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

Special Finance®

Hope in Sight for High-Risk Tiers

October 2010, F&I and Showroom - Feature

by Melinda Zabritski

Optimism continues to spread throughout the auto finance industry as the market continues to show positive signs. Delinquencies are on the decline, consumer credit continues to stabilize and all signs point to more good news for the rest of the year. For the second straight quarter, delinquencies showed a year-over-year decrease, according to Experian Automotive’s second-quarter data. The quarter also saw a higher percentage of auto loans being made to nonprime and subprime customers, another indication that there could be light at the end of the tunnel — not just for auto finance, but for the economy as well.

Loan Distribution by Risk Tier

Throughout the last few years, overall distribution between the credit tiers has remained stable, with more loans falling into the low-risk prime and superprime segments. For this analysis, the four risk segments examined include: superprime (740+), prime (680-739), nonprime (620-679), subprime (550-619) and deep subprime (less than 550).

The percentage of consumers who fell into the two low-risk tiers — superprime and prime — increased 2.57 percent to 62.6 percent of all open automotive loans in the second quarter. In contrast, the high-risk subprime and deep subprime segments all experienced decreases.

Deep subprime experienced the greatest year-over-year decrease of 10.71 percent, with the segment now representing 13.3 percent of all automotive loans. Subprime dropped 0.95 percent, with the risk tier now representing 8.8 percent of all auto loans. The nonprime segment, however, experienced a slight increase of 0.78 percent, with the risk tier now accounting for 15.3 percent of all open automotive loans.

60-Day Delinquencies Continue to Fall

One of the more positive trends to emerge in the second quarter was the continued improvement in delinquency rates. The main reason for the year-over-year decrease in delinquencies is the shift in portfolios to a more prime-oriented position.

During the reporting period, the 60-day delinquency rate fell 11.85 percent to 0.71 percent of all open auto loans. The total dollar balance associated with delinquent loans decreased by 24.2 percent, bringing the total 60-day balance to a little more than $4 billion.

Benefiting the most from the improvement in delinquencies were banks, which experienced a 17.3 percent decrease in the 60-day delinquency rate. Credit unions, which held the lowest 60-day delinquency rate (0.37 percent) during the quarter, experienced a 14.01 percent year-over-year decrease. The rate for captive lenders dropped 5.99 percent to 0.58 percent. Finance companies, which claim the highest delinquency rate (1.79 percent), realized a decrease of 11.51 percent.

Your Comment

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