Adapting to Shifting Consumer Behavior in Auto Lending

May 9, 2024

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Episode Summary

On this episode, host Vince Passione is joined by Tony Boutelle, CEO of Origence (formerly CU Direct). Tony shares insights into the evolution of auto lending and the strategic shifts in the credit union sector. The discussion delves into pioneering work at Origence, touching on the integration of technology and the future of finance in the auto industry.


Key Takeaways:

(01:32) The early days of fintech and how CU Direct was a disruptor in the auto lending space.

(02:13) The strategic advantage of having a single platform for numerous credit unions and dealerships.

(03:49) The incubation of DealerTrack at JPMorgan Chase and its role in transforming auto finance.

(07:53) Origence’s back-office solutions and the role of automation and AI in processing loans.

(09:05) Tony outlines the vision for Origence’s expansion into direct lending and account opening.

(16:23) The challenges of 2024, including liquidity and loan availability for credit unions.
(23:32) The impact of direct and online car sales models on traditional auto dealerships.

(28:03) Collaboration with Tesla and the establishment of a finance arm at Origence.
(35:15) Predictions for the future of auto lending and credit unions’ role in a changing economic environment.


Resources Mentioned:


In this episode

Episode Transcript

Tony: [0:00]
Now if there’s big layoffs going on, I think it’s all about the economy and jobs right. You know, if people are put out of jobs, they literally qualified for that loan. Even though it wasn’t a high rate, high cost for the asset as long as they have their job they’re gonna continue to pay for even if the value of that car goes down.

Narrator: [0:21]
Welcome to 22 minutes in lending your go to podcast for insights on all things lending, from lending practices, regulatory updates, how to enhance lending efforts, and more. In each episode, Vince Passio connects with industry leaders to discuss the latest trends and happenings around the lending industry. Let’s dive into the latest in lending.

Vince:  [0:45]
Welcome, everyone to 22 minutes in lending. I’m your host, Vince Passione. And I’m excited to introduce our guests Tony Patel, the CEO of origins previously co direct. Tony has over 30 years experience in the credit union industry, including working with the Colorado Credit Union League and CUNA Mutual group before he headed to the California Credit Union League in 1994, where he formed cu direct cooperation in 2002 origins now includes 1100 credit unions representing 59 million members and 19,000 dealers, and has helped credit unions fund 418 billion new loans since their inception. Thank you, Tony, for being here today. And welcome to 22 minutes in lending. So Tony, we’re going to jump right in, are you founded the business in 1994. So congratulations on your 30 year anniversary. And by any measure, you will probably want the first fintechs out there. So most fintechs are either low, especially now talk about disrupting so were you a disrupter or not.

Tony: [1:40]
We were just kind of under the radar for a long time. We were in probably three states by about 2001 2002. But really, we didn’t know we had it. So 94 was right when the internet was started. We had literally dumb terminals inside of dealerships back in 1994. We’re going underneath their desk trying to plug in high SDN modems to connect to the platform. You know, we had hundreds of dealers on the platform. But really, we got scale. And he actually, Vince, you and I go back from the days we competed at dealer track and route one, we were the front end for the dealers for their auto applications. And we actually started before dealer track, they started 2001, I believe and route one and 2004. You know, we didn’t really understand I think we had it, first of all, and we were a disrupter, we were really trying to create a way for credit unions to make loans at the point of sale. And the challenge was, at that time and 94. You go to a dealership, and there’s a dumb terminal from Wells Fargo, there’s one from Chase. So you couldn’t put enough dumb terms in there to create an application for 1000 Credit cards that we have on our platform today. So we really aggregated onto one platform. And that really became kind of that concept to that dealer track and Rob winnable. jumped on to from a banking perspective and kind of a capital perspective. I guess you’re getting and then you know, the whole story from there.

Vince: [3:04]
Yeah, it’s interesting. So Dealertrack, was incubated at JPMorgan Chase. It spun out. It was incubated in 99. Kevin O’Leary was the CIO at the time, and he had this great idea I could use the internet to disrupt the current fax machines. I remember I joined the team as part of the founding team in 2000. And it’s 2001. And it was pretty interesting, Tony, right, because I felt that the big friction point was there were just too many of those terminals. They had one for every single lender. And the challenge was, how do I get to all of them from one now our solution? Was we invited all those lenders to become investors in Dealertrack. So we got Wells Fargo, you know, we got America, right? Capital One, all those folks joined. Now, what did you do?

