The Industry's Leading Source For F&I, Sales And Technology

Article

Calculated Risk

January 2013, F&I and Showroom - Feature

by Melinda Zabritski

Automotive loan portfolios continued their strong performance in the third quarter 2012. Overall loan balances grew, delinquencies remained below prerecession levels and finance sources responded by making it easier for consumers to obtain a vehicle loan.

Experian Automotive’s third-quarter data showed more positive signs: Credit scores fell to prerecession levels, and finance sources increased their average amount financed. They also continued to welcome car buyers with below-prime credit. But the biggest indicator of the auto finance market’s health was the 7.53 percent year-over-year uptick in new-vehicle leasing

These trends are positive signs for dealers as the New Year progresses, putting consumers who are returning to the market in a better position to make a vehicle purchase. But as stated in previous reports, lenders continue to proceed with some caution. That measured approach is key to the auto finance market sustaining its drive toward recovery.

Delinquencies Fuel Lender Appetite
For the second consecutive year, third-quarter 30- and 60-day delinquencies remained below the rates recorded in the third quarter 2007. For 30-day delinquencies, the rate fell from 2.78 percent in the year-ago period to 2.67 percent. The rate logged during the same quarter in 2007 was 2.81 percent.

The 60-day delinquency rate also fell, from 0.71 percent in the third quarter 2011 to 0.69 percent in the third quarter 2012. During the same period in 2007, the rate stood at 0.74 percent.

Car buyers in Alaska and North Dakota are leading the nation in making their payments on time. In Alaska, the 60-day delinquency rate stood at 0.35 percent in the third quarter, while North Dakota recorded a 30-day delinquency rate of 1.39 percent.

On the opposite end of the spectrum, consumers in Mississippi had the highest percentage of delinquent 30- and 60-day loans, which stood at 4.38 and 1.33 percent, respectively, in the third quarter.

Percentage of Dollars at Risk Drops
Another indicator of the auto loan market’s health is the overall percentage of total dollars at risk. In the third quarter, the proportion of dollars at risk in lenders’ portfolios dropped, giving them more flexibility in terms of their lending strategy.

Third-quarter data revealed that 30-day delinquencies totaled $14 billion, or 2.16 percent of the total loan portfolio. For the same period in 2011, 30-day delinquencies represented 2.29 percent of the total loan portfolio.

Sixty-day delinquencies totaled $3.3 billion, or 0.5 percent of the total loan portfolio. For the same period in 2011, 60-day delinquencies represented 0.53 percent of the total loan portfolio.

The report also showed that total loan balances grew by $37 billion, rising from $642 billion in the year-ago period to $679 billion in the third quarter 2012.

Lenders Buy Deeper
With more consumers continuing to make their loan payments on time, finance sources continued to ease their way into the more risky credit tiers. According to third-quarter data, 24.84 percent of all new-vehicle loans went to customers with nonprime, subprime or deep-subprime credit.

Recent Automotive Delinquency: 60-Day Delinquency - How has financing on vehicles changed?
Recent Automotive Delinquency: 60-Day Delinquency - How has financing on vehicles changed?

Nonprime grew from a 12.22 percent market share in the third quarter 2011 to 13.06 percent in the third quarter 2012. Subprime share grew from 7.79 percent to 9.19 percent, while deep subprime’s market share grew from 1.87 percent to 2.6 percent.

Average Credit Scores Fall
With below-prime loan originations growing, the average credit score for new- and used-vehicle loans dropped. For the third quarter, average consumer credit scores for new-vehicle loans fell by eight points from 763 in the third quarter 2011 to 755. Average consumer credit scores for used-vehicle loans also fell, from 676 in the year-ago period to 668.

Despite the drop in scores, lenders remained more risk-averse than they were before the collapse of the credit markets. In the third quarter 2007, the average credit score for a new-vehicle loan was 749.

Recent Automotive Delinquency: 30-Day Delinquency - How has financing on vehicles changed?
Recent Automotive Delinquency: 30-Day Delinquency - How has financing on vehicles changed?

Taking Measured Risks
As industry metrics continue to fall or rise to prerecession levels, we must ask the obvious question: Is that a good thing? After all, the last time subprime financing boomed and average credit scores dropped, the nation experienced one of the worst financial collapses in its history.

Based on 2012 data, however, lenders seem to be proceeding with caution rather than the irrational exuberance that led to the credit crisis. Delinquencies remain low and dollars at risk have dropped, and the risks lenders are taking seem to be well-calculated. And as long as they maintain that approach, they’ll be able to continue delving deeper into the credit spectrum. Of course, that means consumers have to do their part by making timely payments.

Melinda Zabritski serves as director of automotive credit for Experian Automotive. E-mail her at melinda.zabritski@bobit.com.

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

So Here's the Deal

Ronald J. Reahard
Capture Missed VSC Sales

By Ronald J. Reahard
In response to a reader question, the magazine’s F&I wiz updates his plan for re-pitching service contracts to customers who declined the protection at the time of delivery.

The Dealer Moved My Goal Posts

By Ronald J. Reahard
Top trainer has hard-earned advice — and a word of warning — for F&I pros whose dealers seem to change their pay plans every time they have a good month.

Addressing F&I’s Internet Problem

By Ronald J. Reahard

(Video) Selling Eight Products Without Losing the Customer

By Ronald J. Reahard

Done Deal

Gregory Arroyo
Game Almost Over

By Gregory Arroyo
With the CFPB’s controversial guidance officially repealed, the editor delves into what the bureau was really after in its targeting of dealer participation.

The Repair Is Covered

By Gregory Arroyo
The editor opens up about his first service-contract claim, which resulted in a covered and repaired vehicle as well as a few lessons.

Change Is Happening

By Gregory Arroyo

Who Will Take Up the CFPB's Torch?

By Gregory Arroyo

Mad Marv

Marv Eleazer
I Love F&I. How About You?

By Marv Eleazer
His Madness challenges F&I professionals to decide right here and now whether F&I is your career or just a job.

Is That Legal?

By Marv Eleazer
Is manipulating a sales agreement to accommodate a customer’s request to cash out of a dealer-arranged retail sales contract allowed? His Madness gets answers from the industry’s top legal mind.

Overcome Your F&I Weaknesses

By Marv Eleazer

Proper Deal Structure Moves Mountains

By Marv Eleazer

On the Point

Jim Ziegler
Bound to Fail

By Jim Ziegler
Da Man returns with a message to vehicle manufacturers jumping into the subscription waters: It ain’t gonna happen.

Sharpen Your Survival Skills

By Jim Ziegler
‘Da Man’ has a plan you can use to survive the collapse of the car business and remain profitable through the dealer apocalypse.

Sales Rock Stars Still Exist

By Jim Ziegler

The New Stooges

By Jim Ziegler