Johnnie Martinez 14:29:33
Hello everyone, and welcome to the road map from auto finance news since 1996 the nation's leading newsletter on automotive lending and leasing. It is Monday, April 13, and I'm Johnnie Martinez, the second last week, we took a look at how the end relationship between dealers and lenders is evolving in the auto finance industry. Following a year filled with uncertainty and heightened risks, auto lenders are increasingly focusing on deeper partnership based relationships with dealers as profitability tightens and market uncertainty grows, dealer sentiment improved slightly in early 2026 but remains low due to economic pressures like interest rates, inflation and geopolitical instability. Despite these challenges, vehicle demand remains resilient, though customer behavior is shifting due to the higher costs. As a result, lenders are expanding into full spectrum financial services to better support dealers and streamline operations. To read more about how the relationship between auto dealers and auto lenders is changing in 2026 check out our feature. Auto Finance dealer strategies evolve as profitability tightens in 2026 released on April 7. Additionally, you can read our accompanying articles on the activities of Santander, including their new head of dealer commercial services, for more information on how they are deepening their relationships with auto dealers. In other news, first Rand plans to exit the UK motor finance market after raising provisions to 750 million pounds to cover compensation for Miss sold car loans following stricter regulatory requirements, the broader industry faces about 9.1 billion pounds in total payouts to consumers, significantly impacting profitability and prompting strategic withdrawals. Meanwhile, US consumers, short term inflation expectations rose sharply to 3.4% in March, driven by higher anticipated gas and food prices the Iran war and rising oil costs, according to The New York Fed's monthly survey of consumer expectations, The survey also showed growing financial pessimism among households, while the Federal Reserve continues to hold interest rates steady amid mixed signals on inflation in the labor market. US EV charging networks are rapidly expanding, up 34% year over year, as rising gas prices driven by the Iran war, boost demand for EVs, despite growth, infrastructure is still struggling to keep pace with adoption at higher fuel costs and improving charging technology continue to accelerate EV interest. Lastly, us, inflation jumped 0.9% in March, the largest monthly increase since 2022 driven by a surge in gas prices the Iran war, pushing annual inflation up to 3.3% according to the CPI released last Friday, while Most other price categories remain relatively moderate. Economists expect elevated costs to persist and continue weighing on consumers and economic growth as the macroeconomic and geopolitical situation continues to develop, we'll continue to update you on the implications for auto dealers, auto lenders and the wider auto industry. So stay tuned for more information on how capital requirements could change the auto finance landscape. I'll turn it over to our editor.

Amanda Harris 14:33:10
Amanda, great. Thank you, Johnnie, yes. So everyone may remember that in 2023 the Federal Reserve published an initial proposal to heighten capital requirements for banks. Those did face a wave of comments from the industry due to concerns around higher funding costs, more limited access to credit, and general challenges around having to hold more capital in reserve. The latest proposals published in mid March aim to come to more of a middle ground between the higher capital requirements while still allowing banks to lend and the economy to grow. The Fed published three proposals, and they each target different size institutions with capital requirements meant to factor risks associated with the market. The changes will lead to an estimated four to 5% reduction in required capital levels for the largest banks and an up to 8% reduction for the smallest banks with less money tied up in reserve. Analysts do believe that more capital could be freed up for lending, boosting financing volume across all asset types, and that includes auto the Fed actually estimates that the proposal could generate up to about 1.3 trillion in new lending and securitization activity. The changes also address key bank concerns surrounding warehouse lending and securitization. Cost outlined in the initial proposal, and we'll actually have more on that today. It's up right now. However, the changes don't address all concerns. JP Morgan Chase, CEO Jamie Dimon said that global, systemically important banks like Chase may see a modest decline in their surcharges, extra capital they have to hold because they are systematically important. They will still face higher capital requirements compared with some prior calculations. He said he felt the proposed capital levels, quote, seems to punish our success. UNQUOTE, so we'll be following the industry feedback on the latest proposals as comments are due in June. So stay tuned now back to you, Johnnie.

Johnnie Martinez 14:35:05
Fantastic. And for more information on how changes in the asset based lending market are creating opportunities for the non banks and regional banks, I'll turn it over to our Senior Associate Editor, truth.

Truth Headlam 14:35:17
Thanks, Johnnie. So some national banks have been reported to be pulling back on asset based lending following several shock waves to the industry in 2025 but this is leaving a hole in in terms of borrowed demand, but it's also creating an opportunity for middle market lenders, such as non banks and regional banks, to gain clientele. Another opportunity for middle market lenders related to this pullback comes by way of possible refinancing that may occur if borrowers that currently have financing with a bank end up not getting the support that they feel they deserve. Another possible impact here is that non banks may see an opportunity via private equity. If PE firms decide to pay more attention to the section of the market that larger banks are pulling out of for asset based lending, this scenario would also benefit non banks, because PE firms use non banks to help finance acquisitions of companies and things of that nature. So essentially, the PE firm would use less of its own money and more capital markets news, I took a look at the impact of EV residuals on auto ABS deals. SMP global expects the percentage of battery electric vehicles. So BEVs, specifically, Bev leases and securitizations to decrease in 2026 and 2027 for issuers. But that decrease is expected to be gradual. Overall declining EV residual values is essentially just making it extremely or increasingly difficult for lenders to raise capital against those securitizations and battery, battery, EVS or BEVs have The worst residual value progression rate. I also dug into several lenders, securitizations, to see how EV lease allocations have shifted. Have just shifted, excuse me, and dove into some reasons why market participants believe residuals are getting worse. And if you would like to read more about that. Feel free to check out my story titled volatile residuals can prompt additional pullback of EVs and auto ABS deals. That's it for me, for now, go back to you, Johnnie,

