidents of delinquency Favourable consumer credit conditions may promote longer terms and hence negative equity consequences 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. 15

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