Tony: [3:48]
First of all, we started just, you know, I came from a Trade Association, California League, and golden one credit union had this little concept and they actually had three patents on this thing. When we started, it was all facts based. That’s I think you can maybe help Dealertrack started to, but it really was getting credit unions to invest in us. One of the things is, you know, is credit unions are nonprofits, cooperatives. And we didn’t have that kind of like FinTech perspective, I guess, that everybody has more so today, even in credit unions, but you know, we just went to the credit unions to get investors and we now have about 115 credit unions that own our company over origins. And we just go back to them when we need capital. That’s how we’ve kind of been able to grow the platform is through it. And the concept here is just, you know, they understand, stay relevant, they really have to work together. And we really came up with this concept of owning and controlling your delivery channel. And that really resonated with them. And so a lot of them were really interested in doing that and making sure that we had a place at the table I guess we could say and deal with chips and we’ve been able to take that story and bring it across the country. We weren’t slow in the in the game. I wish I would have known what we had in ’94 and been able to get it going faster, it was a lot of things trying to convince our board actually to go nationwide wasn’t really accepted at first. But when Dealertrack came on, that’s when we were able to kind of then say, hey, we really need to but, you know, I got through the West a lot faster than I did the east. So we’d have more to do on the eastern side of the United States to continue to grow.

Vince: [5:21]
Yeah, and I think Dealertrack did the opposite. We started on the East Coast and worked our way out west. And then route one came on the scene shortly after. And I think a lot of this resistance for us was really just a the cost, right? Because dealers weren’t investing much technology and mobile, we did a study when I first joined. And I think the average dealer is spending less than $25,000. On what was that space that we were trying to occupy in the f&i room, because it was a fax machine and a telephone line, right? There

Tony: [5:51]
still faxes today. It’s kind of crazy concerted, you know, they continue to neural in the same ways, in some ways. They’re a modernizing, but they’re slow to get there.

Vince:  [6:01]
You started in auto finance. But now if you branch down to other verticals, so one of the verticals, you didn’t now that

Tony: [6:07]
you said we started at just indirect was indirect only. So we had credit unions that really wanted us to provide the full LLS platform. So we started in about 2010, developing what we call our Go s today, which is our loan origination platform. And we have also, anything that you do on a consumer lending platform up through home equity loans is what we have on platform today. So anything from credit cards, to home equity loans, so any kind of loan could be really done from a direct lending perspective. And we have kind of our front end cuddle that can be used. And now we’re using it in other places, we can talk more about that as sort of this embedded finance concept. But generally speaking, we are focused on the consumer lending channels from all loan types for direct lending, and indirect auto lending you particular,

Vince: [6:55]
yeah, so just so I put it in my sort of FarLands, for me, do a track was a credit portal, it didn’t do the origination it helped at the point of sale, to direct credit applications to banks and credit unions. kudle, the same credit portal doesn’t take you through origination, but gets you an offer to the point of sale.

Tony: [7:17]
It does both actually. So we can just be a credit application that then the credit union can use their own LLS. So we have integrations to all the big out LLS is out there too. So if they want to use that they can. But we have an RLS embedded in it, too. So we have out of the 1000 1100 credits, we probably have little over half of that use our LLS to do it. And the other half use other parties. So you know, one thing we’ve tried to do is give our credit unions choices and how they want to process loans.

Vince:  [7:45]

No great model. And then I was looking at the site, what is origins, lending services? What does that do?

Tony: [7:52]
That’s the back office processing, there was a CUSO. So they’re in Colorado, and that’s where our offices are known for that we merged with that company a few years ago. And they do instead of having like yo tractors do, you have to have a big staff of people at the bank or credit union to do the steering compare and look at all the different documents and making sure they line up and fund them. Right. We have a team of people we have over a couple 100 right now. And that’s how we’re doing all the tussle loans and embed finance to that we’re doing today. But it’s all done out of origins, lending services, it’s a division of ours. So pretty easy one to choose to do that, you know, not have the staff to do the back office processing, we use a lot of document processing automation, a lot of AI to on that. So we can do a lot of that automated and just you make the fundings a lot faster, too. So that seems to be a trend outsourcing your back office processing. Very large credit unions are using that today.

