Are auto originations running out of gas?

February 24, 2012 by Alan Ikemura

If you attended any of our past credit trends Webinars, you’ve heard me mention time and again how auto originations have been a standout during these times when overall consumer lending has been a challenge.   In fact, total originated auto volumes topped $100B in the third quarter of 2011, a level not seen since mid-2008.

But is this growth sustainable?  Since bottoming at the start of 2009, originations have been on a tear for nearly three straight years.  Given that, you might think that auto origination’s best days are behind it.   But these three key factors indicate originations may still have room to run:

1.       The economy

Just as it was a factor in declining auto originations during the recession, the economy will drive continued increases in auto sales.  If originations were growing during the challenges of the past couple of years, the expected improvements in the economy in 2012 will surely spur new auto originations.

2.       Current cars are old

A recent study by Experian Automotive showed that today’s automobiles on the road have hit an all-time high of 10.6 years of age.  Obviously a result of the recent recession, consumers owning older cars will result in pent up demand for newer and more reliable ones.

3.       Auto lending is more diversified than ever

I’m talking diversification in a couple of ways:

    • Auto lending has always catered to a broader credit risk range than other products.  In recent years, lenders have experimented with moving even further into the subprime space.   For example, VantageScore D consumers now represent 24.4% of all originations vs. 21.2% at the start of 2009.
  • There is a greater selection of lenders that cater to the auto space.  With additional players like Captives, Credit Unions and even smaller Finance companies competing for new business, consumers have several options to secure a competitively-priced auto loan.

With all three variables in motion, auto originations definitely have a formula for continued growth going forward.  Come find out if auto originations do in fact continue to grow in 2012 by signing up for our upcoming Experian-Oliver Wyman credit trends Webinar.