Tag: auto lending

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® credit score 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.  

By: Staci Baker With the shift in the economy, it has become increasingly more difficult to gauge -- in advance -- what a consumer is going to do when it comes to buying an automobile.  However, there are tools available that allow auto lenders to gain insight into auto loans/leases that were approved but did not book, and for assessing credit risk of their consumers.  By gaining competitive insight and improving  risk management, an auto lender is able to positively impact loan origination strategies by determining the proper loan or lease term, what the finance offer should be and proactively address each unique market and risk segment. As the economy starts to rebound, the auto industry needs to take a more proactive approach in the way its members acquire business; the days of business-as-usual are gone.  All factors except the length of the loan being the same, if one auto dealer is extending 60-month loans per its norm and the dealer down the road is extending 72-month loans, a consumer may choose the longer loan period to help conserve cash for other items. This is one scenario for which auto dealers could leverage Experian’s Auto Prospect Intelligence(SM).  By performing a thorough analysis of approved loans that booked with other auto lenders, and their corresponding terms, auto lenders will receive a clear picture of who they are losing their loans to.  This information will allow an organization to compare account terms within specific peer group or institution type (captive/banks/credit union) and address discrepancies by creating more robust pricing structures and enhanced loan terms, which will result in strategic portfolio growth.    

We've recently discussed management of risk, collections strategy, credit attributes, and the like for the bank card, telco, and real estate markets. This blog will provide insights into the trends of the automotive finance market as of third quarter 2009.  In terms of credit quality, the market has been relatively steady in year-over-year comparisons.  The subprime group saw the biggest change in risk distribution from 3Q08, with a -3.74 percent shift. Overall, balances have declined to just over $673 billion (- 4 percent).  In 3Q09, banks held the largest total of outstanding automotive balances of $241 billion (with captive auto next at $203 billion).  Credit unions had the largest increase from 3Q08 (with $5 billion) and the finance/other group had the largest decrease in balances (- $23 billion). How are automotive loans performing?  Total 30- and 60-day delinquencies are still on the rise, but the rate of increase of 30-day delinquencies appears to be slowing.   New originations are dominating in the Prime plus market (66 percent), up by 10 percent.  Lending criteria has tightened and, as a result, we see scores on both new and used vehicles continue to increase.  For new buyers, over 83 percent are Prime plus.  For used buyers, over 53 percent are Prime plus.  The average credit score changed from 762 in 3Q08 to 775 in 3Q09 -- up 13 points for new vehicles.  For used vehicles in the same time period: 670 to 684, up 14 points. Lastly, let’s take a look at how financing has changed from 3Q08 to 3Q09.  The financed amounts and monthly payments have dropped year-over-year as well as the average term and average rate. Source:  State of the Automotive Finance Market, Third Quarter 2009 by Melinda Zabritski, director of Automotive Credit at Experian and Experian-Oliver Wyman Market Intelligence Reports