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Tracking the 2008 Credit Crisis

April 2009, F&I and Showroom - Feature

by Melinda Zabritski

Marked by slumping vehicle sales, deteriorating credit quality, increases in delinquencies, and a lack of funding availability, 2008 was the single-most challenging year for the automotive finance industry. This month’s quarterly trend report traces when things went wrong and peers into the challenges ahead for automotive dealers and their F&I departments.

Distribution of Automotive Loans by Lending Tier

Providing a snapshot of the challenges faced last year is the shift in credit quality among all open automotive loans from the first to fourth quarter. Throughout 2008, the percentage of consumers considered prime steadily decreased. By the end of 2008, 56.42 percent of consumers with automotive loans were considered prime. Although still representing more than half of the market, this sector experienced a year-over-year decrease of 2.7 percent.

All of the high-risk tiers experienced year-over-year growth. The most significant increase was in the below subprime tier, which grew 6.85 percent from the fourth quarter 2007.

60 Days Past Due Delinquency Rate

Delinquency increases are one of the leading causes of consumer credit shifts. It is also one of the most significant data points on which lenders focus, as it guides credit programs available to dealers.

By the end of 2008, more than $7 billion worth of automotive loans were 60 days delinquent. While delinquency trends are cyclical and tend to increase throughout the year, the greatest quarterly increase occurred between the third and fourth quarters. During that period, the industry realized an end-of-year jump of 8.28 percent. In a year-over-year comparison, the 60-day delinquency rate rose 16.92 percent to 1.04 percent.

While having the lowest 60-day delinquency rate, credit unions experienced the greatest increases. The segment experienced a 28.22 percent year-over-year increase, bringing its 60-day delinquency rate to 0.57 percent.

The second-lowest delinquency rate was held by captive lenders, which ended the year with 0.8 percent of all loans reported 60 days delinquent. This was an increase of 11.98 percent from the fourth quarter 2007.

Banks, which typically have risk portfolios similar to credit unions, experienced the second-highest increase from the fourth quarter 2007 (24.79 percent), resulting in a 60-day delinquency rate of 0.97 percent.

Finance companies recorded the highest 60-day delinquency rate among all segments. These lenders typically have loan portfolios with significantly more high-risk consumers, which is why their 60-day delinquency rate stood at 2.54 percent. Despite this high rate of delinquency, the segment did record the lowest annual increase in delinquency rate at 9.37 percent.

Credit Scores by Vehicle Type

While delinquency rates increased and credit quality decreased across the entire automotive loan market, loans originated in 2008 had higher credit scores. The average credit score for all vehicles financed in the fourth quarter increased 15 points from the beginning of the year, and eight points on a year-over-year basis.

New-vehicle financing saw average scores increase 12 points from the beginning of the year and 16 points on a year-over-year basis. Used-vehicle financing experienced an increase in credit scores of 15 points from the beginning of the year and seven points on a year-over-year basis. However, the segment saw little change in scores in the second half of 2008.

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