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Balancing Act

Auto finance continues to balance the need to manage risk with the need to fuel the industry’s resurgence. So far, so good, according to Experian Automotive’s latest report.

July 2013, F&I and Showroom - Feature

by Melinda Zabritski

A quick scan of several important automotive credit metrics might bring with it a strong sense of  déjà vu. Delinquencies and repossessions continued to climb, average credit scores continued to drop, finance sources continued to welcome credit-challenged customers and leasing rates reached a record high.

The good news is delinquencies and repossessions are still well below recession-level rates. The bad news is both metrics should continue to rise as more subprime auto loans coming onto the books begin to deteriorate. But as lenders have indicated to Experian Automotive, today’s subprime buyer is less delinquent than those of the past. 

Lower interest rates are also working in the consumer’s favor, making vehicle payments more affordable. The 12.5 percent rise in leasing is also helping consumers ditch their aging vehicles. Overall, the auto finance market remains strong, which should continue to fuel vehicle sales as the auto industry continues down the comeback trail.

Rising Delinquencies Not a Concern

In the first quarter, 30-day auto-loan delinquencies rose from 2.33 percent in the year-ago period to 2.36 percent, while the 60-day delinquency rate increased from 0.57 percent in the first quarter of last year to 0.65 percent. Meanwhile, repossessions rose 16.9 percent from 0.43 percent in the opening quarter of 2012 to 0.5 percent this year.   

It’s never good to see delinquencies or repossessions trending upward, but they are still lower than recessionary levels. Thirty-day delinquencies in the first quarter of 2008, for instance, were at 2.61 percent, while 60-day delinquencies were at 0.67 percent. Additionally, the repossession rate is still well below the peak rate seen in first quarter of 2010, when it reached 0.71 percent. The first-quarter rate is also below the 0.57 prerecession rate recorded in the opening quarter of 2008. But those pre-recession numbers should serve as cautionary benchmarks for the industry.

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