Tag: State of the Automotive Finance Market

Vehicle affordability has been a main topic of conversation in the auto industry for some time, and based on the data, it’s not going unnoticed by consumers. The average new vehicle loan in Q1 2019 reached $32,187, while the average new vehicle monthly loan payment hit $554. How are car shoppers reacting? Perhaps the biggest shift in Q1 2019 was the growth of prime and super prime customers opting for used vehicles. The percentage of prime (61.88 percent) and super-prime (44.78 percent) consumers choosing used vehicles reached an all-time high in Q1 2019, according to Experian data. Not only are we seeing new payment amounts increase, but used loan amounts and payments are on the rise as well, though the delta between the two can be one of the reason we’re seeing more prime and super prime opt for used. The average used vehicle loan was slightly above $20,000 in Q1 2019, while the average used vehicle payment was $391. We know that consumers often shop based on the monthly payment amount, and given the $163 difference between average monthly payments for new and used, it’s not surprising to see more people opt for used vehicles. Another way that consumers can look to have a smaller payment amount is through leasing. We’re continuing to see that the top vehicles leased are more expensive CUVs, trucks and SUVs, which are pricier vehicles to purchase. But with the average lease payment being $457 per month, there’s an average difference of $97 compared to loan payments. In Q1 2019, leasing was down slightly year-over-year, but still accounted for 29.07 percent of all vehicle financing. On the other side of the affordability equation, beyond cost of vehicles, is concern around delinquencies: will consumers be able to make their payments in a timely manner? So far, so good. In Q1 2019, 30-day delinquencies saw an increase to 1.98 percent, up from 1.9 percent a year ago. That said, banks, credit unions and finance companies all saw slight decreases in 30-day delinquency rates, and 60-day delinquencies remained relatively stable at 0.68 percent year-over-year. It’s important to keep in mind that the 30-day delinquency rate is still well-below the high-water mark in Q1 2009 (2.81 percent). The vehicle finance market appears to remain strong overall, despite rising vehicle costs, loan amounts and monthly payments. Expect consumers to continue to find ways to minimize monthly payments. This could continue the shift into used vehicles. Overall, as long as delinquencies stay flat and vehicle sales don’t taper too badly, the auto finance market should stay on a positive course. To watch the full Q1 2019 State of the Automotive Finance Market webinar, click here.

There’s recently been a significant amount of discussion about the stability of the automotive finance industry. Many fear the increase in the volume of delinquent U.S. automotive loans may be an early stage harbinger of the downfall of the automotive industry. But, the fact is, that’s not entirely true. While we certainly want to keep a close eye on the volume of delinquent loans, it’s important to put these trends into context. We’ve seen a steady increase in the volume of outstanding loan balances for the past several years – though the growth has slowed the past few quarters. And while much of the increase is driven by higher loan amounts, it also means there’s been an overall higher volume of vehicle buyers leaning on automotive lenders to finance vehicles. In fact, findings from our Q4 2018 State of the Automotive Finance Market Report show 85.1 percent of all new vehicle purchases were financed in Q4 2018 – compare that to 81.4 percent in Q4 2010 and 78.2 percent in Q4 2006. Suffice it to say, more financed vehicles will undoubtedly lead to more delinquent loans. But that also means, there is a high volume of car buyers who continue to pay their automotive loans in a timely manner. Through Q4 2018, there were nearly 86 million automotive loans and leases that were in good standing. With a higher volume of automotive loans than in the past, we should pay close attention to the percentage of delinquent loans compared to the overall market and compare that to previous years. And when we examine findings from our report, the percentage of automotive loans and leases that were 30-days past due dropped from 2.36 percent to 2.32 percent compared to a year ago. When we look at loans and leases that were 60-days past due, the percentages are relatively stable (up slightly from 0.76 percent to 0.78 percent compared to a year ago). It’s worth noting, these percentages are well below the high-water mark set during Q4 2009 when 3.30 percent of loans were 30-days delinquent and 0.94 percent of loans were 60-days delinquent. But, while the rate of delinquency is down and/or relatively stable year-over-year, it has trended upward since Q4 2015 – we’ll want to stay close to these trends. That said, much of the increase in the percentage of 60-day delinquent automotive loans is a result of a higher percentage of deep subprime loans from previous years – high-risk originations that become delinquent often occur more than 16 months after the origination. Additionally, the percentage of deep subprime originations has steadily decreased over the past two years, which could lead to a positive impact on the percentage of delinquent automotive loans. Despite rising automotive loan amounts and monthly payments, the data shows consumers appear to be making their payments on-time – an encouraging sign for automotive lenders. That said, lenders will want to continue to keep a close eye on all facets of car buyers’ payment performance moving forward – but it is important to put it into context. A clear understanding of these trends will better position lenders to make the right decisions when analyzing risk and provide consumers with comprehensive automotive financing options. To learn more about the State of the Automotive Finance Market report, or to watch the webinar, click here.    

