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Inside this issue
Auto Dealer Associations Back Call for the CFPB to Correct Bias Found in Auto Lending Enforcement
Equifax Refutes 'Auto Bubble,' Cites Improvement in Credit Scores after a Subprime Auto Loan Origination
GM Financial-Chevy Lease Exclusivity Seems Likely
Port Dispute Cuts Production at Honda Indiana Plant
Family Owners of Ferrari Say They Will Not Sell Stake
What Car Salesmen Are Going to Disney to Learn
Click here for more auto industry news at NADAFrontPage.com. .
Top Stories
Auto Dealer Associations Back Call for the CFPB to Correct Bias Found in Auto Lending Enforcement

Five financial services organizations sign letter to the CFPB urging an adjustment in its auto financing enforcement policy in light of a new study that casts substantial doubt on the government’s analysis.

NADA, AIADA and NAMAD applauded the efforts of five financial services organizations to fix the serious flaws in the Consumer Financial Protection Bureau’s approach to regulating auto financing.

The groups, which include the American Bankers Association, American Financial Services Association, Consumer Bankers Association, Financial Services Roundtable and U.S. Chamber of Commerce on Wednesday sent a letter to CFPB Director Richard Cordray urging the Bureau to change its enforcement policy on dealer-assisted financing, in light of findings in a peer-review study that showed there is significant bias in the Bureau’s analysis.

"In light of the rigorous peer-review that has cast significant doubt on the CFPB’s findings, the Bureau should change course – or at least hit the pause button – and address these new concerns. We applaud the courage of these organizations for speaking up," said NADA President Peter Welch.

In 2013, the CFPB issued guidance urging lenders to change the way they compensate dealers for arranging financing for their customers because of a risk of disparate impact in the loans issued. However, an in-depth study by Charles River Associates demonstrates that the analysis the CFPB uses in enforcing its guidance is substantially flawed and that, as a result, the Bureau’s findings are erroneous and overstated – in some cases, dramatically so. For example, Charles River, after reviewing data from more than 8 million financing transactions, concludes that the CFPB overstates one of its comparisons by 41%. And, remarkably, despite this indictment of its methods, the CFPB has yet to address the study or its implications on CFPB policy.

In the current dealer-assisted financing model, consumers benefit as dealers obtain quotes from dozens of finance sources – many of which consumers would not ordinarily have access to. However, auto loan customers are not required to state their race or ethnicity on loan applications. To determine this, the government uses complex statistical modeling to estimate the number of minorities in a sample. The Charles River study showed that the CFPB’s use of this modeling contains numerous flaws, thereby casting doubt on the CFPB’s larger policy.

The flaws in the CFPB’s methodology have not stopped automobile dealers from developing procedures to address the CFPB’s concerns about the risk of discrimination in auto financing. In 2014, NADA, AIADA, and NAMAD jointly released the NADA Fair Credit Compliance Policy & Program, which provides a dealer with an optional mechanism for ensuring that its credit pricing is established in a consistent manner and is based exclusively on legitimate business considerations. The program is modeled on – and fully adopts – a Department of Justice fair credit compliance program that the agency required dealers to implement in prior enforcement actions.

For more information about the CFPB and dealer-assisted financing, visit www.nada.org/cfpb.
Source: NADA, AIADA and NAMAD
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Equifax Refutes 'Auto Bubble,' Cites Improvement in Credit Scores after a Subprime Auto Loan Origination

Equifax has released its latest Economic Trends Commentary, "Subprime Auto Loans:  A Second Chance at Economic Opportunity," which examines two groups of consumers with deep subprime credit scores, (those with Equifax Risk Scores below 550), over a three-year period: those who originated a subprime auto loan and those who did not.

Equifax found that over the three-year time period, those consumers with deep subprime credit scores that originated a subprime auto loan showed, in aggregate, a significant increase in their credit score.  In fact, those consumers improved their credit score by a median of 52 points, which is a 62.5% improvement over the median score change of the group that did not take out a loan.  Even more telling, those that took out a subprime auto loan were four times more likely than those who did not to have improved their score to a level above 640, moving them out of the subprime segment.

