Auto lenders are about to embark on another year of worry that the other guy will go “irrational” and start making money-losing loans to gain U.S. market share. They fret they’ll be forced to decide whether to give up share or follow suit, sparking losses.
But they probably don’t have much to worry about because U.S. auto sales are expected to keep growing. That rising tide should lift all lenders, even if some get more aggressive in 2015.
Industry forecaster LMC Automotive said this month it expects U.S. light-vehicle sales of 17 million in 2015, up from 16.5 million in 2014.
Lenders have been worrying about irrational lending since about the time the Great Recession officially ended in June 2009, 18 months after its December 2007 start, according to the National Bureau of Economic Research.
Auto lenders reacted to the recession by tightening standards, especially for borrowers with subprime credit. Volume fell, but so did delinquencies and losses for bad loans.
Eventually auto lenders turned the spigot back on, even in subprime. To the surprise of analysts, delinquencies kept right on falling, quarter after quarter. If anything, a few quarterly upticks in 2013 and 2014 show the market is getting back to normal. So auto lenders should have a happy, or least a rational, year in 2015.