Subprime originations hit the lowest overall share of the market seen in 11 years, but does that mean people are being locked out car ownership? Not necessarily, according to the Q3 State of the Automotive Finance Market report.To gain accurate insights from the vast amount of data available, it’s important to look at the entire picture that is created by the data. The decrease in subprime originations is due to many factors, one of which being that credit scores are increasing across the board (average is now 717 for new and 661 for used), which naturally shifts more consumers into the higher credit tiers. Loan origination market share are just one of the trends seen in this quarter’s report. Ultimately, examining the data can help inform lenders and help them make the right lending decisions. Exploring options for affordability While consumers analyze different possibilities to ensure their monthly payments are affordable, leasing is one of the more reasonable options in terms of monthly payments. In fact, the difference between the average new lease payment and new car payment usually averages more $100—and sometimes well over—which is a significant amount for the average American budget. In fact, leases of new vehicles are hovering around 30 percent, which is one of the factors that is aiding in new car sales. In turn, this then helps the used-vehicle market, as the high number of leases create a larger supply of quality use vehicles when they come off-lease and make their way back into the market. On-time payments continue to improve As consumer preferences continue to trend towards more expensive vehicles, such as crossovers, SUVs, and pickups, affordability will continue to be a topic of discussion. But consumers appear to be managing the higher prices, as in addition to the tactics mentioned above, 30- and 60-day delinquency rates declined since Q3 2017, from 2.39 percent to 2.23 percent and 0.76 percent to 0.72 percent, respectively. The automotive finance market is one where the old saying “no news is good news” continues to remain true. While there aren’t significant changes in the numbers quarter over quarter, this signals that the market is at a good place in its cycle. To learn more about the State of the Automotive Finance Market report, or to watch the webinar, click here.

With steady sales growth the past several years, the auto industry has had a great run since the trough of the Great Recession in 2009. Based on the latest data published in the State of the Automotive Finance Market report, the auto industry’s robust sales totaled more than 17 million vehicles in 2016, pushing the total open auto loan balances to a record high of $1.072 trillion, up from $987 billion in Q4 2015. Despite the current boom, new vehicle affordability is becoming more challenging. The average monthly payment for a new vehicle loan jumped from $493 in Q4 2015 to $506 in Q4 2016, while the average new vehicle loan reached an all-time high in Q4 2016, at $30,621. In addition, the chasm between new vehicle loan and used vehicle loan average amounts is wider than ever at $11,292. This trend appears to be pushing more credit-worthy customers into the used vehicle market. In Q4 2016, the percentage of used vehicle loans going to prime and super prime customers was up from 45.49 percent in Q4 2015 to 47.76 percent in Q4 2016. In addition, the average credit score for used vehicle loans is up from 649 in Q4 2015 to 654 in Q4 2016. Consumers also appear to be combating the vehicle affordability issue by shifting into leases or longer-term loans to keep their monthly payments low. Leasing was up from 28.87 percent of all new vehicle financing in Q4 2015 to 28.94 percent in Q4 2016. Loan terms of 73 to 84 months now account for 32.1 percent of all new vehicle loans, up from 29 percent in Q4 2015. Keeping payments manageable will help keep people out of delinquencies, which is good for consumers and their lenders. Data shows that 30-day delinquencies were relatively flat, moving from 2.42 percent in Q4 2015 to 2.44 percent in Q4 2016, while 60-day delinquencies are growing, moving from 0.71 percent to 0.78 percent. It seems that as long as new vehicle costs rise, it is likely that more people will move toward leasing, longer term loans and used vehicles. While none of these trends are inherently bad, they could re-shape dealer strategy moving forward. Many analysts predict flat new vehicle sales in 2017, making used vehicle, F&I and service business more important to overall dealership growth this year.

This quarter’s State of the Automotive Finance Market report provides a stark reality check for anyone making doomsday predictions about a subprime bubble in the auto industry. While delinquent payments are slightly on the rise, data from the report show that the auto lending industry has responded by reining in loans to subprime consumers. Results found that newly originated loans to prime borrowers jumped two percent to encompass nearly 60 percent of auto loans financed in Q3 2016. Moreover, loans extended to consumers in the subprime tier fell 4.5 percent from the previous year, and loans to deep-subprime consumers dropped 2.8 percent to the lowest level on record since 2008. When considering delinquent payments, there’s no extreme cause for concern either as overall 30-day delinquencies remained flat from the previous quarter, and overall 60-day delinquencies showed a slight uptick to 0.74 percent in Q3 2016 (0.67 percent in Q3 2015). The move in Q3 to more prime and super prime customers pushed the average loan scores higher for the first time in four years. For new vehicle loans, the average credit score climbed two points to 712 in Q3 2016, marking the first time average credit scores for new vehicle loans rose since hitting a record high of 723 in Q2 2012. For used-vehicle loans, the average credit score jumped five points from 650 in Q3 2015 to 655 in Q 2016. More notable news in the auto loan market – there was a slight increase in interest rates. Interest rates for the average new vehicle loan went from 4.63 percent in Q3 2015 to 4.69 percent in Q3 2016. This increase played a key role in driving more market share to the credit unions. Credit unions grew their share of the total automotive loan market from 17.6 percent in Q3 2015 to 19.6 percent in Q3 2016. For new vehicle loans specifically, credit unions grew their share by 22 percent, going from 9.9 percent in Q3 2015 to 12 percent in Q3 2016. Other key findings from the Q3 2016 report: Total open automotive loan balances reached a record high of $1.055 billion. Used vehicle loan amounts reached a record high of $19,227, up by $361. The average new vehicle loan amount jumped to $30,022 from $28,936. Share of new vehicle leasing jumped to 29.49 percent from 26.93 percent. The average monthly payment for a new vehicle loan was $495, up from $482. The average new vehicle lease payment was $405, up from $398. The average monthly payment for a used vehicle loan was $362, up from $360. The average loan term for a new vehicle was 68 months. To see the full report results, or to download the webinar and presentation, visit https://www.experian.com/automotive/auto-data.html

