Strong Market for eOriginal Vehicle Finance Customer: $1B ABS Issued

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Prime and Near-Prime Vehicle Finance Company Continues to Achieve New Milestones

It has been gratifying to have Westlake Financial Services as one of our clients and partners. Once we read that Westlake issued its largest Asset- Backed Securitization (ABS) of $1 billion this week—its largest securitization ever—we were beyond enthusiastic for their success. I have gotten to know some of the team there and I was sure the quality of people at Westlake would continue to translate to a high-quality opportunity for investors.

As our own John Jacobs predicted, and as this ground-breaking offering underscored, there has been a lot of strength and growth in the ABS marketplace this year. And even if certain industries are expected to slow a bit when it comes to originations, the vehicle finance sector, among others, remains extremely attractive to investors.

ABS market share means quite a bit to Westlake and other near-prime and prime-credit lenders. As noted in the release, Westlake is “the largest privately-held automotive lender in the country, its current portfolio includes $6.2 billion of assets that consist of originated auto loans and leases, portfolio purchases, and dealer floor plan lines of credit.” Because this portfolio is supported by a solid structure for electronic transaction and asset management; consistent and reliable eVaulting processes; and a regulatory compliant, auditable chain of custody and control, we’re confident that investors will continue to be attracted to securitizations from Westlake.

“eSigned, Sealed, Delivered, it’s Yours”

Not to underemphasize the value of origination improvements at all. In fact, after signing with eOriginal, almost a fifth of Westlake’s origination immediately switched to digital, providing competitive advantage by accelerating the rate at which their assets can be originated, and delighting customers. Now, the dealers that have jumped on board can have their contracts at Westlake’s home office before the customer even leaves the showroom floor. From what I’m hearing, more and more dealers are wanting what Westlake’s eOriginal dealers have right now.

Customers expect paperless. In fact, evidence suggests that the millennial marketplace in particular will be turned off by signing reams of paper over carbon copies. They rightly, or wrongly, assume their investment in a new vehicle is not as safe with those who do not have the technological savvy they expect. Remember, this is the cohort that is likely to source a mortgage over their cell phones.

Healthy Lending Ahead

The upshot is that Westlake’s success underscores that the picture for near- and sub-prime vehicle lending is bright. Bloomberg reported,  “Even though new vehicle sales fell 1.8 percent to 17.2 million in 2017… lending volume for new and used car purchases was on track to be higher than ever, according to data from the Federal Reserve Bank of New York and consumer credit bureau Experian.”

Even though certain indicators in the sector may be troublesome, such as “underwater” borrowing by some consumers who still owe a lot on their existing car for trade-in, Bloomberg and others see no slowdown in the value of these loans when bundled for securitization or collateralization. In fact, Wells Fargo analysts said in a note (Jan 24, 2018) that “bonds issued by two of the biggest subprime auto lenders — Santander Consumer USA Holdings Inc. and General Motors Co.’s finance arm — have room to reach prices not seen since before the financial crisis.”

So not only has Westlake streamlined origination in the way the marketplace demands, it has ensured that these assets in turn may be collateralized, securitized and sold into the secondary market to fuel greater capital efficiency. That’s what I call a win-win. For more about Westlake Financial Services, check out our success story.

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