Margins and Paddings Update

Over the last few years, there has been a plethora of attention around hybrid and electric vehicles, from both consumers and media alike. Whether it’s due to the fact that consumers have become more environmentally conscience, or that fuel economy standards have begun to take shape, alternative-powered vehicles have steadily risen in popularity. But as the rest of the automotive industry continues to develop more fuel-efficient vehicles, can we expect this “green” car segment to keep growing? Register for quarterly updates: http://ex.pn/1AzlzXB According to Experian Automotive’s most recent report looking at automotive market share and registration trends, the answer appears to be that the segment’s growth has hit a wall. In the first half of 2014, new sales for alternative-powered vehicles decreased by 3.6 percent from the previous year. This marks the first time that “green” cars have experienced a regression in new sales since the recession in 2009. “Despite arguably being the most talked about vehicle segment in recent memory, we’re beginning to see new sales of alternative-powered vehicles come down slightly,” said Brad Smith, director for Experian Automotive. “While the reduction could be caused by any number of reasons, we have to keep in mind that there have been significant improvements in gas mileage across all car segments. This combined with the fact that smaller economy vehicles are typically several thousand dollars less than alternative-powered vehicles, consumers are able to get similar car value for their money.” Findings from the report also showed that entry-level CUVs took over the top spot as the number one vehicle segment among new registrations in the first half of the year. Small economy cars rose to the second spot, while full-sized pickup trucks, which was the top vehicle segment in the first half of 2013 fell to number three on the list. Additionally, the top five CUV models in the first half of 2014 were the Honda CR-V, Ford Escape, Chevrolet Equinox, Toyota RAV4 and Nissan Rogue. The top five small economy car models during the same time period were Toyota Corolla, Chevrolet Cruze, Ford Focus, Hyundai Elantra and Nissan Sentra. Other findings from the report include: • Total vehicles in operation in the second quarter of 2014 reached 249.4 million, an increase of 1.5 million vehicles from a year ago • The average age of vehicles (rolling average of current 15 model year vehicles) decreased to 7.6 years in Q2 2014 from 7.7 years in Q2 2013 • Ford, International and Freightliner were the top three vehicle makes for medium and heavy duty vehicles on the road in Q2 2014 • In Q2 2014, 82.2% of all medium and heavy duty vehicles were powered by diesel fuel • All regions saw a decrease in used vehicle registrations in the first half of 2014, with the exception of the northeast, which saw a 1.8 percent improvement • Ford F-150, Toyota Camry and Honda Accord were the top 3 vehicle models in the first half of 2014

As the increased buzz about Big Data has filtered into Washington, D.C., policymakers have sought to learn more about Big Data, the technology that drives it, and the benefits and potential impacts for consumers. To that end, there have been three government reports released over the past year — two issued (1) by the Obama administration that focused explicitly on Big Data and one by the Federal Trade Commission (2) that centered on “data brokers.” The upside of Big Data: The reports found that in most instances Big Data promises important societal, public safety and economic benefits, including: • Aiding in the detection of health-related outbreaks • Reducing traffic • Fostering the development of innovative products The perceived challenges of Big Data: All three reports also focused on some of the challenges of Big Data, such as the need for greater transparency and accountability regarding data collection and use practices. They also found that Big Data presents the potential for discrimination against underserved communities. However, the reports failed to address the fact that there are fair lending, fair housing and equal employment laws already on the books (3) that regulators can use to address discriminatory practices. More important, however, is that all three reports failed to recognize that Big Data can bring immense opportunity for improving financial inclusion among our nation’s underserved communities. An estimated 60 million Americans are considered “credit invisible” Many reading this blog may take it for granted that credit can be accessed easily through a credit card or an auto, a mortgage or a student loan. However, for an estimated 60 million Americans who are considered to be “credit invisible,” this isn’t the reality. Today’s automated underwriting systems rely on a credit score. Thus, consumers without a proven track record of meeting financial obligations often are unable to access affordable credit simply because they don’t have a score or they have a credit history so thin that it cannot be scored. Without access to mainstream financial products, these consumers often are forced to rely on high-priced, short-term loans, some of which are from lenders that are predatory in nature. Big Data’s role in helping “credit invisibles” So how can Big Data help these people build a financial history and identity? While credit invisible consumers may not have traditional credit history, most make their cable, utility or mobile payments on time. This data, however, is not generally included in their credit file, as telecommunications companies and utilities typically report only late payments or when an account has been sent to collections. Of course this could be remedied if these entities started to report on-time positive payments to the credit reporting agencies, just as financial institutions do today. A recent study by PERC and the Brookings Institution found that including on-time payments from energy, utility and telephone firms would shrink the population of credit invisibles to around 5 million (4). Research (5) also has shown that it would be a net positive for underserved communities: • Twenty-two percent of Hispanics, 21 percent of African Americans and 21 percent of those earning $20,000 or less annually could be accepted for mainstream offers of credit • Fourteen percent of those aged 25 or younger could move into the traditional banking system Policymakers can help by clarifying that federal law allows for telecommunications companies and utilities to report on-time payment data and give consumers credit for paying their bills on time. Including this as part of the larger Big Data debate is critical in demonstrating that more predictive data in the credit system can help consumers. It’s not just telecommunications and utility data that can be included in credit reports. A recent analysis by Experian RentBureau uncovered how the addition of rent payment data to credit files can help financially excluded consumers gain access to traditional financial services. Specifically, 100 percent of the previously unscoreable study participants now are credit-scoreable, with the majority falling into the least risky prime category. Additional findings from the report are available here. Financial inclusion through improved scoring models and analytics Big Data’s financial empowerment potential can be unleashed through wider adoption of more inclusive credit scores. VantageScore® (6), for example, utilizes advanced analytics and reaches deeper into the credit file by integrating new data points, like rental payments, to help score consumers who previously were unscoreable. The impact of these analytics equates to bringing into the financial mainstream between 30 million and 35 million creditworthy consumers who previously would have been unscoreable using legacy credit scoring models. This is just one example of how advanced analytics using Big Data sets derived from credit databases can help achieve the goal of greater financial inclusion. In conclusion, as illustrated by the many examples provided throughout this blog post, Big Data can bring immense opportunity for improving financial inclusion among our nation’s underserved communities. At Experian, we remain committed to helping expand the creditworthiness of individuals and furthering financial inclusion through Big Data analytics — a clear positive for consumers, industry and our nation. Written By: Tony Hadley, Senior Vice President, Government & Regulatory Affairs at Experian     (1) http://www.whitehouse.gov/sites/default/files/docs/big_data_privacy_report_5.1.14_final_print.pdf http://www.whitehouse.gov/blog/2014/05/01/pcast-releases-report-big-data-and-privacy  (2) http://www.ftc.gov/system/files/documents/reports/data-brokers-call-transparency-accountability-report-federal-trade-commission-may-2014/140527databrokerreport.pdf (3) Fair Credit Reporting Act, Equal Credit Opportunity Act, Truth in Lending Act, among others (4) http://financialservices.house.gov/uploadedfiles/hhrg-112-ba15-wstate-mturner-20120913.pdf (5) http://www.perc.net/subsidiaries-affiliates/alternative-data-institute-adi/alternative-data-initiative-sign-letter/ (6) VantageScore® is a registered trademark of VantageScore Solutions, LLC.

