Automotive News Canada - October 2023 - 6

6
* OCTOBER 2023
Unlocking
HELOCs
When home values
began to climb,
so did the credit
available to buy big-ticket items
such as vehicles, and that came
at the expense of leasing
By DAVID KENNEDY
T ORONTO BUREAU CHIEF
CANADIAN VEHICLE BUYERS IN
increasing numbers appear to have
turned to home equity lines of credit
(HELOCs) to fund their purchases
in recent years, as sharply rising
home prices and low interest rates
offered a favourable alternative to
traditional vehicle financing.
The industry lacks a smoking
gun since data on how consumers
use their HELOCs is scarce, but several
key indicators and a preponderance
of anecdotal evidence point to
growing HELOC usage during and
since the pandemic, auto and mortgage
experts say.
Parham:
Rising
interest rates
are likely to
decrease the
use of home
equity lines
of credit to
buy vehicles.
SUPPLIED
PHOTO
" HELOCs have offered some of
the lowest interest
rates available and
have flexible payment
terms that
differ from other
lending products, "
said Jonathan
Parham, vice-president
of operations
for Dealertrack
Canada, a unit of
Trader Corp.
The Bank of
Canada rate stands
at five per cent,
but it was just one
per cent in early
2022.
Dealertrack, a
dealer management
system provider,
does not keep tabs on HELOC
use, Parham said, but it has noted
an uptick in buyers using their
" own sources of funds " since the
pandemic. These purchases, known
as " cash " deals, include buyers
spending available cash and those
using other lending sources, including
HELOCs.
A type of loan secured against
real estate, HELOCs have become
increasingly popular over the past
10 years as Canadian home values
rose and homeowners looked to tap
into equity built through years of
mortgage payments.
The HELOC amount available is
65 per cent of the property value less
the mortgage amount. But increased
home values mean more credit.
Data from Mortgage
Professionals Canada (MPC), gathered
from borrower surveys and
current as of the end of 2022, found
that 18 per cent of Canadian respondents
with a mortgage had accessed
equity through a HELOC.
The credit is most often used to
fund renovations or other home
improvement projects, said Cecely
Roy, director of communications
at the mortgage
industry organization.
But recent
trends show more
homeowners
using HELOCs to
make other types
of big-ticket purchases.
At
the end of
2022, 23 per cent
of borrowers said
they used funds
from their HELOC
for significant purchases
such as
vehicles or education.
That compares
with 20 per
cent and 17 per
cent of HELOC
borrowers in midRoy:
Expects
greater use
of home
equity lines
of credit as
homeowners
confront
increases
in daily
expenses.
PHOTO:
LINKEDIN
2022 and the end of 2021, respectively.
MPC's data does not break out
vehicle purchases individually.
ALL ABOUT ACCESS
The rise in HELOC use over the
past few years has
not come as a surprise,
Roy said.
" With any kind
of economic shift
or unpredictability
in the market
where things
might be more
costly, you can
look at folks looking
to access equity,
regardless of
what they may be
leveraging that
for, " she said.
The low
interest rates
post-pandemic
were " favourable "
for consumers
who turned
PHOTO: GETTY IMAGES
the pandemic. That number rose to
25 per cent in the second quarter of
2023, largely at the expense of leasing.
HELOC
use also extends to used
vehicles.
As with other auto industry
watchers, Daniel Ross, senior manager
of industry insights and residual-value
strategy at Canadian
Black Book, said he lacks firm
data points. But the continued
strength of the luxury market likely
indicates a role for HELOCs.
Value retention, particularly
at the high end of the luxury
segment, has remained " very
strong, " even with higher interest
rates and vehicle prices hovering
at near-record levels, Ross said.
Many homeowners, having seen
their equity bolstered over the
past several years as home prices
rose, can now " fall back on a
HELOC. "
" It's one affordability option, "
though a better interest rate than
traditional financing is not guaranteed,
he said.
The trend doesn't have significant
drawbacks for auto dealers,
Ross said, but does heap on added
risk for consumers, particularly
if a significant downturn in the
housing market occurs.
Karwel:
Greater
number
of cash
purchases
of vehicles
" directly
linked " to
use of home
equity lines
of credit.
