VW Shifts Loans To Wells Fargo, Sticker Shock is Real, Auto Debt Surpasses Student Debt

We’re brimming with energy on this Tuesday morning, as we discuss VW’s decision to originate its US auto loans through Wells Fargo. Plus we talk about the growing gap between car buying expectations and car buying reality and how auto debt just continues to grow.

Show Notes with links:

• Volkswagen is ceasing to originate U.S. auto loans for Audi and VW through its in-house finance division, Volkswagen Financial Services (VWFS). Starting in April, Wells Fargo will take over this responsibility.
  • Wells Fargo will be responsible for processing all loan applications, underwriting, and servicing loans for VW and Audi customers.
  • VWFS will shift its focus to consumer leasing, usage-based products, and new mobility solutions, aligning with Volkswagen Group’s broader growth strategy in the U.S. market.
  • The transition is part of a "multi-year co-branded agreement" aimed at offering improved retail financial solutions for VW, Audi, and Ducati.
  • VWFS will continue managing current loans on its books after the April transition.
  • Ernst Jan van Eijkelenburg, CEO of VW Credit: “This is a union of great strengths... supporting our brands, dealers, and customers.”

• A new report from Edmunds highlights the growing disconnect between what car shoppers want to pay and the prices they’re encountering in the market today.
  • According to Edmunds, the average trade-in age for new vehicles is six years, meaning many shoppers returning in 2023 last bought in 2018.
  • 64% of used car buyers aim to spend under $20,000, and 50% target $15,000 or less, but only 5% of transactions were below $10,000, with the average used car costing $26,936. Similarly, 48% of new car buyers want to spend $35,000 or less, but the average new car price in July was $47,716, with almost no vehicles under $20,000.
  • Over 73% of respondents have delayed buying a vehicle due to high prices, 62% due to high interest rates, and more than half are cutting other expenses or working extra hours to afford one.
  • Jessica Caldwell, Edmunds' head of insights: "Consumers are likely being forced into trade-offs, selecting different brands, older vehicles, or even postponing purchases.”

• A new report from the Financial Times highlights the growing burden of auto loan debt, which now accounts for 9% of household debt, second only to mortgages and surpassing student loans.
  • Auto loan delinquencies are nearing record-high levels set during the 2009 financial crisis, as many struggle to keep up with large payments.
  • Buyers who purchased vehicles during the COVID-19 pandemic at inflated prices now face significant negative equity, owing more than their cars are worth as values decline.
  • While fewer prime borrowers are losing their vehicles compared to 2009, auto debt continues to swell, with total automotive debt reaching $1.6 trillion as of September 2023.

Hosts: Paul J Daly and Kyle Mountsier

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Transcript

Unknown: 0:00

Music.

Paul J Daly: 0:05

What's Up? I mean, if one day, you and I are both going to be in the studio today, Kyle's on a rooftop somewhere in another country, I'm down here, back in my office for the first time a couple weeks, and we have some news, and we have some energy, and we spent some time yesterday in New York City, all the good and all the bad, all the good and all the bad, you had to you

Kyle Mountsier: 0:26

had to say the second half there was a lot of good. Okay, so we talked about we were going to this welcome conference, and one, one of the opening speakers was just incredibly dynamic. Was playing piano on stage in the middle of her speech. But I think the thing that got me the most was and you and I have been following and listening to and a lot of our thesis comes from Donald Miller. He's a big influence on how we think about story. And like, just ever reminded that weaving a story narrative through everything we do, and like, I just started thinking about all the dealers that I know and all the industry partners and everybody that like that is working to communicate who they are, what they do, why they do it, to everybody else in the industry or everybody else in the community, and reminding ourselves that, like narrative, story, art is important even in business. So yeah, that was, that was the highlight for me.