Johnnie Martinez 14:38:00
fantastic, and for more on how lenders are turning to long term loans to combat rising macro economic pressures. I'll turn it over to our Senior Associate Editor, Aidan,

Aidan Bush 14:38:10
thank you, Johnnie. So as you mentioned, the share of customers with 72 month or longer loan terms rose to 28.8% in March, according to Cox automotive, and this increase mirrors what we've heard from lenders at nada and some of these past conventions have mentioned viewing longer loan terms as a lever for affordability in terms of monthly payments. I spoke with David holiday of US Bank last week, and he mentioned the bank has also seen a modest increase in the amount of consumers taking out 84 month term loans. However, as those longer terms increase, there's also been an uptick in the amount of negative equity that consumers have. So that same Cox auto report mentioned that the share of borrowers with negative equity rose to 59.2% in March, and that is a record for at least you know, Cox Auto's data reporting and lenders and payment processors have mentioned that this comes as even though customers are taking on these longer term loans, they may still be trading in those vehicles in that same three to four year cadence. So I spoke with the CEO of payment provider auto pay plus, and he told me that these longer loan terms can actually trap customers in a trade in cycle where, if they are accruing more negative equity and they're still trading it in at the same. Time, and they continue that over and over again, they're going to sort of rack up more negative equity until it becomes unfeasible to finance a new vehicle. In a similar vein, we've seen used vehicle prices increase year over year, in March, really, across all segments, as affordability continues to be a demand, and so customers are returning to those used vehicle you know, as an option. So it looks like, like I mentioned, just about every single major segment has increased, with used EVs jumping the most at a 9% increase year over year, according to Cox. However, despite these increases, Cox auto expects most used vehicle metrics to decline in 2026 that includes use retail sales, certified pre owned sales and their Manheim used vehicle value index. Jeremy Rob, Chief Economist at Cox auto, attributed this prediction to the fact that 2025 was a stronger year than anticipated for vehicle sales, namely, as tariffs and the EV tax credit pulled ahead some of those consumer sales who who may have otherwise waited to buy a vehicle, moving away from vehicle values and sort of the larger affordability pressures. Risk Management software provider point predictive released its annual auto lending fraud Trends Report, which revealed that auto lenders faced a total of $10.4 billion in fraud losses last year, and around just under 70% of those losses came from various types of first party fraud, which is when scammers use their real identity, or at the very least get someone to consent to using their identity. If you've heard or read our previous coverage on bust out auto fraud or credit washing, those are two examples of first party fraud, but there are many listed in that report and in that story, so be sure to check it out. But really, in terms of the future of fraud prevention, what we heard from lenders and risk management providers was that AI could be a proverbial double edged sword, so scammers are using AI more and more to generate false pay stubs and false identifying documents. In fact, in that same report, there's been a 500% increase in scammers submitting fraudulent pay stubs through tools like AI, just between April and December of 2025 and as we all know, generative AI continues to get better, and so as that increases, so also does its ability to create realistic fake documents. At the same time, AI driven lender Len buzz and a cyber security expert at VC firm auto tech ventures, both mentioned AI as a tool for fraud prevention, that it can be used to analyze sort of reported fraud incidents that lenders know and find red flags among them, or in some instances, even recognize which of these images or documents are AI generated. So AI is proven to become both a tool for scammers and a tool to prevent scammers. And we'll be continued to we'll be sure to continue and follow up as that technology evolves and grows. So that is all from me, but I'll turn it back over to you, Johnnie for the rest.

Johnnie Martinez 14:42:23
Fantastic. Now we'll take a brief look at the power source market, which really centered on one idea, power sports dealers are adapting to a growing wave of new and returning riders by emphasizing customer service, education and digital engagement as buyer expectations evolve. The Sport bite category is especially seen growth rising 13% last year as broader industry, sales declined, reflecting a shift toward more affordable, versatile models and a more experience driven, digitally influenced purchasing journey, we've seen some of this also translate into other changes in the market. TVs surpassing Yamaha as the number three power sports brand this year, we've seen companies like horsepower financial expand their leasing partnerships and so really, there's this shift to consumer expectations for both power sports dealers and lenders to be aware of as the new consumer base starts to showcase what they desire most, and to capitalize on that is kind of the best way to keep one the industry growing, but to especially find operational success. With all this in mind, this week, we will have further updates on the trends that matter most to auto and power, sports, dealers and lenders, as well as the start of our earnings coverage for the first quarter results beginning with Chase and Wells Fargo on April 14. As a reminder, our inaugural auto finance capital summit takes place May 11 and 12th in Nashville. Auto Finance Summit East also takes place May 11 through 13th in Nashville. Be sure to register for our spring events as always. Thank you for joining us on the road map, and be sure to follow us on x and LinkedIn, we will see you online at auto finance news.net, and here next time you.

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