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Auto Finance News is pleased to present The Roadmap, the podcast on best practices and trending topics in automotive lending and leasing. If you are in auto finance, this is your podcast.
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Aidan Bush 10:00:21
Recording now. I'll give it a few seconds, just because sometimes my software takes a bit to get the first few seconds of the recording.
Speaker 1 10:00:28
Where
Aidan Bush 10:00:29
is it? I will launch into it in a second here. Welcome to a special episode of the Auto Finance Roadmap. I'm Aidan Bush, senior associate editor with Auto Finance News. Today, I'm joined by Michael Catone, head of Subaru Motors Finance at Chase Auto. We're here today to discuss Subaru's year-over-year sales job in June, how to navigate consumer affordability pressures, and what ways EVs, longer loan terms, and leasing can play into some of those affordability strategies. Before we dive into those topics, though. Michael, could you tell us a little bit about your background and some of the work you do at Subaru Motors Finance?
Speaker 1 10:01:08
Absolutely. Hi, Aiden. Very, very nice to meet you. So, I've been with Subaru Motors Finance for just over a year now. I run the captive finance company that has been connected to Subaru with JPMorgan Chase for over 25 years now. Previously, with that, I was with Volvo Cars on the OEM side. I was with them for almost 23 almost 24 years, starting out as an analyst and ending up as president and CEO of the US and Canada Forum. So, long, long fun time in the auto industry.
Aidan Bush 10:01:38
Great. Well, thank you so much for that background. I really appreciate it. I'd love to start with that first point I mentioned, you know, Subaru sales rose a little over 18% year over year in June, even as Subaru's year to date, year to date, excuse me, sales remain a little bit down 4.5% year over year. From a finance perspective, what does that split say to you in terms of consumer demand, some of the affordability pressures facing consumers right now, and you know, Subaru Motors finances own strategies in terms of financing.
Speaker 1 10:02:10
It's a really good question, and it's this this year in the industry. If you look back one year, if you can only believe that a year ago we were being hit with tariffs in the automotive industry. There was a big rush in the first quarter for everyone to get to get new vehicles. Then, if you go towards the end of last year, or the end of the third quarter last year, you had the end of the 7500 subsidies. So 2025 was an abnormal year in terms of how the seasonality flowed, and if you look at how Subaru has started this year, I would say that they're, they're, they're moving in a really good direction month over month. They keep having a slight sales increase, they're running around that 4% market share, and while they were, they were down slightly in the beginning of the year, that was mainly due to that that quick onset or pull ahead of business from April and May into the into the first quarter from the tariffs. Now this year they're starting to get onto it, their normal cycle of, I think, the last two months they've sold 56 and 54,000 cars, respectively, with with solid year over year increases, and I think we'll, we'll see some more of that in the future. The main thing from our side is Chase Motors Finance, is if you look at our business with them year over year, our originations are up, they're spending from a subventive level to keep really strong rates and really strong leasing into the marketplace to get money to get more customers into the captive, so from our perspective, we're actually up year over year with Subaru customers coming into Subaru Motors finance.
Aidan Bush 10:03:45
Great, I'd want to kind of turn the clock back a little bit here and talk about in May. I know one of the points made in Subaru's release was that hybrids and EVs made up a quarter of all new sales. I'm curious, how you all are thinking about hybrids and EVs, in terms of that mix, potentially changing lease residual value or retail finance strategies.
Speaker 1 10:04:07
It's a great question, because I think last year, when everybody was looking at what 26 would be like, pre pre tariff, pre 7500 tax credit, the numbers were going to be way higher then you looked in the fourth quarter, after all that went away, and before the gas prices spiked, we said, "Oh, hybrids will probably come up a little bit, EVs are going to be a lot less. And what we saw in May for Subaru was actually at a record EV month, and they've launched two new - they've launched two new EVs this year to go along with the Saltera, a very, very strong increase in Saltera, and they're consistently bringing up the mix of the of the of the hybrid models to match the demand, and I think that's been the hardest part for all OEMs and Subaru, especially, is to figure out where this demand balance between EV and gas is, and between hybrid and gasses, and hybrid and EV going forward. It's interesting when you ask the question in terms of leasing, obviously with the elimination of the 7500 tax credit, we've seen the amount of leases to EVs come down, and actually, what we're starting to see is that EVs are starting to lease at the same level as hybrids, about one in three-ish are being leased right now, the rest are being financed or cash, where last year the EV numbers were closer to, you know, 8085, Percent, because of the tax credit.