Chief Economist Amy Crews Cutts and Deputy Chief Economist Dennis Carlson commented on the data  saying, "The auto industry's success wouldn't be what it is today if it weren't for the responsible, solid subprime loans made to the many Americans in need of a car to get to their jobs or take their children to school.  Lenders now have better tools, more data and enhanced technology available to them to make sounder and safer decisions.  While we should all continue to remain vigilant, we can confidently say that subprime auto lending is currently performing well, it's not growing as quickly as prime lending, and our data does not suggest that a bubble is forming."

Lou Loquasto, Auto Finance Leader at Equifax said, "I started my career sitting across the loan desk from thousands of nonprime families in need of a vehicle -- each of them having a story about circumstances that resulted in their less than perfect credit score.  It was rewarding to watch these customers diligently make the most of these second chances and see a high percentage graduate to a prime credit standing -- empowering them to take full advantage of their newfound financial well-being. 
Source: Equifax

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GM Financial-Chevy Lease Exclusivity Seems Likely

There wasn’t much doubt, but General Motors disclosed for the first time in an SEC filing on Feb. 4 that it is considering plans to throw all Chevrolet lease incentives to GM Financial instead of sharing them among GM Financial, Ally Financial and U.S. Bank. GM Financial became GM’s exclusive preferred lease lender for the Buick and GMC brands this month and will take over those duties for Cadillac in March. Officially, GM has avoided saying whether Chevrolet will be next. Dealers told Automotive News they expected that to be the case, once GM Financial proved itself with Buick, GMC and Cadillac.
Source: Automotive News
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Port Dispute Cuts Production at Honda Indiana Plant

A labor dispute involving dockworkers that has crippled international trade through the West Coast's seaports has prompted Honda to temporarily cut production at its southeast Indiana plant because of a parts shortage. Honda spokeswoman Anita Sipes said the automaker has tried to use alternative means of getting parts. But she said the dockworkers' contract dispute is preventing Honda's Greensburg plant from getting critical items, including electronics and transmissions, because of cargo bottlenecks at 29 West Coast ports.
Source: Associated Press
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Family Owners of Ferrari Say They Will Not Sell Stake

Piero Ferrari, son of the eponymous luxury sports car company's founder Enzo Ferrari, said he had no intention to sell the 10 percent stake his family owns in the company. "I have never sold and I have no intention of doing so," Ferrari told journalists at an event. Car maker Fiat Chrysler Automobiles plans to conclude the spin-off and initial public offering of Ferrari this year, subject to regulatory approvals, FCA CEO Sergio Marchionne said last month. Marchionne said in October he would spin off Ferrari from the group, sell a 10 percent stake via a public offering and distribute the rest of FCA's stake to its shareholders.
Source: Reuters
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What Car Salesmen Are Going to Disney to Learn

How your Chevrolet dealer is taking lessons from Disney, Apple and McDonald's

What do Disneyland and Chevrolet have in common? Car dealers. Chevrolet—by far the largest-selling brand owned by General Motors—has been sending its auto dealers to Disney World for the past four years. As part of a program that began in January 2011, Chevy sales teams participate in workshops in Orlando and Anaheim with the Disney Institute, Disney’s customer-service consulting division. The Disney Institute, which works with a wide range of companies from Häagen-Dazs to United Airlines, specializes in retraining company employees in customer service. There, Chevrolet dealers are taught to act like theater actors: When they meet customers at the dealership, they’re onstage playing the gracious host. Through this process, Chevy dealers learn the finer points of focusing on the customer, an art the Mouse House has perfected over the years.
Source: Time
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Quotable

"... in light of the rigorous peer-review that has cast significant doubt on the CFPB’s findings, the Bureau should change course – or at least hit the pause button – and address these new concerns."

   
-- NADA President Peter Welch, in support of a letter to the CFPB from five financial services organizations to correct bias found in the CFPB's auto lending enforcement, NADAFrontPage.com, Feb. 18

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