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First Quarter Delivers Optimistic Outlook

Delinquencies and dollar volume of at-risk loans continued to fall in the first quarter, and auto finance sources responded, with shares of loans to credit-challenged buyers increasing by 11.1 percent. Experian Automotive’s director of automotive credit provides a snapshot of other auto finance trends from the quarter.

July 2011, F&I and Showroom - Feature

by Melinda Zabritski

As the auto finance landscape continued to stabilize in the first quarter of 2011, lending sources continued to show a higher tolerance for risk. So what looked like a light at the end of tunnel in previous quarters now appears to be an expanding bright spot for the auto finance marketplace. 

The clear winners for the quarter were drops in 30- and 60-day delinquencies, a growing share of new-vehicle loans for credit-challenged customers, lower dollar volumes of at-risk loans and a drop in the average loan age. The quarter also represented the best time in 30 months for consumers to secure an auto loan, and all signs point to a market that will continue to improve and expand.

Drop in Delinquencies Lowers At-Risk Loan Volumes

Vehicle owners did a significantly better job making payments on time in the first quarter, helping the automotive finance market stabilize more than it had during the year-ago period.

Thirty-day delinquencies are at their lowest point since the fourth quarter of 2008, giving lenders a little more leeway in their credit decisions. Having dropped 7.95 percent, 30-day delinquencies contracted to 2.52 percent in the first quarter from 2.74 percent a year ago. Sixty-day delinquencies dropped by 13.45 percent in the same period, with the captive finance segment enjoying the largest decline.

In addition, those drops in delinquencies lowered the total dollar volume of at-risk automotive loans from nearly $20 billion in the first quarter of 2010 to $16 billion in the first quarter of this year.

Lenders Ease Loan Criteria

In a stabilizing automotive credit market, lenders were in a better position to loosen lending criteria and provide more consumers with opportunities to qualify for loans.

The share of loans to credit-challenged new-vehicle shoppers increased 11.1 percent from the year-ago period. The share of loans made to the nonprime segment increased from 9.71 percent in the year-ago quarter to 10.57  percent. The share of loans made to subprime customers jumped from 5.67 percent to 6.16 percent, while the share of loans made to deep subprime customers rose from 1.38 percent to 2 percent.

The improving ease of obtaining a new-vehicle loan also was reflected in average credit scores. For new-vehicle financing, the average credit score fell to 766, 10 points lower than in the first quarter of 2010. Coincidentally, 766 also was the average score in the fourth quarter of 2008, after which the market began to contract in earnest.

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