The following article is a guest post from Paul Combe, President and CEO of Boston-based American Student Assistance. According to recent Experian research, student loans were the only type of consumer debt to increase during the recession, growing 84 percent from 2008 to 2014. Today, 40 million Americans carry college loans. The average borrower has nearly four different student loans for a total of $29,000. Keeping track of multiple loan payments and high debt can mean a rough financial start for newly minted college graduates. Evidence is mounting that student debt could be getting in the way of our economic recovery, as growing numbers of millennials delay forming their own households under the weight of their student debt burden. But amid all the student loan doom and gloom is this stark reality: higher education remains the key to unlocking the American Dream. It remains the surest path to individual prosperity and economic mobility. College graduates still enjoy far greater earnings and far less unemployment than those with no college degree. In fact, Experian’s data show 18- to 34-year-olds with student loans make an average annual income of $42,000, vs. $34,000 for all credit active consumers in the same age group. A college-educated workforce also contributes more in income tax, relies less on government-provided services, and overall helps the United States retain global competitiveness. In short, how do we reconcile these two things – the national need for a qualified, educated workforce on one hand, and on the other the need of the workforce to take on substantial amounts of debt to achieve that education? One answer is to teach students how to make the debt manageable. Sensational media coverage aside, student debt actually is controllable when students and graduates have the financial know-how, tools, and advice to cope with it. According to Experian, consumers aged 18-34 with at least one open student loan have credit scores 20 points higher than those without student loans, indicating that student loans can help build and establish credit for young adults. High scores also suggest that responsible student loan borrowing will potentially increase their scores and the ability to get credit in the future. At the nonprofit American Student Assistance®, we run a free-to-the-user educational resource called “SALT™” that provides students the money knowledge for college and beyond that they need to pay for and pay back college costs. SALT teaches three principles that all student loan borrowers, past and present, should live by: Borrow less. What’s the best way to manage debt? Not have it in the first place. That doesn’t mean you have to downsize your college plans or always go for the cheapest education possible. What it does mean is that you should exhaust all “free” financial aid, like grants and scholarships, before you turn to loans. Always fill out the Free Application for Federal Student Aid (FAFSA), even if you don’t think you’re eligible for any federal aid. And if you’re borrowing to cover costs of living in addition to tuition, fees and books, remember the old adage to live like a student now so you don’t have to after graduation. Borrow smarter. Not all student loans are created equal. Federal student loans offer very flexible repayment terms that allow you to suspend or lower your monthly payment in times of unemployment or economic strain. Private student loans generally don’t offer the same repayment rights. Be mindful of the type of loan you’re borrowing and ask upfront about the repayment arrangements. A general rule of thumb is to always take out federal loans first and turn to private loans as a last resort. Repay well. Your student loan choices don’t end at the application process. Federal student loans come with a plethora of repayment plans that you need to thoroughly research and investigate, from spreading out payments over the standard 10 years, to extending the payment term, to paying interest-only for the first few years, to basing payment on your income. Evaluate all your options before you begin repayment, and then be sure to evolve your payment strategy as your economic circumstances change over the years. Bottom line: Policy debates about college costs and the value of education will rage on for years, but we can improve our nation’s student loan situation right now by teaching student borrowers how to make smarter decisions along every step of the student loan process. Paul Combe is President and CEO of Boston-based American Student Assistance, the nonprofit creator of the free educational resource SALT™ that provides students with money knowledge for college and beyond.