Paul J Daly: 1:23

It is, you know, seeing Don. I've seen don a number of times, but, you know, of all the people that we saw yesterday, definitely that principle, again, it never, and he said, This is the story framework for every story you've ever seen, and it's never going to change my favorite line. He

Kyle Mountsier: 1:38

says it all the time. He's like, I'm gonna ruin every movie for you? Yeah, we

Paul J Daly: 1:41

ruin every move, right, right? Well, there is certainly a lot hustle and bust. And we're going to talk a little more about the stuff that we send. Definitely, the hospitality mindset, this framework that we communicate in within a soda world. Love people more than you love cars. Talking about that, it's about more than the cars, about more than what we're doing, highlighting the people that are doing it really, really well, so other people can learn from it, grow and evolve, because the consumer is looking for things that we may not be tuned into. It's kind of like a radio wave, right? Like they're all there in the air right now, but we don't hear any of them because we're not tuned in. So we're gonna, we're gonna hope, hope that to push that narrative forward and just raise the awareness we have things coming up. You and I are going to be at the atae, all the trade associations, communications people, get together in Austin. You and I are giving a little opening talk there. That's going to be so much fun. Are going to be at Vin Q unleashed. We're going to we're going to be filming new more than cars episodes. Half of our team is out at the am I saying this yet? I'm not saying it's

Kyle Mountsier: 2:42

on social,

Paul J Daly: 2:44

okay? Roman Auto Group, more than car Season Two. We're doing pre production right now. We have, did we talk about the other ones too? We didn't

Kyle Mountsier: 2:53

talk about the other ones, just that one. Okay,

Paul J Daly: 2:57

so there's a lot coming. Spoil everything. You know what? I mean? Listen a little. You are thinking about these things that we're talking about. You want to be involved. You want your store to be involved. Hit us up at crew at asotu com and let us know, because we have some things going together that we can, you know, partner up and do something special. And we're on IMDb now. Oh, I saw for the first time since the movie. We're on there now. So that's good go. And we're also gearing up for some new webinars. We have a webinar coming up on the 25th right? So next week, yeah, right. Don't miss the signals. How unresolved complaints turn into compliance nightmares. Ooh, I think we need this because, yeah, compliance nightmares. Any anybody wants. You can just go to asotu com. You can see the registration link. We have a lot of fun on these things. 2030, minute, quick shot webinars. Sign up. Be with us. Haggle us. You know, whatever you want to do, we can handle it. We'll answer live questions here. Let's talk about some news. Let's do it. Hi. Volkswagen is ceasing to originate US auto loans for Audi and VW through in house finance division. Instead, they are going to be flipping all this to Wells Fargo, starting April 2025 basically Wells Fargo is going to be responsible for processing all the loan applications, underwriting, servicing, and basically they're shifting their focus to consumer leasing, usage based products and new mobility solutions, basically in transition, and part of a multi year co branded agreement, looking to offer an improved retail experience, financing experience, they're going to manage their current loans until the April transition, and then, you know, all the things will happen with that. Basically they're talking about this being a union of great strengths, supporting our brands, dealers and customers. So this

Kyle Mountsier: 4:43

is it's interesting to me. The timing is interesting, especially in a time where, you know, obviously, there's volatility in interest rates and lending and things of that nature, and passing it on to Wells Fargo. Wells Fargo has been an OEM marker because. Because they are, you know, such a broad spectrum lender and and lend across credit tiers. So, but still interesting for volna move this, the the one that got me in there was the note about usage based products, yeah, like, there's a good chance leaning on, you know, like financing use products, making sure that you have the leverage. You know, like understanding that from

Paul J Daly: 5:27

what do they mean by usage? What do they mean by usage based, like, how much you use the vehicle?

Kyle Mountsier: 5:33

Oh, it must be, yeah, or, or, well, it wouldn't be subscription, but something where finance needs to focus on something else. You know what I mean? That looks like a whole bunch of upside with not a lot of cancelations. You know what I mean? I guess so.

Paul J Daly: 5:50

I guess so. Speaking of, I don't know, it's not really cancelations, but speaking of the way consumers think about things,

Unknown: 5:57

segway it's pretty revealing. Actually, a

Paul J Daly: 6:00

new report from Edmonds is highlighting the growing disconnect between what car shoppers want to pay and the prices they are encountering on the market today. According to Edmunds, the average trade in age for new vehicles is six years now, meaning many shoppers returning to buy a car now bought their last car in 2018 prices were a little different. Then basically, 64% of used car buyers are looking to spend under 20,000 Good luck, and 50% targeting 15,000 or less. Problem is only 5% of transactions were even below 10,000 with an average used car costing 26 nine. Similarly, 48% of new car buyers want to spend 35,000 or less, but the average new car is a tick higher, at 47,700 with no vehicles or almost no vehicles, under 20,000 new vehicles, basically 73% of respondents delayed by buying a vehicle due to high prices. 62% due to high interest rates, and more than half are cutting other expenses or working extra hours to even be able to afford a car. Jessica Caldwell Edmund's head of insight said, quote, consumers are likely being forced into trade offs, selecting different brands older vehicles, or even postponing purchases, which is something you've been talking about for a while.