Aidan Bush 10:05:22
Gotcha. Yeah, it's interesting, especially the state of the hybrid market right now. We've seen, you know, Edmunds and some of these other aggregator sites mentioning this renewed interest for hybrids, especially coming off of some of these, you know, rising gas prices and energy crises that consumers are facing. So, interesting to see where that continues to go the back half of this year,
Speaker 1 10:05:43
it, you're absolutely correct, and I said it's so funny when you think about this business, and just the last 12 months, what's what's changed, and then even in the last three or four months, when we started to see the changes in oil prices and gas prices start to come down based on the conflict over over in Iran, so it's been a bit of a roller coaster. I think we're all looking to get back to what's called normal chaos in the automotive industry versus what the current 12 months has given us, or
Aidan Bush 10:06:13
yeah, normal chaos. I like that phrasing. We mentioned gas prices. I do want to talk about affordability concerns more broadly, whether that's new vehicle pricing, elevated interest rates, you know, how are you balancing consumers' affordability concerns with that reality that I think the average monthly payment on a new vehicle is somewhere around that $770 range as of Experian data on the first quarter,
Speaker 1 10:06:38
yeah, that's that's it's it's a really interesting topic on two sides of it, right. First, you have the new vehicle affordability, and what we're really doing inside of Super Motor Finance is, you know, instead of taking a look at what the prices are today and taking that as an isolation, where we hear the affordability concerns, we're taking a look at the portfolio, and you look at leases that are maturing over the next 369 12 months, and you compare them versus the leases that are originating today. Those payments are not that far off, and I think a lot of that has to do with the cars coming out off of lease. A lot of these were COVID supply chain cars that were there, was less subvention in the market, even though there were low interest rates, and and it wasn't quite, it wasn't quite as competitive marketplace as it is today, so when you're starting to see that those payments are very close to each other on both, on both the lease maturing side and even with the rates that they are today, and what the offers that Subaru put out there, you can get a Subaru customer into a newer model at around the same payment, because on top of that, what we're seeing is the residuals of the cars are a lot of these cars are coming back in an equity position, so we're consulting, we're consulting with the retailers and consulting with them on, hey, we need to have these discussions with the consumers, because there is a lot of talk about vehicle affordability, but when you start to put pencil to paper and you do the math, you can start to get into a newer payment or similar payment for a newer car with better technology in it. So, I don't want to say there's a myth, but you got to debunk that myth a bit too.
Aidan Bush 10:08:15
Yeah, let me ask that. I mean, you mentioned leasing specifically in there. What role do you see leasing playing for Subaru and Subaru Motors finance over the next year. Is this primarily an affordability lever, as you mentioned? Is this something to kind of incentivize that EV hybrid adoption? Is this, you know, a loyalty tool? Where do you see, is it all of those? Where do you see? I was about to
Speaker 1 10:08:37
say the answer to your question there is yes, and the reason why is, again, if you go back pre-pandemic, pre-COVID, police supply chain leasing in Subaru's Motor Finance was in that 25 getting close to 30% overall, and where those numbers are starting to return, and it leasing can fit so many different avenues, right? If you want to test out a car and say, okay, I want to try an EV, I'm going to be in it for three years or so, and let's see if it fits my lifestyle, we can use that. And then there's a lot of discussion when it comes about longer term loans, right? You're seeing a lot of information about 84 months, 84 month loans are picking up and picking up well. If you compare an 84 month loan payment versus a 36 month lease payment, they're very comparable, and it's much more consumer friendly, right? It's much more of a consumer friendly avenue for them, so they're able to get out, and there's a lot of.. there's probably going to be.. there won't be negative equity in that three or four year time frame from an 84 month and then the other thing is Subaru does such a fantastic job managing their inventory, managing their incentive spend, managing the number of cars going into rental that help build a strong residual value that we're seeing these cars come back with equity, so if that continues on leasing is this is a great tool for retailers to get consumers, get consumers into the brand, and keep them into the brand, and getting them a new model every three, every three years or so.
