Comparing consecutive quarters can be misleading, said Melinda Zabritski, director of automotive credit at Experian. Comparing year-ago quarters shows that credit is still tight.
"It's all about the time frame," Zabritski said in an interview after a May 27 conference call with lenders and reporters to review auto loan statistics from the first quarter.
"The market is very seasonal," she said. "If you look at the first quarter, yes, it's looser than it was six, or four, or three months ago because the first quarter just tends to be looser. If you look from the first quarter of 2010 to the third quarter of 2009, absolutely, the market is looser."
For example, subprime made up about 41 percent of all auto loans originated in the first quarter of 2010 compared with 34 percent of auto loans originated in the third quarter of 2009, Experian data show. That makes it appear as if the subprime category is doing much better. However, in the year-ago quarter, subprime loans made up about 42 percent of the total. If anything, that makes it look as if the subprime market tightened slightly.
Zabritski said tax refunds are a likely explanation for the long-term seasonal trend that favors subprime loans in the first quarter.
"From a household finance standpoint, you've got to look at the flow of funds," she said. "In the first quarter, you're coming off the holidays, you've got tax refunds coming in the marketplace, you've got the cash to put down in the form of vehicle financing. The rest of the year they might not have as much cash. For a subprime consumer with $2,000 down for a tax refund, you've got a much greater chance of getting them financed than you will later in the year with no money down."
In the long run, as delinquencies decline and competition heats up in the subprime market, auto lenders will recover their appetite for subprime risk, but that hasn't happened yet on a large scale, Zabritski said.
"We're not seeing, as a percent of total funding, that lenders are saying, 'Delinquencies are down, therefore I'm going to expand my risk profile.'" she said.
"As the market gets more competitive and memories get shortened, we might see … subprime financing will represent a greater part of the total."