Kyle Mountsier: 7:17

Well, yeah, and you're starting to see more buyers enter the market, because they're kind of required to right you get to that six year timeline, maybe the loan is up, you have some equity, or maybe the vehicle isn't operating the way you wanted it to, because it was a used vehicle. But, yeah, when you look at the market and you purchase six years ago, when interest rates were, you know, 123, 4% and you had a vehicle that was, you know, significantly less in price. You know, average prices were a lot closer to 20 grand for used cars, and not 27 grand. I mean, that's a whole like, I mean, that's, that's $125 in payment for most people, right? Just in the just in that increase over time. But what this points to, for me is a realignment of your used car inventory and starting to recognize that finding those vehicles that are in a price point that will move faster, that will sell faster, that will most likely maintain higher margins because of the demand on those vehicles is really, really important, even though it's difficult, like it's difficult to find that vehicle, but going to see seeking out and finding that actually, I was talking to someone just Last week, where you look at Carvana and Carmax starting to index a lot lower for for vehicle prices. And so I think we should follow that trend, because they're following the market and where the market's demanding their price

Paul J Daly: 8:31

point be, yeah, and all that first party data look people still on the sidelines. I think is part of the upside of this issue. Right? When you talk about how many vehicles, what's the star going to be like? There are still buyers that are sitting it out, waiting for things to change. When is the is there supposed to be an interest rate announcement this week? Vacation decided it's either

Kyle Mountsier: 8:52

this week or next Wednesday. Remember, exactly

Paul J Daly: 8:54

might be tomorrow, either way, like that might that might bring some of the sideline buyers in, even though, like, that quarter points, it's

Kyle Mountsier: 9:01

probably gonna be, I don't think it's gonna be a half point right off the bat, especially

Paul J Daly: 9:05

until the election. Like, what does that actually right, especially, but what does that actually do to rate? But I think it's a mental state that people like, okay, things are getting better. Tight. Like, it's an economic signal. Uh, speaking of economic signals, oh, boy.

Kyle Mountsier: 9:21

So, in a related story, a new report from the Financial Times highlights the growing burden of auto loan debt, which now accounts for get this 9% of household debt, second only to mortgages and surpassing student loans. Oh, auto loan delinquencies are also nearing record high levels set during the 2009 financial crisis, as many struggle to keep up with large payments. Buyers who are who have purchased during the covid pandemic at inflated prices now are facing significant negative equity. I was talking to a dealer just last week about that reality, like happening in their showroom, and then trying to figure out how to get people out of negative equity. Um. Um, fewer premium prime borrowers are losing their vehicles compared to 2009 but the total automotive debt has reached 1.6 trillion as of September of last year. So still, just like a massive amount of debt, higher DTI, higher, you know, higher debt on the actual auto purchase. So just that's in the consumer's mindset as well in relation to that last story. I

Paul J Daly: 10:29

mean, first of all, the fact that school loans were number two is kind of a little bit of a wake up call for me, a little bit, yeah, but, but now that, seeing like we always talk about, and you hear the the rhetoric a lot, saying like, this is the second largest purchase someone's going to make, and it is now also the second largest payment someone is likely to have. And so again, this it's the same we're singing off the same song sheet. Understanding this is the challenge. This is no surprise to anyone that's on the desk, anyone that's on the front lines every day, but letting people know that you understand this out front positions you back to the beginning of the show. It positioned you as the guide in the story, right? The customers, the hero, they have a problem something standing in their way of getting it. And you come along as the guy that can give them a plan of action that calls them into the story, where they get the car, they kids get the practice, they win the girl, they have the baby, and have a way to move it around the world, right? Like there's, there's a lot in there, and we say it all the time. Every part of life is connected to this industry, which is the coolest thing ever.

Kyle Mountsier: 11:32

I like. I don't have much more to add, except for, I just love that. That's what we get, the opportunity as an industry to give consumers every single day. So we do

Paul J Daly: 11:42

and the opportunities keep coming. They're walking in your door. They're submitting leads on your website right now, and all those people that work for you take care of them so they can take care of them. No, we're saying we'll see you here tomorrow. Have an awesome day.

Unknown: 12:02

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