Aidan Bush 10:10:07
Yeah, let me ask, you know, you mentioned some of the concerns around negative equity on these 84 month and beyond loans. Are you at Super Motors, you know, finance seeing more customers off. For those 84 month loans year over year, and you know what guardrails do you have around, you know, the these longest terms that prevent some of those, you know, concerns as far as negative equity.
Speaker 1 10:10:33
So we work with the Super of America and the Retailer Advisory Board. I'm like, what are the best offers, and one of the things that we worked on to work towards a vehicle affordability was we moved from, you know, 60 and 63 month loan bucket to more of a 72 to 75 month loan to kind of bridge that gap a little bit, it brings payment down, but you know there isn't a ton of talk for our ton of originations that are going on in the 84 month loan, I'd say Subaru and Subaru Motor Finance are kind of bucking that trend a bit. I think we're trying to put more focus on the affordability when it comes to 7572 and 75 months, and leasing, because we think that's the right bucket to keep the consumers coming back at a really good level, and really, and making sure that they're going to stay within the brand during that time.
Aidan Bush 10:11:19
Yeah, absolutely, especially as you mentioned, you know that monthly payment might be comparable for a lease versus one of these 84 month terms,
Speaker 1 10:11:27
and what's, and what's really interesting too, when we talk about vehicle affordability, is you know we've talked a lot about loyalty, Subaru to Subaru customers, but if I look at Subaru in general, I think the average transaction price in the industry was somewhere around 51 $52,000 like that's where it's starting to get the average Subaru is somewhere in right below $40,000 So Subaru is a brand, is a very affordable brand over out there in the industry. So I think that's going to also help us grab more, more complex customers as well.
Aidan Bush 10:11:58
On a similar note, then let me ask, what are you all seeing in terms of credit performance right now? I'm thinking about delinquencies, charge-offs, you know, where does that stand year over year?
Speaker 1 10:12:10
You know, it's been extremely stable. I mean, the Subaru portfolio is a great portfolio. We are extremely low when it comes to delinquencies, and the FICO scores are very high, the income levels are high. So, this portfolio is absolutely fantastic. So, really, we haven't seen any movement in that over time.
Aidan Bush 10:12:34
Have you, you know, amid some of these broader market or consumer affordability pressures, has there been any tightening or changes to underwriting to kind of maintain that stable performance.
Speaker 1 10:12:46
No, I'd actually say it's the opposite. We're actually looking to try and find more buyers for the Subaru brand. We're trying to look at where we can expand credit policies, where we can get new customers in there, especially looking at the younger demographic, you know, whether it's through our first time ownership, first time owner policies or college grad policies, we're consistently trying to find avenues where we can get more customers into Subarus.
Aidan Bush 10:13:09
Let me ask, then you know, in terms of where you're seeing the most opportunity and most potential consumer stress. When I'm thinking of near prime, Prime, you mentioned first-time buyers, you know, what are those either credit segments or consumer segments that you see a real opportunity for Subaru to grow in terms of financing, and where, where is especially challenging right now?