FILE PHOTO
to HELOCs, at least until the
Bank of Canada began raising its
prime interest rate last year, said
Dealertrack's Parham.
Robert Karwel, senior manager of
J.D. Power's Canadian automotive
practice, also sees the influence of
HELOCs within the vehicle market.
The rising rate of cash purchases is
" directly linked " to HELOC use, he
told Automotive News Canada earlier
this year.
J.D. Power data shows that cash
deals accounted for 12 per cent to 13
per cent of vehicle purchases before
HELOC USE STILL SMALL
While auto retailing lacks certainty
about how heavily buyers are
leaning on HELOCs, it's likely a relatively
small contingent, Parham
said. He cited an AutoTrader.ca
study of vehicle buyers' intentions
from earlier this year that found 63
per cent of consumers would look to
finance or lease their next vehicle,
compared with five per cent who
intended to tap their HELOCs.
The equation will likely continue
to evolve as interest rates fluctuate.
While HELOCs offered advantages
to consumers when rates
were low, the rising rates of the
past 18 months are likely to depress
HELOC use as borrowing costs
climb, Parham said.
Roy, on the other hand, said that
as consumers see daily expenses
increase, the number of homeowners
tapping into secured loans such
as HELOCs is likely to stay steady
or even inch up.
" I wouldn't be surprised if
things maintained and potentially
increased slightly in the percentage
of borrowers accessing their home
equity loans, " she said. - ANC
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pattern bargaining with General Motors. As of press time, a deal had
been reached, pending ratification by union members. Attention will
then turn to negotiations with Stellantis. Meanwhile, the UAW turned
up the heat on the Detroit Three in the United States, adding several
plants to a growing strike.
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marks the beginning of the automaker's ambitious push to hit half
a million EV sales in North America by
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emissions by 2040. Honda says its first
new-era electric vehicle will start in
the " mid-$60,000s " in Canada and will
come in EX, EX-L and Touring trims.
Honda estimates a range of 450 kilometres on a full charge for the
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PHOTO: HONDA
BMO ENDS CONSUMER CAR LOANS
THE BANK OF MONTREAL IS EXITING THE RETAIL AUTO
finance business as it looks to redeploy resources to areas where
its " competitive positioning is strongest. " The lender will cease making
consumer vehicle loans but continue offering financing for dealers,
BMO spokesperson Jeff Roman wrote in a Sept. 15 email to
Automotive News Canada. The move will result in layoffs, but the
company would not say how many. Roman said the bank " is working
closely with affected employees to provide support and to ensure
they are treated with fairness and respect. "
MINIVANS GET BELOW-AVERAGE SAFETY GRADES
THE U.S. INSURANCE INSTITUTE FOR HIGHWAY SAFETY (IIHS)
in September slapped each of the four minivans sold in the United
States and Canada with less than acceptable ratings in its new moderate
front overlap crash test, which
places a higher emphasis on rear-seat
occupant safety. The Chrysler Pacifica,
Kia Carnival and Toyota Sienna
received IIHS's " marginal " rating and
the Honda Odyssey was rated " poor. "
PHOTO: KIA
IIHS found that newer, advanced airbags and restraints are " rarely
available " for rear occupants.
B.C. MINER SIGNS WITH TOYOTA BATTERY JV
A VANCOUVER MINING COMPANY ADVANCING A NICKEL
project in central British Columbia has signed a nonbinding development
deal with the battery joint venture of Toyota Motor Co. and
Panasonic Corp. FPX Nickel Corp. inked a memorandum of understanding
with Prime Planet Energy and Solutions on Sept. 21 that
could open the door to future investment and supply deals. Prime
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vehicle and plans to scale up battery output through the 2020s.
LINAMAR DIVERSIFIES WITH U.S. ACQUISITION
THE CANADIAN PARTS GIANT IS BUYING
a " substantial portion " of Michigan-based supplier
Mobex Global's U.S. assets to help build out its
newly formed structures group. Linamar Corp, based
in Guelph, Ont., will pay US $70 million for a series
of U.S. plants that produce chassis and suspension
modules and components such as steering knuckles,
control arms and subframes. Linamar CEO Linda
Hasenfratz said the agreement is the company's " latest
step " in realigning its automotive business toward
components not reliant on internal combustion powertrains. - ANC
Hasenfratz
FILE PHOTO
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