The auto finance segment is growing at a healthy rate, but average new-vehicle loan amounts are outpacing the market, driving an increasing number of car buyers — including those with prime and superprime credit scores — out of the showroom and onto the used-car lot.
The Federal Reserve Bank of New York’s Q1 U.S. household debt report finds auto loan and lease originations declined slightly year-over-year — except for sub-620 customers — while 90-day delinquencies grew by 9.2%.
Thirty- and 60-day delinquencies remained fairly stable in the fourth quarter, while affordability rightfully remains a key point of discussion among dealers and auto finance sources.
Affordability remains a concern despite finance sources continuing to tighten underwriting standards, according to the firm. Consumers, however, seem unfazed, with outstanding balances climbing to a new record high.
The firm attributed the slowdown to improvements in oil states and tightening underwriting guidelines, which have also helped stabilize delinquency rates.
Originations continued to fall at a faster rate than previous years, as finance sources continued to tighten underwriting standards during 2017’s end-of-year quarter. TransUnion officials, however, say the sector is performing well as the economy remains relatively strong.
Credit scores in the fourth quarter of 2017 were only a half a point higher than the median score recorded during the first quarter of 2009. And according to the Federal Reserve Bank of New York, 2017 auto loan origination volume reached the highest level it has ever observed.
Third-quarter data from Experian Automotive shows that the auto finance market gained strength and stability, but mostly at the expense of subprime originations.
For the fourth consecutive quarter, auto loan originations in the second quarter decreased on a year-over-year basis. Much of that decline was driven a 5.9% decrease in subprime, nearprime, and prime loan originations.
The auto finance market is a trillion-dollar industry. It’s also very much a prime market, with subprime financing remaining at near-record lows in the second quarter.
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