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Market on the Mend

April 2010, F&I and Showroom - Feature

by Melinda Zabritski

The auto finance industry spent most of 2009 on the mend. All lending segments — aside from banks — decreased their exposure from tiers outside of prime. By the fourth quarter of last year, delinquency and repossession rates began to stabilize, with signs of the market’s recovery beginning to emerge after one of the worst periods for the industry since the early ’80s.

Credit scores remained stable throughout the year, and new-vehicle financing became the domain of the prime customer. In contrast, consumers outside of prime were pushed more and more toward used vehicles, but even that side of the market was restricted. Average amount financed, term and rate all showed increases.

The good news is, the industry is no longer seeing the massive tightening that suppressed sales volumes and loan originations in 2009. The hope now is that the dramatic swings in consumer financing are now a thing of the past.

High-Risk Segments a Tough Sell

Last year saw only minor shifts in loan distributions between the credit tiers when compared to 2008, with 60.7 percent of all open auto loans falling into the superprime and prime tiers. However, the low-risk tiers grew 1.7 percent from the fourth quarter 2008, when the superprime and prime tiers accounted for 59.7 percent of open loans.

It was clear that finance sources shifted away from the higher risk segments, which experienced a year-over-year decrease in loan distributions. The only segment that remained stable was nonprime, while the subprime group decreased 3.15 percent to 8.8 percent of all open auto loans. Additionally, the deep subprime segment decreased 4.35 percent from the fourth quarter 2008 to 15.3 percent of all open automotive loans by the end of 2009.

Increases in Delinquency Rates Slowing

Delinquencies in 2009 continued to show year-over-year increases. However, the rate of increase has begun to slow. In the fourth quarter 2009, the 60-day delinquency rate reached 0.96 percent, a 3.49 percent increase from the fourth quarter 2008. This year-over-year increase, however, is considerably lower than the 11.64 percent increase between the fourth quarters of 2007 and 2008.

The lowest rate of increase was in “finance source or other.” That category’s 60-day delinquency rate was the highest among the lenders at 2.26 percent, but the segment experienced a mere 3.98 percent increase over the fourth quarter 2008. Credit unions held the lowest rate of delinquency at 0.54 percent, a 6.53 percent increase from 2008. 

The greatest increase in the 60-day delinquency rate was in the captive auto segment, which increased 9.71 percent from the fourth quarter 2008 to a rate of 0.78 percent. The delinquency rate for the bank segment reached 0.91 percent, a 7.56 percent increase from 2008.

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