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Lanes Open for Prime Tiers

June 2010, F&I and Showroom - Feature

by Melinda Zabritski

During the first quarter, like vehicle sales, the auto finance market continued to show signs of a rebound from the shakeup of 2009. However, first-quarter results also revealed a market that remains restrictive to the outside-of-prime credit tiers.

New-vehicle financing showed signs of a pickup from the year-ago period, with the percentage of new financing during the quarter increasing 4.8 percent to 33.38 percent of the overall market. The percentage of used-vehicle financing, however, declined 2.2 percent from the year-ago period to 66.62 percent.

Prime customers continued to draw the lion’s share of new and used financing during the quarter. Average amount financed increased, loan terms stabilized and average rates decreased. The overall improvements in the first quarter are encouraging for the rest of the year, but challenges remain.

Risk Distribution Remains Unchanged

Risk distribution of open automotive loans continued to mirror what’s happened over the last few years, with more loans falling into the low-risk prime and superprime segments. In the first quarter, the percentage of consumers who fell into the combined prime segments increased 2.55 percent to 61.9 percent of all open automotive loans. 

The deep subprime category realized the greatest year-over-year decrease, falling 7.62 percent to 14.5 percent of all automotive loans. The subprime and nonprime segments dropped by 2.71 and 0.72 percent, respectively, bringing their percentage of automotive loans to 8.6 percent and 15 percent.

Prime Push Leads to Delinquency Improvement

With lenders showing a preference toward prime customers, the 60-day delinquency rate decreased 0.82 percent on a year-over-year basis to 0.78 percent. Bear in mind that, while the actual decrease in the delinquency rate is still relatively small, the total dollar balance associated with these loans has decreased by 19.8 percent, bringing the total 60-day balance to just over $1 billion.

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