Speaker 1 10:13:33
I would say the growth, you know, and this is part of the great relationship between Subaru Motor Finance and JPMorgan Chase. Subaru is everybody's looking for that first time buyer because you're trying to get them into a car and get them into a brand, and Subaru has done a fantastic job with owner loyalty. They have one of the best owner loyalties out there, and then on top of that, they have the highest level of return to retailer loyalty that there is in the industry, I think, according to S and P, so with Subaru Motors finance and being backed by JP Morgan, we have the power of JP Morgan Chase to help put Subaru Motors, put Subaru offers out there to consumers that are in the automotive market, and using the suite of Chase platforms to do that, whether it's over in the Chase branches, or putting them up on, I think, during the New York Auto Show, we had a billboard in the Oculus to show the all new Outback previously, and now the Getaway that is just about to be launched, so we're trying to find all the different avenues from JPMorgan Chase to get those first-time buyers into into Subaru, and I think when you look on the challenging side, I don't see a lot of challenges for Subaru when it comes right now, because again, we have they have very affordable vehicles in the marketplace, they have vehicles to match every consumer size or idea of everything up to their Subaru Ascent, which can fit up to seven or eight passengers all the way down to a Cross Track, which is a very affordable model that's available in a hybrid, so they have a really good suite of vehicles out there for the marketplace. So I think it's really a matter of just generating more, more traffic, more conquesting, and more kind. Customers to come into the doors, so the retailers can sell to
Aidan Bush 10:15:24
absolutely you mentioned, you know, Subaru Motors finances unique private label financing partnership with Chase Auto. One thing I was curious about, Chase Auto has deployed AI to automate contract booking and funding, around 80% of applications are decided in minutes per our previous reporting. How much of that capability is available to Super Motors Finance and Super retailers? And where are you all using AI at this point?
Speaker 1 10:15:55
So we have the full suite of offers or technology that it's available by JPMorgan Chase, we're usually on the cutting edge when it comes to what Chase Auto is launching, so we've already put it into booking and funding, we're putting it into credit decisioning, we're using it as tools for vehicle servicing going forward, so we're trying to find all the different avenues that we can have AI help support and make us more efficient, right? Make us more efficient and more customer-friendly is really where we're deploying tools on AI. So, I mean, I think we're seeing the first pieces of it, but I think you'll start to see a lot more in the future of more decisioning being done automated. But on the flip side of that, we're also making sure that we have enough coverage when it comes to our underwriters, because not everything can be decided by a system. In fact, we, we turn off some type of auto, some of the auto decision to make sure that our underwriters can look at it and see if we can put together a deal and make sure that each retailer has a dedicated underwriter, they have questions for phone calls to get a deal rehashed, or to figure out a good avenue on a deal. We make sure that we have that human element for them too.
Aidan Bush 10:17:11
Yeah, absolutely. What does that look like for the Subaru dealerships and retailers that you're working with, in terms of pre-qualification tools, in terms of digital retailing? How are you all collaborating together?
Speaker 1 10:17:23
No, it's a great question, because I think that it's actually been coming up in our advisory board meetings, where we sit with the regional advisory board and the national advisory board. It's like, how can we get a less frictionless process from the consumer through the retailer, and I think a lot of that has to do with it's not necessarily the pre qualification, I think a lot of it has to do with the, you know, with transparent upright pricing, making sure that we have the offers, because the digital tools are only as good as the roadmap that the retailers put in there, like if you're shopping for it and say you have to click to get this price, and then you have to put in an email address to get that, then you're going to create friction into the process, so the less friction that we can create in the process between us, the retailer, and so a Super of America. Sorry, I'm big into Chase acronyms now, so Super of America, and we can make that ease of transaction, and again, I think we're moving at the speed of technology, but I think the most important thing is we move at the speed of the customer, what the customer wants, because I remember when pre-pre Covid, there was a lot of like, we must do digital retailing, because we, because of the way customers were going to shop afterwards, and it's, it's increasing, but it's not at an extremely high level, that you see, it's more of a really strong lead generation tool, but the real key is to make sure it's a very transparent price from when the retailer puts that in there to the point when they come into the dealership to do all the finalization.
Aidan Bush 10:18:54
Yeah, it sounds like, as you mentioned, really putting transparency paramount, and then also sounds like potentially meeting the customers where they're at, having the option for some of these digital retail. That's the most
Speaker 1 10:19:05
important thing, right? If you want to make sure that you, you have, you're available to what the customer wants, not necessarily what you want.
Aidan Bush 10:19:14
Yeah, I'm going to pivot a little bit here and spend a little bit of time talking about your own kind of leadership style and strategy since taking over Subaru Motors Finance. What lessons are you applying from your time at Volvo? And you know, what are you.. what are you changing? What is staying the same in terms of broad strategy for Subaru going into this year into the next few years?