Vince: [8:46]
No, it’s great. So tell me about the vision. So you brought together you had this ability to go out on the indirect channel, now you’re going to the direct side, and providing full solutions, including account opening. So what’s the longer term vision like what do you see origins two, three years from now?

Tony:  [9:05]
It is this concept of how do we help credit unions stay relevant in the lending game? I think, you know, most credit unions, even the largest trade unions like the one we were talking about earlier, they do have a lot of challenges, I think from being relevant, as this embedded finance kind of expands more as cars and cars get sold in a different way. So we’re just trying to helping creditors be in a place where their loans application might be getting started. So we call it top of funnel relationship building and how do we create opportunities for these credit unions to have their members represented, say in a Tesla application or you know many other places too. So that’s the vision is to create the ultimate origination experience. But the mission is much more involved about just connecting us to the most relevant places to get applications for our credit unions. So that’s kind of a long term.

Vince: [10:01]
Yeah, I used to call when I was deal with track democratizing, right? That particular channel, right and making it available to community lenders, because when I started to do a track there or just the industry was really dominated by all the large major money center banks. And between what you the work that you did, Tony, in the work that we did a deal with Chuck, right, really opened it up to really democratizing it. So all these community lenders could get access to a channel, which was hard to get to unless you had road reps, right back in the day, I remember. Exactly.

Tony: [10:30]
And we, you know, again, as we, as you mentioned, our platform is called cuddle and it became a verb, dealers would cuddle the loan, you know, so they did see a way to get to credit unions, which they know, I think we’ve smoothed out the relationships. But back in the 90s, they had terrible relationships with dealers, it was all about stealing, undoing the deals and flipping the deals. And we were able to create a good business relationship over the years, I think, between credit unions and dealers.

Vince: [10:58]
It’s funny that you said that you became a verb because when I interviewed for the job at dealer track in 2000, my wife said, so what do you think you’re going to do? And the CEO at the time introduced me to a good friend of his who was a college mate, who had a Ford dealership on the main line in Pennsylvania. So I went to go visit him to see what the operation look like. And you know, I got to sit through all the different parts of the dealership. And when I went to the f&i office, they started talking about dealer track in the deal. And I’m sure they didn’t have cars, right? Then I went out and I did a couple more sales calls, I supply to my due diligence, and I came home and I told him, I have to work for this company. They’re a verb,

Tony: [11:35]
exactly when you can make a brand, a verb, but you’ve done something pretty good, right? That’s a good thing. And by the way, the CEO, I know him really well. He’s long retired now from Dealertrack. But who was the guy that started Mark O’Neill, I’ve met him probably 50 times. In fact, one of the big things we did to try to get on the map with dealers back in this is probably 2005 or so we were still just kind of getting going. At the na da. I don’t know if you remember this. But we did again, like to get on the map. We did 300 helicopter rides for dealers. You know, we signed them up in our booth. And Mark O’Neil ended up coming to an assembly line and like, what are you doing here, when he came home to get a helicopter ride to

Vince: [12:15]
that was Mark brilliant guy love roller coasters or anything that was he was the thrill seeker. So it was really interesting. Yeah, he did some amazing things, and certainly grew the company. And certainly the exit would Cox was just amazing for the dealers and for the shareholders. So Tony, let’s go back account opening, lots of discussions about account opening, especially given credit unions looking for deposits, you’ve developed this electronic account opening, talk to me how it works, and then talk a little bit about how you see this positioned against the other parts of your business.