As new vehicle prices continue to rise, more consumers are turning to leasing as a cost-effective auto financing option. Findings from the most recent State of the Automotive Finance Market report show that the average lease payment for Q4 2015 was $412 (versus the average loan payment of $493). Not surprisingly, due to the fact that most consumers tend to finance vehicles based on monthly prices, leasing reached a record high, accounting for 33.6% of all new financing during the quarter. Lenders can design more effective strategies by using analytics to gain insight into the latest trends and to target the right customers for automotive leases and loans. >> Video: Auto Acquisition Strategies

Nowadays, whenever you hear news about the automotive industry, a negative tone tends to pop up. Whether it’s the increase in lending to subprime consumers, or the lengthening in loan terms, the stories lead one to believe that the industry is headed toward another “bubble.” However, that’s not necessarily the case. When we look at the data, the automotive finance market actually demonstrates a strong industry as a whole. Yes, it’s true that subprime lending is up. But, lending has increased across all risk tiers. In fact, loans to super prime consumers have actually seen the largest increase in volume compared to last year, approximately 8.5 percent. To take it a step further, the market share of loans to subprime consumers has decreased from a year ago. At its bare bones, what it means is that consumers are not only purchasing cars, but they are taking out loans to do so. Furthermore, given the percentage of loans extended to each risk tier, we see that lenders have not opened up their portfolios to increased risk. Both of which are positive indications of a strong market. We’ve also seen a steady increase in the length of loan terms. However, before anyone comes to any rash conclusions, it’s not as ominous a sign as it may seem. As cars and trucks have become more expensive to purchase, the easiest way for consumer to keep their monthly payments affordable has been to extend the life of their loans. That said, it’s critical for consumers to understand that by taking out a longer loan, they may need to hold onto the vehicle longer to avoid facing negative equity should they trade it in after a few years. An alternate route many consumers have taken to keep their monthly payments affordable has been leasing. In the first quarter of 2015, we saw leasing account for 30.2 percent of all new financed vehicles – its highest level on record. At the end of the day, consumers are continuing to purchase vehicles and that’s a positive sign for the industry. By gaining a deeper understanding of current automotive financing trends, lenders will be able to use the data and insights to their benefit by better meeting the needs of the marketplace and mitigating the risk of their portfolios. And if they do that, the good times can continue to roll for the industry.

Every time I turn on my television, look out my window or drive into the office, I always see hybrid or electric vehicles on the road. These days it seems like almost everyone is going green. With all the alternative-powered vehicles out there, you’d think that the market is simply booming, right? Would you believe me if I told you that the percentage of newly registered alternative-powered vehicles in 2014 actually declined from the previous year? It’s true. With this revelation, we actually took a deeper look into the alternative-powered vehicle market to see what else we can discover. Here’s what we found: Did you know that consumers who buy “Green” vehicles, purchase them in cash at a higher rate than those that buy more traditional models? Again, it’s a fact. The point is, there are many stereotypes and misnomers about alternative-powered vehicles, as well as the consumers who purchase them. But, just as there are hundreds of stereotypes, there also is an abundance of data to help confirm or reject them. At Experian, we’re committed to using our data for good by providing information into the market to help dealers, manufacturers and consumers better understand the environment we live in – whether we are talking broadly about what metal is moving or more specifically providing actionable insights into who is “going green”. For instance, consumers purchasing an alternative-powered vehicle tend to be a lower credit risk than those purchasing a traditional model. Nearly 83 percent of consumers who purchased a “Green” vehicle fell within the prime credit category, while the same could only be said for 71.5 percent of consumers who purchased gas-powered models. Additionally, of the top five alternative-powered vehicle models in 2014, three of them came from the Toyota family. The Toyota Prius and Prius C were in the top two, while the Camry was in the number four position. The Ford Fusion and Nissan Leaf made up the third and fifth spots, respectively. It’s these insights that enable the automotive industry and its consumers to take the appropriate action and make the best decisions for them. For consumers, gaining insight into the market allows them to paint a clearer picture of what options are most popular and available. For dealers and manufacturers, they are able to gain a better understanding of consumer demand and provide inventory that meets the needs of the market. The fact of the matter is, opportunity exists everywhere you look, you just have to know what you’re looking for. You can’t let preconceived notions or ideas dictate future decisions. By leveraging data and insight, the automotive industry is able uncover the unknowns and put itself in a good position to succeed, while helping consumers purchase vehicles that meet their specific lifestyle.