Johnnie Martinez 16:51:42
Hello everyone, and welcome to the roadmap for model finance news since 1996 the nation's leading newsletter on automotive lending and leasing. It is Monday, March 30, and I am Johnnie Martinez, the second last week, we continued covering geopolitical tension around the Iran war and tariffs, rising credit and fraud stress, as well as increased regulatory scrutiny, rising tariffs, the Iran conflict and persistent affordability pressures are clouding the 2026 auto outlook, as higher gas prices and inflation weigh on consumer sentiment, according to Cox automotive first quarter forecast call new vehicle loan rates climbed to 9.8% in February, while rising costs for insurance and ownership continue to strain affordability, consumers are shifting toward lower price vehicles or exiting the market altogether, even as inventory remains relatively tight and dealers face several more challenges, which our other editors will touch on a bit later. Lenders are also taking more risk to sustain demand, as automakers are expected to pass along higher tariff related costs, creating a more uncertain outlook for the rest of the year. That uncertainty is also hitting the capital market side of the auto industry, as Canadian subprime lender Go Easy secured covenant relief after reporting about a 241 million in charge offs tied largely to its auto unit, prompting a sharp stock decline and pull back in lending last week. Meanwhile, Barclays is retreating from asset based lending to smaller, non bank borrowers, following losses linked to failed firms shifting toward larger, lower risk clients as more macro, economic and geopolitical concerns arise, we'll continue to update you on the auto finance implications. So stay tuned for more on how auto lenders are utilizing AI amid increased uncertainty fraud and regulation. I'll turn it over to Amanda.

Speaker 1 16:53:39
Hey, thank you, Johnnie yes on the AI front, I spoke with Sanji vyaznik, president of financial services a Capital One, who gave some great insights into top considerations as lenders lean more into AI. The first is, you must keep regulation front and center. So capital one actually has regulators in the room, keeping them honest and ensuring that the consumers, dealers and manufacturers are protected as they build out new technology and implement new technology and AI across their business. The second is that when AI based tools become more sophisticated, such as the use of AI agents that can employ reasoning. It's also possible, as we all know, for those tools to share misleading or inaccurate information. And lenders must, of course, be very, very mindful in this. And the third is that no matter which you believe came first, technology, along with the entire automotive and financial services industries are changing rapidly. Lenders, manufacturers and dealers, must adjust accordingly, and you can hear more from Sanji by listening to our podcast with him from last week. But to keep on the AI front, while it is bringing more sophistication to the industry, it's also making it easier for fraudsters to target consumers. So TD banks, head of strategic enablement, Financial Crimes Prevention and operations, Julie Packard said on a recent podcast that the bank is working hard to educate consumers as scams of all types are on the rise. AI is essentially driving an uptick in scams as people so like person eating individuals or businesses. They're doing that to trick consumers into giving them money or doing other things. The FTC also estimates that in 2025 consumers reported almost $16 billion in losses tied to fraud, but that's only a fraction of the estimated nearly 200 billion. When you account for under reporting, only a tiny portion of fraud actually gets reported by consumers, so the thought is actually causing a lot more losses than what is actually reported to the FTC. And you can read about this in the scam Act, which is making its way through the house representatives and that attempts to combat the issue. And you can read that in my full article on the regulatory front, dealers and lenders are on high alert after the FTC sent warning letters to 97 otter groups regarding advertising and pricing practices. I dive into this a little bit more last week and looking at how the letters serve as a warning that the FTC is watching complaints closely at the CFPB, and they are looking for things like your pricing matching across all platforms. So if you have it online, on the vehicle, on an advertising that's going around, that you may have paid for third party for, if you got it on, you know, a paper advertisement. Essentially, you want to make sure that is matching what the consumer is seeing when they come in. Hard to do when you have chat GPT and other AI bots that they're asking questions to, but some of you mindful of and that you're including the fees and disclosures that are required when you're including pricing. So so. Something to keep in mind, though, the FTC is clearly very, very focused on this. The magnitude of letters went out. Everyone I talked to said, just the sheer amount of volume that they sent out at once really shows that they are paying close attention so very top of mind, and we'll continue to follow that in other updates on the regulatory front here to come this week. So stay tuned.

Johnnie Martinez 16:56:57
And for more on trends in the auto asset backed securitization space, including the impact of the Iran war is having on auto abs, I'll turn it over to Drew.

Truth Headlam 16:57:08
Thanks, Johnnie. So the Iran war has stirred up some things in the financial markets, in the case of widening auto spreads and causing funding costs to go up, or at least the worries of funding costs to go up, circulate to get an understanding of what may lie ahead if the war persists, I asked market experts about historical events that we could look to sources brought up the Russia, Ukraine war, the pandemic Liberation Day, which is when President Trump imposed sweeping tariffs back in 2025 And the regional banking crisis of 2024 I dove into what shifts these events caused, particularly the shifts they had on inflation spreads and investors behavior and many of the events seem to have had similar reactions to what the Iran war currently has, what what we currently see play out with the Iran war. Excuse me. Lastly, I spoke to lenders about what they are doing to prepare for a possible uptick in funding costs, and I also spoke to experts on dealer strategies to learn about what they're hearing in the market. Basically, both dealers and lenders are diversifying funding strategies for their respective needs. So to find out more about what avenues dealers and lenders are leaning into more during the current climate, you can feel free to toggle over to my feature titled I ran war writings, auto ABS spreads driving funding costs higher. Side note, I'll actually be providing an additional update on spreads later today, so market experts would have also weighed in on the war and house impacting spreads, especially as it enters its first full month, so please keep an eye out for that. Lastly, my bi weekly update on auto ABS volume, which is based on JP Morgan securities data, showed that volume through March 27 so that's year to date. Through March 27 was down about 9% and that was across all auto ABS categories. So that totaled out to about 44 point 6 billion. But something of note is that lease ABS volume was up about 13% now You bet you may be wondering what is causing that distinction, and part of the reason is that various macro economic conflicts, excuse me, economic macro economic events in 2025 some of which I mentioned earlier, such as the onset of tariffs and things that are happening This year in 2026 such as the Iran war, has caused issuers to shift, both then and now, to shift their schedules for issuance. In fact, the managing director of ABS research at JP Morgan securities said in a march 17 note that ABS market participants sit and wait on the Iran conflict developments as investors grow increasingly concerned about consumer health amidst soaring gas prices. So on top of that, issuers are also worried about how the consumer will fare given all that's going on. And with that, I'll turn it back over to Johnnie.

