Subscribe
Share
Share
Embed
Auto Finance News is pleased to present its podcast on best practices and trending topics in automotive lending and leasing. If you are in auto finance, this is your podcast.
Auto Finance News, published by Royal Media, is the flagship publication for the auto finance industry. Published since 1996, Auto Finance News is the nation’s leading source for news, insights and analysis on automotive lending and leasing.
Auto Finance News offers a Premium subscription service, which includes a monthly newsletter, a weekly email Update, exclusive event discounts, and much more. The Auto Finance News Premium subscription provides its subscribers with valuable data and exclusive market knowledge. Subscribe now to the News That Drives The Industry at https://www.autofinancenews.net/subscribe/.
Auto Finance News produces the following leading industry events: the premiere Auto Finance Summit, the Auto Finance Summit East, the Auto Finance Capital Summit, and the Powersports Finance Summit.
Hello everyone and welcome to a special Auto Finance News podcast episode.
I'm CJ Moore, Associate Editor.
Joining me today is Mike Gustafson, Chief Financial Officer of Utah-based lender Arivo Acceptance.
Today we're turning to the auto asset back securitization market and talking through Arivo's latest ABS transaction.
Mike, welcome to the podcast.
Thank you, CJ.
Great to be here.
Appreciate you having me on.
So Arivo Acceptance just last month closed a $221 million deal backed by subprime auto loans, its first of the year.
Mike, can you give us some perspective about Arivo's growth goals in 2026 and how the latest ABS deal ties into its overall funding strategy?
Yeah, absolutely.
Yeah, we just we closed our 7th ABS deal in the company's history late July.
I think for us, growth is an important part of our path forward, given where we're at today.
I think we've been always focused there, particularly focused on driving really strong risk-adjusted returns and loan performance over the last couple of years.
And I think we've invested in what we view as
kind of industry-leading technology in terms of our infrastructure and ability to scale.
And we're excited to test that capability.
And so I think growth is an important part of how we think about driving a successful outcome here at Arivo.
In terms of our funding strategy, our view has been
We always like to retain a portion of our receivables.
We believe in the performance of our assets.
And the warehouse to ABS takeout is a core part of how we think about funding the business moving forward.
That said, I do think we really want to be diversified in those funding channels.
And so I think as we
kind of move forward here, that will remain a core part of our funding strategy, but we'll continue to look at other diversified ways to fund the business.
Now, I also want to mention Arivo geared up to become the captive finance arm of Ken Garff Automotive Group earlier this year.
How's that relationship going, Mike?
Yeah, that's an exciting
partnership, I think that we're continuing to go down.
We're really excited about Ken Garff Automotive.
I think you use the word captive.
I think we're right now we're a little careful around using the word captive, just in the sense that we really want this to be, you know, a win-win.
And I think sometimes with captive, you know, you think about captive relationships, there can be implications around it being a forced relationship.
And so I think from our perspective and I think KGA's perspective, we're really trying to drive towards kind of a deeper preferred lending partnership is how we kind of talk about it and think about it internally.
That relationship's gone really well.
I think, you know, out of the gate for Arivo, while we have, you know, we share common ownership with KGA, we by design have been very independent from the automotive business.
Less than 2% of our originations have come from Ken Garff Automotive stores historically.
And so we've been able to kind of establish ourselves independent of that and establish our core business independent of Ken Garff Automotive.
And I think that will serve us well moving forward.
But I think, you know, from from both KGA's perspective and ours, we feel like there's just a lot of synergy and a lot of opportunity for us to create joint value.
And I think what we found is, as we've begun to collaborate more together, how much value there really is there in terms of some of our capabilities and a lot of the investments that we've made in technology and understanding the subprime consumer and
obviously, from their perspective and their expertise in the auto industry, I think there's, we're finding a lot of opportunity for joint value creation and we're excited to continue to develop that partnership moving forward.
So going very well, you know, today we've built some kind of applications for them to use in their dealership stores.
that will streamline the credit pool process and has made kind of the F&I process easier for them.
And so we're starting there and we'll continue to build on that relationship as we move forward.
We're very excited there.
And diving a bit more into the execution of Arivo's latest ABS deal, how is investor demand for the transaction compared with the deal that Arivo had in 2025? In other words, did you see new institutional investors join the order book?