Tony: [12:49]
It’s super important today. You know, interestingly enough, we didn’t have it as a really high valued product in the sense because it wasn’t that hard for credit unions to get new members, especially through indirect I guess you could say. But now today, as you can see, the liquidity challenges, it’s citing CDs, getting new members and get new accounts opening are so important. So we have really leaned into it. In fact, we’ve done several new iterations of this product. And as of today, to really make that it’s just the Amazon world we’re in, right, it’s how do you ask the least amount of questions, validate somebody’s identity, which is a huge issue, as you know, in the whole fraud aspects of things. And all the fraud that’s going on in that whole product line for anybody, by the way? And how do you then get enough information to authenticate that person and get their membership go on and be able to get off from other things at the same time? And then get them engaged with the credit union? Right? That’s also a big issue. How do you kind of flip right into mobile banking? How do you get that? So those are the things that we do today, as we just we use other platforms out there that have similarities, but it’s all trying to use as many ways to get the data, authenticate it and get the member into the credit unions products as quick as possible. Ours is less than five minutes for most members. And that’s, you know, there’s a lot of information that credit unions want to get for, they’ll actually let you become a member. So that does, I think that’s part of the issue today, too. But it is the Amazon, right, everything has to be done fast. And we’re looking at what everybody else is doing out there. We’re coming up with our ways of doing it. And I think we’ve got a pretty good solution for credit and to be able to get that member positioned right for them and get him on boarded quickly. But that’s the game we’re in.

Vince: [14:34]
Let’s dig in deeper on the auto side. I was prepping for the call and I was reading this CoCs review of 2023 and I also had a chance to listen to your 2023 sort of you know, urine review. The Jonathan smoke is a chief economist at Cox and he talked a lot about boy this was really the last two three years since the pandemic been really tough light lots of unprecedented thing It’s right we saw Mr. Vehicle values appreciated rate, we’ve never saw that depreciate before, we’ve never thought that we’d see Supply Drop the way it dropped during the pandemic. And obviously interest rates right at a 23 year high. And then in that same report, he’s predicting that 2024 is getting back to normalcy again, right? Slow growth on saw, right this year was like a 15.7 15 point 3 million saw. And he’s kind of thinking it’s going to be the same downward pressure on prices as a result. So increased inventory. And now this is going to be the or the consumer again. And then on the Eevee side, I loved his sort of quote, he said, It’s the Year of more, more incentives, more discounting more sales muscle, we’re kind of sitting here now looking at 2024 Oil sounds great, except, you know, listening to your year end review, and what your chair and talking about 2024 credit unions ended the 2023, probably at 6.5% loan to share. So liquidity is very tight. They’re losing to the captives and some of the larger banks. So we’re starting to see some of that, even though they want the loans they can’t get them. When I think about your service, right? At the credit, you know, cuddle and you being probably the largest aggregated auto lender, right in the space for credit unions. How do you help the clients get through 2024?

Tony: [16:23]
The biggest part of all, this is liquidity, what you said about interest rates and prices and Chow, the consumer has actually been pretty resilient on all of those things, creating a much more expensive car, they’re still buying cars, I mean, we’re still seeing pretty good lift and probably a hangover a little still from COVID. That when they couldn’t buy cars, like he said, they’re predicting over 16 million new car sales this year. That means that there are a lot of buyers out there. Now, it’s just how do we have the funds to actually make that happen. And that that’s the issue that we’re finding is that credit cards have tightened up on how much they can do in lending. So they’re basically replacing some of the loans I have today. So we don’t have an issue really so much with demand. It’s just the liquidity that is really the thing that we’re trying to get a sense for. I think if interest rates do come down, like I think in your notes that you’d sent me earlier that you guys are, and I think we are to see, and maybe the second quarter that rates start coming down a little bit, we’ve actually seen some of the cost of funds come down a little bit, we’re actually seeing some indication of that before it’s even happening because of what the predictions are out there. But I think we’ll see a much stronger second half of the year that we will first have for credit unions. But it is a challenging time right now. And I think the big thing is, as long as we don’t have any big layoffs, I don’t think. And even though as you know, prices of used cars are coming down, not super fast, if they come down super fast, and grins will be in really big trouble. But if they do kind of gradually come down and get back to normal, then I think we’re gonna see a decent I will call it we call this a soft ending. But it is a tough time right now our our volumes are down probably 18% From this time last year. And again, with the same kind of demand as we had last year. It’s just not having the capacity to make the loans but we are seeing some credit. And so again, it’s all they all have a different balance sheet, they’ll have a different way how they’re managing things. I mean, I’ve talked to big credit unions this first couple months already and they’re all predicting half ROA is for this year versus last year half of what they got last year, it is going to be tough, but we’re there for them, we’re still keeping a big a good. As far as US market share goes credit unions have had the highest ever and they’ve kept it by the way there haven’t gone down has gone down, he’s stuck. What you mentioned, is new car financing. One the OEMs are coming back with subvention and to the rates on new cars aren’t as great as good as the rates from a yield perspective as us. And creditors are much better at used car lender. They’re just good used car lenders, and they seek better yields on that. So they’re really leaning in more to that. As

