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Fourth-Quarter Push

April 2011, F&I and Showroom - Feature

by Melinda Zabritski

Driven by further declines in 30- and 60-day delinquencies, the auto finance market continued to stabilize in the end-of-year quarter of 2010. And with consumers continuing to improve their repayment patterns, lenders made it clear they’re ready to loosen up their lending standards.

Illustrating the more aggressive posture on the part of lenders was the increase in the share of loans made to credit-challenged customers. The market, however, remains more conservative than what was seen in 2007 and 2008; nevertheless, it’s clear lenders are feeling a lot better these days.

The following analysis will provide a snapshot of consumer activity during fourth quarter of 2010, as well as a comparison with the prior year.

Risk Distribution Reveals Conservative Posturing

A key indicator of the overall health of the automotive finance market is the distribution of risk among all open loans. And as a reminder, Experian Automotive uses five risk segments to classify consumer loans: superprime (740+), prime (680–739), nonprime (620–679), subprime (550–619) and deep subprime (<550).

Over the last several years, the low-risk prime and superprime segments have garnered the majority of automotive loans, and that remained the case in the fourth quarter. During that period, the two segments accounted for 62.9 percent of all open automotive loans, up from 60.8 percent in the fourth quarter of 2009. 

The highest risk segment, deep subprime, experienced a significant year-over-year drop in share, falling to 12.6 percent in the fourth quarter from 15.3 percent in the year-ago period. Subprime, however, showed a slight increase, inching up to 8.9 percent from 8.8 percent in the year-ago quarter. Nonprime also showed an increase, growing from 15.2 percent in the fourth quarter of 2009 to 15.7 percent.

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