Speaker 1 10:19:38
Really great question. Having joined this firm a year ago, it feel, it feels longer in a good way, because I've learned, I've learned so much from the start. One of the things that you know, first of all, coming over, Super Motor Finance is a extremely well-run organization. We've been at the top, or near the top, of all the JD Power customer segments for a long period, for a period of time, and on top of that, you know, working very closely with Subaru America, and seeing their relationship with their retailers, how they listen, how they're trying to make sure that they stay on top of things. It's been a real blessing on the relationship that you see, but I think I'm very different than probably any. Other leader of a captive is, I didn't really come from a captive background, I came from a 100% OEM background. My entire career was on the Volvo car side. Granted, the relationship between Volvo's captive and Subaru's captive and Bank of America Chase is very similar. I'm, I kind of bring it from the lens of how the OEMs are looking at how the retailers are looking, because I have a great team inside, like, as I said, they're, they're, they're wonderful in terms of relationship. We have a great credit and underwriting desk, we have a great servicing available at JD, from JPMorgan Chase. So, what I'm trying to bring is that those type of insights is, where can we carve around the edges to find more deals? So, a, we talked about how do we find younger buyers, right, and part of that is, you know, how do we pull things into from from the JPMorgan Chase suite of customers at the same time making sure that when those customers come in, we're approving them, so that's one of the things that we've worked collectively on, and the other one we looked at, we talked about was affordability alone, like from the luxury side, where I came from, leasing was 50 60% and you know that's that's one of the things that we've been working through with our team, is like making sure we have the right lease training sitting available, are we having the right conversations when it comes to loyalty, and I talked about the beginning of this was the portfolio, like really analyzing what's in the portfolio versus what's what's being originated now, and finding those gaps, right? Because that's where that's where you find those extra sales.
Aidan Bush 10:21:48
Yeah, as you mentioned, it's been about a year since you joined. One year from now, what would be the benchmarks of success for you at Subaru Motors Finance? Are you looking for dealer SAS section, higher originations, stronger loyalty, and beyond that. What are you watching most closely heading to the back half of this year and into 2027 in terms of broad industry signals?
Speaker 1 10:22:15
So, a year from now, I'd like to keep seeing our originations level continue to increase as Subaru's volumes increase, so I want to keep that high level of market share coming through the captive, because when we, when we take a look at things, every deal, every deal coming through the captive is two and a half times more likely to retain them with Subaru Motors finance than if they were financed somewhere else, so we want to work together with Super of America to make sure that we keep as many customers inside of cap, inside of the captive finance organization. The other area that we're really looking to explore is because I think you talked about what's going on in buzzwords of the industry, and I always focused on 2e's right, expenses and efficiency, right? If those are two areas, those are two areas of the business, whether it's at the retail level, at the OEM level, that are always being focused on. Right, you want to make sure that you can reduce your overall expenses, but not the ones that are the hard-hitting expenses that are that are going to generate sales for you, and you want to say, if I can't lower my expenses, how do I make that dollar go further? And I think for both Subaru of America and even for the retailers at JPMorgan Chase, we're more than a captive finance company, right. We're, we're the world's largest bank that has access to, you know, consumer banking, has access to financial education, wealth management, commercial floor planning, you know, mortgages, everything that a retailer needs to do business on the OEM side, when it comes to credit cards and those type of things, like we can help support that. So, I, and whether it's helping reduce the expenses or becoming more efficient, that you're only going to deal with one banking partner or fewer banking partners, you know, I think that's what we're trying to look, is deepening our relationship with the retailers and deepening our relationship with Supergirl of America in the coming months.
Aidan Bush 10:24:07
Well, unfortunately, that is all the time we have for today. But thank you again, Michael, for joining me and providing all of your amazing insights over that period. And to our listeners, thanks for joining us on the roadmap. And be sure to follow us on X and LinkedIn, we'll see you all online at Autofinance news.net and here next time.
Speaker 1 10:24:26
Thank you very much, Aidan. Thank you so much for this.
Aidan Bush 10:24:28
Yeah, thank you both. I really appreciate.
Transcribed by https://otter.ai