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2009 NAF Survey: Buyers Steered Toward Used

August 2009, F&I and Showroom - Feature

by Justina Ly

While the National Auto Finance (NAF) Association’s annual survey reflected a drop in available nonprime and subprime financing sources, it also illustrated that those remaining exited 2008 with a better understanding of how to manage risk. It’s one of the reasons why consumers continue to be steered toward the used-vehicle marketplace.

Conducted by Benchmark Consulting International, the 2009 Nonprime Auto Finance Survey revealed that used-vehicle portfolios outperformed new in 2008, which Rich Apicella, managing director of the firm’s Americas division, attributed to improved portfolio management and tighter underwriting by finance sources.

“The performance on the used vehicles was stronger than the new, which points to the experience of the NAF member finance sources in this market,” he said of the survey’s results, which compared data from the 2007 and 2008 calendar years. “They just have more experience with used collateral and the used-car buyer.”

Despite the number of respondents falling from 26 last year to 22 this year, Apicella said the study provides a sampling of more than 2.2 million accounts worth $28 billion. Association officials said a number of companies which did not participate indicated they had either exited the market or sharply reduced originations.

Sources Cautious; Want Bigger Down Payment

Looking at the building blocks of a deal, including FICO score, amount financed, term and loan-to-value (LTV) ratios, the impact of last year’s credit market crash was clear.

“Finance sources have less capital to lend, so they’re much more focused on who they lend to, what collateral they lend on, and a better deal structure in terms of rate, term, LTV, etc.,” Apicella said, adding that conditions in the housing market further intensified the situation because consumers could not longer turn to home equity to help fund vehicle purchases.

Additionally, fewer finance sources and scarcer capital led to greater pricing power, as evidenced by a 50-basis-point increase in customer contract rate for both new and used vehicles.

On a year-over-year basis, FICO scores were up 6 points on new-vehicle originations, and 5 points on used. The average score for new-vehicle loans was 548, while the score for used-vehicle loans was 530.

Additionally, the average amount financed decreased by $357 for new vehicles to $19,632. As for used vehicle financing, the average amount financed dropped $72 to $12,718. These reductions hinted at finance companies demanding larger down payments. “Finance sources in general are trying to get a larger down payment, so that may very well reflect the reduced amount financed,” said Apicella.

Average term increased by one month (66 months total) for new vehicles and decreased by one month (52 months total) for used vehicles. Apicella said he expects terms for both segments to remain stable or shorten in 2009.

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