State National Executive Vice President Trace Ledbetter Reflects on the Bounty of the Season

Now, more than ever, it is critical to protect your auto loan portfolio with GAP Vehicle values have been at historic highs for the past year If you considered purchasing a vehicle this summer, you likely experienced some degree of sticker shock. New and used vehicle prices skyrocketed earlier in 2021 and are only now showing signs of a slight slowdown. How did we get to the point where Edmunds.com reported the average trade-in value of used vehicles was up 75.6% Year-Over-Year (YOY) in June? Simply stated, it all began last year. The manufacturing shutdowns of early 2020 left dealers with low inventory levels as shelter-in-place orders lifted and consumers, armed with stimulus funds and a desire to spend, went auto shopping in droves. The resulting low dealer inventories meant that would-be new car buyers were often forced to consider used vehicle options instead. Both new and used vehicles prices started rising in response to this unusual surge in demand. Despite seeing some stabilization of vehicle pricing in late 2020, things took a turn for the worse this year due to the global shortage of microchips. According to TrueCar, a Consumer Reports partner, there still remains an inadequate allocation of microchips for automobile manufacturers, exacerbating the inventory shortages that began in 2020. With inventory down as much as 50% in some areas, willing and able consumers are paying significantly more, with 20% of all new car purchases in May 2021 transacting at amounts above MSRP. This phenomenon has not been limited to new car purchases only — CNBC shared earlier this month that the average price of a used vehicle was up 21% YOY with a 10% increase from Q1 2021 to Q2 2021. What does the future hold for car values? July witnessed a slight reduction in the rate at which vehicle prices were increasing YOY. However, Carvana’s CEO, Ernie Garcia, warns that the cost of used cars will not normalize until manufacturers can produce inventory at pre-2020 levels. Supply chain challenges are likely to cause “some lasting” impact on used car prices, said Garcia on an August 6th CNBC’s Squawk Box. Black Book, in their 2021 Vehicle Depreciation Report, paints a slightly less optimistic picture, projecting “residual forecasts to return to pre-COVID 19 valuation levels in 3 years.” How will this valuation normalization impact lending portfolios? For a variety of reasons, many consumers found themselves paying in excess of MSRP or NADA for a vehicle over the past 18 months. This reality will not change overnight — it will take the automobile manufacturers replenishing and maintaining inventory levels on a consistent basis for prices to normalize. Whether that be in 2022, or in 3 years as predicted by Black Book, the reset of vehicle valuations has the potential to negatively impact your auto loan portfolio. Black Book’s annual vehicle depreciation rates averaged approximately 13% for each of the 9 years prior to 2020, when it dropped to just 2%. As vehicle valuations fall back in line with more historic depreciation models, loans already on the books as well as loans written through the remainder of 2021 will reflect inflated sales prices. In the event of a future theft or total loss at a time when vehicle values are back to pre-COVID-19 levels, primary carrier Actual Cash Value (ACV) settlements will result in unprecedented deficiency balances. And that is where GAP can help. Essential protection for you and your borrowers GAP has always been an important risk management tool. However, in today’s economy when vehicles are still selling above MSRP or NADA, it is especially important to lenders and borrowers alike for collateral to be protected against the changes in valuation expected over the next several years. Private Passenger Auto carriers settle total loss claims based on the ACV of the vehicle immediately prior to the loss, regardless of the original sales price. Inflated sales prices mean inflated loan balances on the date of loss, resulting in increased deficiency balances — the exact thing GAP is designed to protect. Not only will your potential charge-offs be reduced with GAP protecting your collateral, but your borrowers will also be better positioned to finance their replacement vehicle without the burden of having to satisfy a large deficiency balance on their original loan. How State National's GAP is different The State National GAP product provides unparalleled flexibility in the marketplace, primarily given our unique position as the direct sales force, underwriter, and program administrator. With options to protect amounts up to 150% of MSRP or NADA, you won’t need to worry about future deficiency balances resulting from today’s extraordinary market conditions. Additionally, you can rest easy knowing your pricing is not inflated to cover agent costs or, worse yet, that you will be part of an across-the-board rate adjustment because another lender’s program is not performing as expected. If you’re looking for the most efficient GAP claim submission process (it’s true — we really do not require any supporting documentation to initiate a GAP deficiency balance claim) and fastest claim settlement time (2 to 3 days, on average), isn’t it time you consider State National for your GAP Program? Contact us today to start protecting your consumer loan portfolio from the effects of inflated auto prices — driving a more positive experience for you and your borrowers.     Contact us today to receive more information about GAP from State National. Francine Gagliano, State National Director of Client Services 817-265-2000 x1247 or fgagliano@statenational.com

State National Employees Crowdsource to Give Their Company Blog a Name When we launched our State National blog in 2020 as part of our company’s newly redesigned website, we had a few goals in mind: To provide valuable thought leadership and educational content that could be of help to our clients, potential clients, and anyone else in the industry whether they ever became a client or not To add even more transparency (one of our main core values) around the way we do business To help others in the industry get to know more about the thoughts and insights of some of our experienced subject matter experts and assist in building relationships To share more about the company culture we’re very proud of with those in the industry and with potential future employees And of course (speaking of transparency), because we are in business — to share benefits and features of our products and services and show credit unions, banks, and finance companies how we can serve them and help them be more profitable and successful The blog has been a great success so far, and we’ve received really positive feedback about the value people are receiving from our content — thank you!

The biggest mistake many first-time car buyers make is that they don't understand the true cost of ownership before purchasing a vehicle. A car will always cost more in total than its sticker price, and many new buyers act on their emotions rather than logic. Acting on emotions when purchasing a vehicle can lead to poor decision-making, an expensive learning experience, and/or buyer’s remorse. This article explores several topics to help you better understand the purchase process and not financially overextend yourself.

I have said it a million times, and I will say it once more — I don’t understand why we don’t have all the business! Our blog team told me not to sound like a salesperson in this post, but I am the EVP of sales. What were they expecting from me? I’ve been selling State National’s products for over 20 years because they’re the best, so why shouldn’t I say it? It’s just a fact.