Vince: [19:01]
As values bounced around. I always get very concerned about residuals. And you see these used cars, the prices really got high. You had folks during COVID going out and buying cars because it was an escape mechanism for them right. And now you’re gonna see those folks come back some of these folks took 72 month terms, so they come back as buyers and I’m concerned, there’s gonna be a lot of negative equity that’s going to roll forward. And if rates come down, you kind of think there’s going to be a big refi boom. Now do you participate in that? Do you help credit unions on the refi side as well?

Tony: [19:36]
Yeah, we have connections to probably a dozen different refi players and we do help them with the processing and the connections to credit and so we have a pretty robust market there but as you said it’s you know, the only thing you can do on refi is now is is term not too much on rate but but there is a little bit still going on, but it does help reduce the payments if you can extend The term so we’re seeing some of that we definitely are going to be there for him, whichever market we’re in, that’s kind of the thing that we go through. There’s always these cycles. I don’t think anyone really expected this liquidity thing as much as fast as it hit you look at a year ago, it was a completely different world than it is.

Vince: [20:16]
We had Pete Hilger on a couple months back. And he was talking about the concerns he had about just defaults in the auto space. And I was pretty surprised by the numbers that he was talking about, and we’re starting to see it now. What do you think’s behind it? I mean, my thought was probably the summer they didn’t reprice fast enough, and they got adversely selected. But aside from the overall I get it, the economy is part of the problem. But what do you think’s driving it? Because these are historically high levels of default in a portfolio that typically doesn’t have this kind of default rate?

Tony: [20:50]
I would say it’s what it’s back to normal, like the Atrox. Economists said, I think we’re getting back to normal, it just all things, you know, consumer to really, I think they get much higher than they are now as far as the auto delinquencies go, I think it would say it’s, but from what I’ve seen in the numbers I’ve seen, and CNBC just came out with auto numbers I just saw the other day, and they said that they’ve actually leveled out, as far as delinquencies go. Now, if there’s big layoffs going on, I think it’s all about the economy and jobs, right. If people are put out of jobs, they literally, they qualified for that loan, when, even though it wasn’t a high rate, high cost for the asset, as long as they have their job, they’re gonna continue to pay for it, even if the value of that car goes down. Now, if, like you said, if they start turning these cars over, and there’s negative equity that I think could be an issue that we got to see if it comes to fruition, we were thinking that might start last year if rates or if prices, the values of used vehicles came down fast last year, I think you’d see a lot more distress in the loan portfolios, but we’re not seeing that much. And I’m not sure what Pete’s referring to me there. delinquencies have definitely gone up. But we look at it from a historic perspective, they’re probably close to what they were of normal on normal years. Right. So again, I would I think there’s a risk out there. But we’d have to I think you’d have to see the erosion of the used car pricing go pretty fast back to went up about what 50% I think in that COVID, it’s probably gone down, probably it’s still up about 30%. So it hasn’t gone down that much, since we kind of got back to normal. So it’s slowly going back to normal. And I think that’s the key.

Vince: [22:29]

Yeah, it’s got to run off. It has to agree it has to run off. But

Tony:  [22:32]
But if it goes fast, it’s going to be bad.

Vince: [22:34]
So the other thing in which reminded me of my days to do a track is you hear that suddenly you see the Tesla Model right there selling direct. Here’s some manufacturers exploring ways to go direct. I remember. So Dave power, from JD Power was on our board a deal attract. And he made a statement back in 2003, I think it was, and he said that the dealer franchise adds about 30% distribution cost of new vehicles. And Mike Jackson, who was the then CEO of auto nation, plus every dealer just was up in arms, you know, went public and said, No, no, no, it’s 7%. And he went on and on, I stake my reputation on it. Dave was almost blackballed. From the industry. It was like heresy. How could you ever say that the franchise model doesn’t work? What are you seeing is dealers are survivors, right? And I look at auto dealers is some of the best marketers in the world, the some of the best small business owners. But what do you see happening?

