January 2010 - Feature
Going in the Right Direction
By Melinda Zabritski
Partly fueled by the Cash for Clunkers program, the automotive finance industry showed signs of stabilization in the third quarter. And while lenders continued to make less risky loans, the prospect of those high-risk loans from a few years ago coming off the books in early 2010 provides reason for both optimism and continued caution.
Financing was still available across all credit tiers during the quarter, but there was a noticeable shift in funding between low- and high-risk segments, with low-risk credit tiers continuing to receive a greater distribution of vehicle financing. And while 30- and 60-day delinquencies continued to rise, the rate of increase did slow during the quarter. Providing further optimism was the increase in average credit scores for new originations.
Prime, Superprime Represent Bulk of Auto Loans
Providing a barometer of the overall health of the automotive finance market, Experian’s analysis of current risk distribution is broken into five consumer loan classifications: superprime (740+), prime (680-739), nonprime (620-679), subprime (550-619) and deep subprime (<550).
On a year-over-year comparison, the percentage of consumers classified in the superprime risk segment during the quarter held relatively steady, with only a slight decrease of 0.09 percent. This resulted in 37 percent of all open automotive loans falling into the lowest risk segment.
The combined prime and superprime market represented 60.9 percent of all automotive loans, up from 60.3 percent last year (a 0.92 percent increase). However, these risk segments have remained fairly steady throughout 2009. The middle-ground nonprime and subprime segments decreased by 1.2 percent from last year, with both segments representing 24.1 percent of consumers with automotive loans.
Meanwhile, the deep subprime segment continues to decrease, with 15.1 percent of open automotive loans falling into this category — a decrease of 1.3 percent from last year.