Yeah, good question.
I think demand remained really robust and ultimately we were happy with the execution.
So felt good on that front.
I think we are though operating in a little bit different environment and market than what we saw in 2025.
I think you think about all of the kind of the, I think the ongoing headwinds as it relates to the consumer affordability, interest rates, inflation, kind of, expectations picking back up.
And then, a lot of the kind of geopolitical uncertainty, I think that's created an environment where investors may be a little bit more selective than they have, or they were in certain periods during 2025.
But that said, I think we saw very robust demand across the capital stack.
I think ultimately we were happy with the execution.
We did see some new investors come in the book, which was good.
And then, it's always great to see some of the core investors that have been with the program for several months remain in the book and continue to be, you know, anchor relationships to continuing to build the program.
So overall went well.
And when you compare the pool characteristics of last year's deal to the transaction that Arivo just closed, any standout adjustments to loan terms between the two?
I would characterize the pools year over year as being very stable and consistent.
We got that question a fair amount from investors in this deal and marketing this transaction.
I think for us,
We view that as a good thing.
I think we put in place over the course of 22 and 23 a lot of risk mitigation efforts to try and combat some of the ongoing pressures for some of the consumers that we work with.
And I think we've seen those efforts play out in a really strong way in terms of our performance.
And so collateral characteristics and underwriting
and originations policy has remained very stable.
And the expectations is that will play out in a very stable, kind of predictable way and a very kind of risk positive way moving forward.
In terms of loan terms, we are, and I think this does play into the kind of consumer affordability dynamics, but we are piloting a little bit longer term product right now, which we're
has seasoned long enough that we're getting pretty strong initial indicators around it being a good product and performance being strong and hopefully it's, enabling a little bit more affordability and consumers to get the vehicles that they need to get, to have the transportation, the required transportation in their life, which is really important.
So we're encouraged by the initial indicators that we're seeing in that kind of longer term product, but obviously we'll continue to monitor that closely because
with the longer you extend the term, obviously the kind of the backend risk is the severity risk is where there could be more exposure there.
And so I think optimistic and encouraged with that product.
And then as it relates to the overall collateral pool, they're very stable, which we view as a good thing.
And sort of tying into that last question, I wanted to ask you about the structural side of it too.
Any notable changes to your credit enhancement structure this time around compared to how you structured the 2025 transaction?
I'd say nothing material or significant and any kind of marginal changes around credit enhancement were driven by rating agency expectations there.
And I'd say those are also very consistent and stable.
I don't think we saw
anything material in terms of deal over deal expectations.
If anything, we saw kind of a move in and in terms of loss expectations, and that's a result of, I think, the some of our more recent vintages playing out in the performance that, more data points there obviously is, helps us in terms of
driving down those loss assumptions still over deal.
And we're happy that that's the case, encouraged with the performance that we're seeing there.
And now that the 2025 deal does have some seizing on it, how is it tracking against Arivo's original loss expectations?
So in other words, how is credit performance trending across Arivo's vintage deals versus the newer issuances?
the twenty-five deal, I think, like I mentioned, we, that deal came out post a lot of the risk mitigation efforts that we put in place kind of in the.
the vintages in the years leading up to that, we are seeing that performance be pretty resilient, I think, even in the face of, ongoing kind of characterize it as, a little bit of a headwinds in terms of the macro backdrop right now, particularly for, some of our lower income consumers that may be more
affected by some of the affordability dynamics that we see in the market now.
So I think generally we're encouraged, very encouraged with new origination loan performance and it remains in line with expectations.
But obviously I think as the current kind of environment persists, that's something that we'll watch very carefully.
But, as of now, performance remains in line with expectations.
We're happy to see it playing out that way.
And with the transaction, this transaction now in the market, what's Arivo's issuance strategy from here?
Is it working on, you know, maintaining a consistent program even amid market changes and say volatility and spreads?
Yeah, I'd say definitely.
I think one of the kind of back to your original question, a big, I think as we look to kind of expand the platform, expand our footprint and grow the portfolio, our expectation is to be in the market more frequently.
I think that's good for the program.
It's good for our cost of funds.
It's good for liquidity of the shelf and for our investors.