Tony: [23:32]
I think, just like credit unions, adding a new delivery channel, whether it’s online or mobile, the branches have are going away, the other delivery channels are still staying strong, from the most I could tell I mean, they’re the all the other channels just go up, I think we’re just seeing new delivery channels come into play. And the traditional dealer model is just going to have to it will survive, I think it will, but it’s going to be other channels, too, that come into play, whether it’s the Tesla lucid and rivian, selling direct all the new EVs and got some they’re kind of going, thinking about doing both like Fisker may be doing actually franchise dealers and maybe doing direct the franchise laws are a problem, but they’re also that’s the problem when it comes to consumers, actually, I think they would prefer to maybe buy from the OEM. But the dealer as you know, the franchise laws kind of keep it so you have to buy from new cars from the dealer. But you’re seeing all kinds of new models where there it’s sort of like the agency model from Europe where you see the some of these OEMs saying, Hey, listen, we’re just gonna, we’re gonna market the cars and we’re going to sell them but we’re gonna deliver them to you guys, you’re gonna get a piece of it, too. So it’s still gonna go through the franchise dealer and you’re gonna see some that are going to just do it the traditional way, and you’re gonna keep doing it the way that I’ve been doing it. I just think there’s going to be a lot of different players here. I don’t know that there’s going to be one way of doing it at some point, but I do think just like delivery channels for financial services delivery channels for auto reveals are going to just have more and more opportunities. And that’s, again, that’s the, from a credit union owned, how do we keep credit cards relevant concept Our board is very focused on how do we embed our finance now on these different opportunities, because it’s not that traditional dealer model anymore, that we, we are 100% focused on that traditional dealer model, just give you make sure that you understand, that isn’t what direction we’re going, we know that all of we’re gonna stand for.

Vince: [25:30]
I love the caveat.

Tony: [25:35]
I don’t want anybody to get the ideas, because you know, we do have 20,000 dealers on our platform today. And are some of them probably gonna go away? We are seeing that, you know, the big guys are buying up more and more of them. I think you’re seeing some that are tapping out when they come to this Evie world, I saw half the Buick dealers actually, there’s 804 100 and said, pay me off. I don’t want to do this Eevee thing, right? So there is going to be a big change, I think in the whole dealer makeup. But I don’t think it’s going to be catastrophic, I guess you’d say.

Tony: I met that first CEO of Ottawa tellers, there has definitely been a lot of different approaches to passing, you know, cars direct to is another one.

Vince: [27:50]
So let’s switch the Evie. So the same Cox report they said a little over a million, right EVs were sold in 2023. And prediction is 24% of sales. Next year will be EVs hybrids and plugins. And you announced and we were chatting before this about your relationship with Tesla. So tell us about it is it exclusive, I know you’ve got this new FYI Connect, which we had just discussed with your team.

Tony: [28:14]
Let’s kind of start with that by connect, maybe because I think that’s just kind of put in perspective, this whole embedded finance concept and how Tesla wants to make loans, how Costco is of the world want to make any of these national organizations that are very efficient and very, very user experience, there’s just a really good user experience. None of them want a drop down box of 1000 credits, you know, they’re not going to deal with 1000 different ways to make loan 1000 different rates. So when we really met with Teslin, it took a couple of years, by the way to really get them to understand that we can simplify this for you, we will be the ones to do this. So we first had to get NCUA to agree to let us make auto loans. That was another thing that happened over the last couple of years. But once we got that done, we then decided, let’s start a finance company. We’re licensed now, in 47. States, let’s try to get credit unions to see that. Again, the only way for us to play in these places. They don’t like it really they like to have their brand be out front. But if we can make the loan for you, and immediately get it over to you like it’s really fast how we do this, would you be willing to do it? And they absolutely said yes. So we are you know, we come up with the rates and the terms and all that. We do have them except and we don’t have them like the beta sign them but we do have a good process for us to get the rates and things. And then we’re able to be in the ecosystem of lending fortessa They have us and for banks that they deal with and they have an allocation engine it’s pretty much driven by rate if we get the right rate we can we get the loan. We then create an allocation engine for all of our credit unions based on membership based on geography, all that kind of stuff. And we’re able to allocate those we actually can allow they can upload their members, we have most of them to uploading their members. If we get a match, we actually send them their members back to him too. So that’s the concept in that market is how do we better finance in some of these places. And it is not exclusive to Tesla. Amazing how many, I guess embedded finance opportunities that are out there, we had probably two dozen organizations come by to talk about that. And it’s all over the place. So that is definitely a new channel, I guess, to, you know, the dealer for many years, the application back in the day, started at the dealership, it didn’t start before he got started at the dealership. Now the application starts upstream somewhere, and it may get to the dealership at some point, if that’s where the car is. But there is now this whole I think ecosystem of embedded finance at different places, depending on the companies, whether it’s, you got Amazon can get in the game now to get everybody looking at ways to embed the financing to their platforms.

