All posts by Melinda Zabritski
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.
Vehicle prices are going up, yet consumers seem unfazed. Despite consumers taking out larger loan amounts, they continue to make their monthly payments on time. But, affordability remains a point of industry interest. As vehicle prices hit record highs, how long will consumers have an appetite for them? According to Experian’s latest State of Automotive Finance Market report, delinquency rates continued a downward trend, as 30- and 60-day delinquencies were 2.11 and 0.64 percent, respectively, at the end of Q2. Those numbers demonstrate that car owners are making timely payments despite rising vehicle costs, which is an encouraging sign for the market. The average loan amount for a new vehicle is now $30,958, a $724 increase from last year. Additionally, consumers are now making monthly payments of about $525 on a new car loan, an all-time high that has seen a $20 year over year increase. The auto market shows little to no sign of declining costs, but vehicles aren’t the only cost to consider – interest rates have increased by 56 basis points since last year. When combined with the rising manufacturer costs, long-term affordability is a continued concern within the industry. The data points to consumers offsetting the expense by taking out longer loan terms. In Q2, the most common loan length was 72 months—which equates to six years—for both new and used financing. While this lowers the monthly payment, it leaves them subject to paying higher interest over time, as well as the potential for individuals to be upside down on their loan for a longer period of time. The key takeaway from this data is that costs continue to rise, but consumers appear to be doing a better job of managing their finances. This insight can help OEMs, dealers, and lenders make strategic decisions with a better understanding of consumer borrowing and credit habits, and think about how to make car ownership more inviting, through incentive or loyalty programs. For consumers, continuing to take steps to actively improve your credit score is one of the key ways to ensure that you’re able to negotiate the right deal when it comes to financing. Ultimately, for everyone involved, it comes down to leveraging the power of data to make more informed decisions, which can help make vehicle ownership more accessible and affordable. To learn more about the State of the Automotive Finance Market report, or to watch the webinar, click here.
When gearing up to buy a car, having a checklist of things to look for is important. Happily, it looks like consumers have added something new to the top of that list: managing their credit better. According to Experian’s latest State of Automotive Finance Market report, the average credit score for purchasing a vehicle has increased four points across the board, reaching 722 for new vehicles and 682 for used vehicles. That four-point increase may seem insignificant, but it reveals that consumers are actively managing their credit. With the recent trepidation over the so-called subprime auto finance bubble, the positive change is great news for people in the market to get a new ride. Per the Q3 report, subprime originations reached the lowest level of market share since 2012 (16.6 percent), while prime and super-prime originations showed the largest increases in market share. So what does all this mean? In addition to better managed credit, the increased market share of prime and super-prime consumers shows that industry professionals are leveraging data and analytics when making lending decisions. So if you’re looking to buy a car soon, how can you use that knowledge to your advantage? About six months before zooming to the dealership, take the time to check your credit report to make sure there are no surprises when a potential lender looks at it. Once you know where you stand, you can take steps to improve your credit (if needed) by paying bills on time, keeping balances low and not applying for any new credit before you’re ready to buy that car. Your credit is in good shape, so now what? When car shopping, don’t just look into vehicle make and model. Consider your financing options as well. Different lenders offer different terms and conditions, so comparing options can make sure that you’re getting the best deal possible. For example, our Q3 report shows that credit unions and captive financers (like Ford Motor Credit or Toyota Financial Services) are earning more customers and taking a greater market share of auto lending, at 21 percent and 29.8 percent, respectively. Banks still hold the largest percentage of auto loans at 32.9 percent, but they don’t dominate auto financing like they once did. Leasing is another financing option. Consumers often choose to lease because of lower monthly payments ($412 for a new lease as opposed to $502 for a new loan). The report shows that leasing continues to be a large part of new auto financing, coming in at 29 percent of all financed new vehicles. Lastly, the report shows that loan terms continue to be extended, with the average length of a loan hitting 69 months for new cars and nearly 64 months for used. Extending loan terms can lower your monthly payment, but you should use it mindfully, so the total cost of the vehicle loan doesn’t exceed your budget. For more information about the current State of the Automotive Finance Market report or to view a recording of the webinar, visit our website.
When discussing automotive lending, it seems like one term is on everyone’s lips: “subprime auto loan bubble.” There’s always someone who claims that the bubble is bursting. But a level-headed look at the data shows otherwise. According to our Q1 2017 State of the Automotive Finance Market report, 30-day delinquencies dropped and subprime auto lending reached a 10-year record low for Q1. The 30-day delinquency rate dropped from 2.1 percent in Q1 2016 to 1.96 percent in Q1 2017, while the total share of subprime and deep-subprime loans dropped from 26.48 percent in Q1 2016 to 24.1 percent in Q1 2017. The truth is, lenders are making rational decisions based on shifts in the market. When delinquencies started to go up, the lending industry shifted to more creditworthy customers. This is borne out in the rise in customers’ average credit scores for both new and used vehicle loans: The average customer credit score for a new vehicle loan rose from 712 in Q1 2016 to 717 in Q1 2017. The average customer credit score for a used vehicle loan rose from 645 in Q1 2016 to 652 in Q1 2017. In a clear indication that lenders have shifted focus to more creditworthy customers, super prime was the only risk tier to grow for new vehicle loans from Q1 2016 to Q1 2017. Super-prime share moved from 27.4 percent in Q1 2016 to 29.12 percent in Q1 2017. All other risk tiers lost share in the new vehicle loan category: Prime — 43.36 percent, Q1 2016 to 43.04 percent, Q1 2017. Nonprime — 17.83 percent, Q1 2016 to 16.96 percent in Q1 2017. Subprime — 10.64 percent, Q1 2016 to 10.1 percent in Q1 2017. For used vehicle loans, there was a similar upward shift in creditworthiness. Prime and super-prime risk tiers combined for 47.4 percent market share in Q1 2017, up from 43.99 percent in Q1 2017. At the low end of the credit spectrum, subprime and deep-subprime share fell from 34.31 percent in Q1 2016 to 31.27 percent in Q1 2017. The upward shift in used vehicle loan creditworthiness is likely caused by an ample supply of late model used vehicles. Leasing has been on the rise for the past several years (and is at 31.06 percent of all new vehicle financing today). Many of these leased vehicles have come back to the market as low-mileage used vehicles, perfect for CPO programs. Another key indicator of the lease-to-CPO impact is the rise in used vehicle loan share for captives. In Q1 2017, captives had 8.3 percent used vehicle loan share, compared with 7.2 percent in Q1 2016. In other findings: Captives continued to dominate new vehicle loan share, moving from 49.4 percent in Q1 2016 to 53.9 percent in Q1 2017. 60-day delinquencies showed a slight rise, going from 0.61 percent in Q1 2016 to 0.67 percent in Q1 2017. The average new vehicle loan reached a record high: $30,534. The average monthly payment for a new vehicle loan reached a record high: $509. For more information regarding Experian’s insights into the automotive marketplace, visit https://www.experian.com/automotive.
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
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.
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