So that's really our goal.
You know, we've been on kind of a one-day year cadence over the last couple of years.
I think the next step for us is to get out a couple times a year.
And with the origination growth that we've seen, that we're seeing, and kind of the expansion of our footprint, we're hopeful to get there sooner than later.
I want to step back and address some broader macro related questions too.
First is just how have you found the ABS market to have been this year?
As in, were there any overarching macroeconomic factors that influenced Arivo's timing, bringing the latest deal to market?
I think the ABS market's been pretty resilient this year, despite everything that's gone on, like I've mentioned in the past, I think even headlines in the subprime space over the last year.
I think the ABS markets remain pretty resilient and a good funding outlet for a lot of issuers and originators.
which is a good thing.
It's an important source of capital for us.
I think, for Arivo, the primary driver for us is getting kind of critical mass and building up the unsecuritized portfolio to drive the right economics in securitization.
And that's, I'd say, kind of our primary driver in terms of timing.
And it's hard, it's always hard to time the market.
You want to be able to
look into your crystal ball when you're only coming once a year, it feels like your timing there does have some impact on the business.
But I'd say no, I think in general, we kind of stuck to our strategy.
We had penciled in an ABS deal in late Q2, and that's when we came to market.
And that was largely a function of our origination growth and freeing up the capacity in our warehouse lines.
And I think
Looking back, year to date, were there, a handful of weeks that I would have opted not to come to market, maybe, but at that point in time, it wasn't really the decision to make.
And so, I think we're happy.
We're happy to have come when we did and to really lock in that funding.
It's always, it always feels good to get out and lock in that long-term financing and then, look forward to the next one.
I think that's back to your prior question.
The more often we're coming to market, perhaps the, we become even less sensitive to the timing there and we're coming out on a frequent cadence and you're able to absorb some of the market volatility
more easily because you're repricing more frequently in terms of coming to market and locking in those funds.
You mentioned consumer affordability a little bit earlier too.
And kind of looking at the bigger picture here between high borrowing costs, tighter household budgets, some probable student loan repayments factoring in, how's the subprime auto consumer doing?
Yeah, that's a great question.
I think we read a lot of headlines about the K-shaped economy.
I do think that the lower income consumer, I do think is under a little bit of stress in the current environment.
But that said, I think that overall the consumer has remained fairly resilient.
I think there's still, you know, I think our view is
consumers need transportation to, live their life and to get to work and do the important things in their life.
And I think what we've seen year to date is that they've been able to find a way to continue to make that happen.
And I still think that auto payments, higher up in terms of the payment hierarchy.
And so I think from an auto lender's perspective, that's a good thing.
But we'll continue to monitor that.
And I think our hope is that some of the macro pressure can ease a bit.
And we see, I think important for us to continue to see labor market remain resilient.
And I think as long as consumers can, we can remain employed and unemployment level stay,
pretty robust that the consumer can remain fairly resilient in that environment.
So I think we're ultimately confident in our ability to navigate that space.
And I think year to date, we've seen a fairly resilient consumer, but with some ongoing headwinds.
To wrap things up, when you consider benchmark yields and so for spreads, how is Arivo insulating its funding costs across its warehouse lines?
before, say, bringing a deal like this latest one to market?
Yeah, it's a good question.
I think interest rates are a little bit elevated and more elevated than I think where expectations were at the beginning of the year.
But I think elevated funding costs are a component of the business that we can manage around and operate around.
I think to the prior question, probably the bigger driver
is I think unemployment rate and consumers' ability to pay.
And so I think as we look at kind of health of the business, that would be an important lever there.
But that said, we'd love for rates to ease a little bit.
That obviously helps our margin in terms of our net interest margin.
I also think that
goes back to the deal timing and the cadence and the frequency of issuance.
our ability to, as we come to market more frequently, kind of reprice more often in the term market, I think will help kind of hedge against any inherent volatility in the interest rate environment.
Mike, thanks so much for walking us through Arivo's latest ABS deal and sharing your perspective today.
I really appreciate it.
Yeah, thanks a lot for having me on, CJ.
I really appreciate it.
As always, thanks for joining us on the podcast and be sure to follow us on X and LinkedIn.
We will see you online at autofinancenews.net and here next time.