Vince: [31:00]
Now it makes sense. And Tony, we covered the price volatility, but Tesla has been sort of more volatile than most right, we saw the model Y dropped 30% Over the past three years, the model three dropped, I think was most 35% Must keeps playing around with price points. So when you think about that fluctuation, how do you guide the credit unions and underwriting this?

Tony: [31:25]
Hopefully it’s not going to continue, let’s just say that, I gotta tell you talk about making a few people have sad, when you have a whole fleet of Blicket herds, buying a whole fleet of Tesla vehicles and then having that happen to them, the price of those vehicles immediately go down because the new car prices go down. So I guess the thing that Tesla has the best profit margins in the country today, and even after those reductions in price, they still have the best margins in the industry today. So that tells you a lot about the strength of that manufacturer. And so as you think can imagine, it can’t continue, I mean, there is query who’s going to be able to drop your prices anymore. But that just tells you how strong they have, you know, again, of a profit margin they had where you could do that and still maintain profitability, and actually in a good way. I mean, it’s still better than most of the OEMs. I hope it doesn’t continue. I don’t get the sense, I do think they’re going to look at maybe small ones. And actually, that is some of the things that we’re talking to him about is how do we help them sell cars, it’s all about, you know, creating better sale. One thing is kind of a fledgling new OEM in the Eevee space, and they sold themselves. Now he’s getting to the point and the Tesla’s get to the point where they have to do a lot more marketing and sales. And so I think you’ll probably see suspension at some point, you’re pricey, more leasing programs, but I don’t think you’re gonna see a lot more price discounts. You might see one here and there. But it was crazy. Last year, it was by five in one year for the why and the three,

Vince: [33:05]
yeah, look, especially if he wants to go into leasing. As I told you, we were talking before the call the dealer track, when we auto leasing guide was one of our companies, we acquired just a discussion with the manufacturer about changing, you know, trim on a vehicle and the impact it might have one year, the next on residuals, and you’ve got a manufacturer that’s dropping price like that, that would drive a leasing program crazy.

Tony: [33:27]
Yeah, I think, again, if they were to continue that practice this year, if we saw two or three, even price reductions, and on a model basis, I think you’re gonna just totally freak out the industry. I think from a leasing perspective, in particular, like you said, you will have anybody want to touch at from unless Tesla takes 100% of that residual value kind of risk. But it is a really interesting phenomena that happened last year. I’ve never seen anything like it of you.

Vince: [33:52]
I remember when the BMW model seven changes trim and hadn’t changed it for probably two decades. And the conversations about the impact it was going to have from one day to the next when they changed that cut off back to around her back what it was going to mean to everyone. So yeah, let’s look maybe there’s a market for Elon Musk, again, to residual value insurance.

Tony: [34:11]
As you know, there’s only one player left and that and it’s really it’s just catastrophic stuff. There isn’t any money left and residual value insurance anymore. Because, yeah, it just became such a crapshoot. So

Vince: [34:23]
I was watching his research, I was watching one of the podcasts that you did, I guess was underground. And you were talking about the impact of COVID on consumer behavior. And I always think about Nigel Morris, a QED I went to a conference a couple years back and Nigel got up was right after sort of things kind of cooled down with COVID. And he said there are no more digital deniers after COVID. Right. And you talked about how COVID impacted the buyer experience their ability to go digital. Do you think do you see that continuing now? Do you see it getting better?

