January 2009 - Feature
Credit Crisis Rocks Industry in 3Q
By Melinda Zabritski
No other quarter symbolized the challenges the industry faced last year than the third quarter 2008, as the impact of slumping sales, unavailable financing and increased delinquencies revealed the dynamic shift that’s taken place in automotive finance.
Revealed during the quarter were clear shifts in loan originations among the lending tiers, increased delinquencies and changes in lending policies. This month’s year-over-year comparison also revealed the emergence of credit unions, which was the only segment to increase its share in the automotive finance industry.
Distribution of Automotive Loans by Lending Tier
The number of open automotive loans decreased throughout 2008. In the third quarter alone there were slightly more than 63.9 million open automotive loans, a year-over-year decrease of 3.1 percent.
When compared to the third quarter 2007, the prime market experienced the most significant reduction in volume. While there are still more than 35.7 million (55.98 percent) automotive loans that fall within the prime market, the segment experienced a year-over-year reduction of 4.27 percent from the third quarter 2007.
The subprime market also shrunk in year-over-year comparisons. With more than 9.4 million accounts considered subprime, this sector decreased 1.69 percent from the third quarter 2007.
In contrast, both the nonprime and the below subprime segments realized year-over-year growth. The most significant increase was seen in the nonprime segment, which grew 17.74 percent to reach more than 9.9 million open automotive loans. The below subprime
segment grew 3.02 percent to reach more than 8.7 million open automotive loans.
Distribution of Automotive Loans by Segment
Share of open automotive loans among the automotive lenders also experienced marked
shifts during the quarter, with credit unions being the exception. Year over year, credit unions increased their market share by 4.34 percent, as they captured 22 percent of all automotive loans.
Within the credit union segment, loans falling into the prime tier shrunk 5.70 percent year over year, while the nonprime segment grew 18.02 percent.
Banks realized a 1.71 percent decrease in their market share, bringing their share of open automotive loans to 27.9 percent in the third quarter. Banks also experienced the largest decrease in the percentage (6.11 percent) of loans falling into the prime segment, as the segment holds the largest percentage of prime loans at 66.64 percent.
Captive lenders remained fl at 30 percent market share for the quarter. Like credit unions and banks, captive lenders also realized a decrease in their prime segment (4.72 percent), resulting in 61.65 percent of all open captive loans falling into the prime segment.
The largest reduction in year-over-year share was seen in the finance segment, which experienced a 1.93 percent reduction in overall market share. It’s share for the quarter was 20.1 percent of all open automotive loans.
Finance companies also experienced shifts within their portfolio. Unlike the other segments, which saw a decrease in the percentage of loans falling in the prime risk segment finance companies increased the percentage of prime loans and nonprime loans by 7.56 percent and 20.20 percent, respectively. Year-over-year, finance companies experienced a decrease in both the subprime and below subprime tiers of 7.15 percent and 7.75 percent, respectively.