Johnnie Martinez 17:01:02
Thank you. And lastly, we will have our Associate Editor Aiden, discuss how the Iran war is contributing to gas prices and refinancing, as well as some other fraud trends impacting the auto industry.

Aidan Bush 17:01:17
Aidan, thank you so much, Johnnie. As truth mentioned, there have been many ripple impacts of the Iran war, and one I focused on last week was really the ways that subprime consumers may face shocks first. So this has already been mentioned. The disruption to the oil supply brought. From the closure of the Strait of Hormuz could bring several orders of impact to consumers. Steven GEIS at investment bank leans capital, told me the first impact, of course, being the higher prices at the pump. But then also, if diesel costs continue to rise, that could spur delivery and transportation price hikes, which could make consumer goods more expensive. And if we see a situation where both gas prices are up and consumer goods do get more expensive, that could cause inflationary pressures, which then could keep the Federal Reserve from reducing rates, those costs could hit subprime consumers first, as they often rely on vehicles to get to work and have less money to save less money saved rather to weather any price hikes, forcing them to prioritize rent or gas over car payments. As a result, lenders may see higher delinquencies by late spring or early summer. But as truth mentioned earlier, this really is contingent on how long the war continues. Sub prime consumers may find relief, however, in refinancing caribou financial subprime refi application volume Rose 130% year over year, in February and their originations were made up of more than 1/3 of subprime consumers in late 2025 caribou president told me that that increase comes as a direct reflection of consumer uncertainty and a decline in overall spending power, beyond refinancing and some of the macroeconomic factors hitting consumers. I also tackled two emergent fraud types, an instance of alleged floor plan fraud and this new type dealership cloning. So I'll start with the Floor Plan fraud just to start off, stellantis financial services and Ford credit both filed lawsuits against dealer principles, Alexander Igor and Elena tostonoski, who owned two Iowa dealership locations doing business as Sky Auto Mall and sky Chevrolet. The lawsuits allege the dealers received floor plan financing on the same inventory line for multiple lenders. It also alleges they sold vehicles without paying their floor plan lenders a portion of that proceed, and they also defaulted on those floor plan loans. Sky auto and sky Chevrolet are alleged to owe more than 18 million across the two captives lawsuits. And since the lawsuits were filed, Alexander Igor and Elena have all personally filed chapter 11 bankruptcy, those bankruptcy files, those bankruptcy filings, excuse me, show that GM Financial also provided floor plan financing to Sky Chevrolet and several other lenders lent in various capacities to the dealerships as well. Though it should be noted that none have filed additional lawsuits as of today on to our next fraud type, and my final piece, scammers are creating fake auto and equipment dealership websites with AI to trick consumers into sending them money. So this is called dealership cloning and risk management software provider point predictive identified more than 100 different instances of these websites, the common signs were that when a dealership with good reviews either goes out of business or does not have a website, fraudsters will use AI to code a website based on the dealer's name and branding with significantly cheaper listings than standard prices a delivery only policy, and they will use AI generated photos or video testimonials to make the website appear more legitimate. These websites won't have a physical location listed on the site, but they'll have a phone number connecting people directly to a scammer, and the idea is the customer tries to purchase one of these fake listings. Essentially, they send money over through a wire transfer, and by the time the customer realizes anything, these sites can already be down, making it that much more difficult to report. It's difficult to quantify the losses from dealership cloning, but point predictives Frank McKenna estimates that it costs millions annually, and one fake retailer in Alabama is estimated to have caused $223,000 in losses, according to the Better Business Bureau there, our story has some of the screenshots and AI videos, which I think are really important to see just how realistic these websites look and how much they function like a normal, traditional dealer website. So be sure to check that out for yourself and really see how scary the technology here is. So that's all for me.

Johnnie Martinez 17:06:01
Okay, and lastly, I will do a brief recap of the power sports industry of last week. So BRP reported a strong fourth quarter, with North American retail sales up 12% and revenue rising 16% year over year, driven by market share gains and improved product mix through four years, sales being slightly down despite improved profitability, the company recorded a $167.8 million impairment tied to slowing EV and light mobility demand and remains cautious on. Its outlook due to broader macro, economic uncertainty, not all the electric power sports news is bad, however, as the electric boat market is growing rapidly, reaching 7.7 billion in 2025 and projected to expand 66.2% over the next five years, driven by decarbonization trends, battery advances and rising adoption across marine segments. This growth contrast with broader marine retail softness, including at BRP, which had a double digit percentage drop in both personal watercraft and pontoons, where affordability and credit constraints are limiting demand, particularly in the mid market, even as high end and entry level segments remain more resilient. This week, we will have further updates on the impacts of the war and trends across risk management, funding and technology as well as the power sports market. Be sure to register for our spring events as always. Thank you for joining us on the roadmap. Be sure to follow us on x and LinkedIn. We will see you online at auto finance news.net, and here next time, thank you.

Transcribed by https://otter.ai