Tony: [34:57]
Absolutely. You’ve seen the Cox, you know, some of the different studies that are going on people, it’s all about kind of the, the early adopters sort of to that concept. And now more and more are definitely willing to do all the studies that we’re seeing, the majority of people are willing to do the financing and purchasing online now isn’t happening, I just saw a study that said 50% Of all the cars sold last year, were in person 43%, were a combination of in person and online, and only 7% were 100% online, of buying a car. But all of those numbers are continuing to get as far as what people are saying they’re gonna do in the future. They’re all saying they’d be willing to do more and more online. So I just think you’re gonna probably see a lot more test drive centers, I guess you could say, and then get in the car buy line, especially all of these EVs. That’s pretty much how they’re all kind of growing up right now.

Vince: [35:55]
Nobody last question 2023, there was a lot of discussion about this NCUA financial innovation rule. And it expanded the way CUSOs could get into the business of lending. And it allowed them to take out warehouse lines and expand it beyond I thought that it used to be student loans and credit cards, but auto, what impact does it have on origins and your credit union members that own you,

Tony: [36:19]
that’s what allowed us to do that FYI connect, we couldn’t have done it without that change in the role.

Vince: [36:23]
So that allowed you to become a finance company.

Tony: [36:27]
That allowed us to become a finance company that also allowed us to do what we’re doing with Tesla right now, because we are doing whole load sales to credit unions. And there’s other pieces of this dissipation also fits in there too. And some of the things that were modernized in this regulation, and they really needed to do it so that some of these new ways of financing cars could be done. And we didn’t have to become a lender that services these things we really didn’t, you know, and that’s in the whole discussion with NCUA, we had to agree that that was not our intention. And it isn’t, we wanted to actually try to get the loans and get them more credits right away. So hold on sales is a big piece of that modernization, too. So they had a limit on how much they could do now, they’re now it’s kind of much more of a, an easier way to do many more of those and just don’t these set limits that they had on it?

Vince: [37:16]
Do you maintain a warehouse line to do this or not? You just fund directly?

Tony: [37:20]
No need to it’s all forward flow? It’s all forward flow for our credit unions. Yep. I think that’s a good model that will help credit unions make loans. I think it’s hopefully NCUA feels like it’s a good idea that they made that change, because if they couldn’t, they didn’t do it, we wouldn’t have been able to do what we’re doing.

Vince: [37:34]
Well, before we go prediction, so COC says we’re going back to normal, we know we’ve got liquidity issues. Give us the prediction, Tony, what’s it going to look like?

Tony: [37:43]
You know, it’s all about if rates come down. And I think if rates come down, I think we’re gonna see a much more robust lending environment for credit unions. And I think it’s when that happens, I think it’s gonna be a little tougher the first part of the year, like I mentioned, and I think it’s gonna get easier as rates seize up. The thing that’s a little challenging from a credit union perspective, versus banks and captives. Canadians are, when rates go up, they’re slower to raise rates, when rates go down, they’re slower to lower the rates. So I do have a little worry about that competitive aspects of how we are going to be able to go and hopefully, we’re going to keep the information flow going between our credit unions to make sure that they’re changing rates appropriately. But it is just, you know, I’ve been doing this a long time. That is, generally how it works is they’re slower when rates are going up, and slower to lower and when they come down. But now that it’s on the other side of that slope, we would definitely want to try to get them so we can stay competitive. But but we’ll see how that plays out. And I do think it’s going to be we’re in a we’re in a tough cycle right now from this liquidity crunch. But I think it’s going to get much better for credit ratings. You know, they’ve always been big portfolio lenders and auto lending. There’s over a third of their portfolios today. And I think they see that as kind of part of their brand. You sit next to somebody on an aeroplane, so remember, of a credit union and they’ll say, I got my first auto loader to credit union. That’s how we’re now and so I think they want to keep that.

Vince: [39:08]
Tony, thank you. This was great.

Tony: [39:10]
Hey, Vince, thank you for having me. Really appreciate it.

Vince: [39:13]
Thank you, Tony. And we’ll leave it there for this episode. I really enjoyed our conversation. And thanks to our listeners for tuning in. Don’t forget to subscribe so you can enjoy future episodes and I’ll meet you back here for our next 22 minutes in lending.