Low loan losses support subprime health

Even as subprime lending has picked up, resulting in more vehicle sales to credit-challenged customers, delinquencies and repossessions have fallen to record lows, data from Experian Automotive show.

Melinda Zabritski, senior director of automotive credit for Experian Automotive, says a number of reasons could explain the apparent discrepancy. But the most simple is fairly basic: "Rates are down," she said.

Low interest rates keep loans more affordable, thereby helping consumers avoid delinquencies and defaults.

And as long as delinquencies and repossessions remain low, lenders will be encouraged to and can afford to offer easier access to credit — a big positive for dealerships.

Low, low repos

Repossessions in the second quarter reached the lowest rate for any quarter since Experian started keeping track in 2006, the credit bureau said. Only 0.36 percent of all vehicle loans ended in a repossession for the quarter, down from 0.43 percent a year earlier and below the previous low of 0.41 percent in the second quarter of 2006.

Sixty-day delinquencies -- those most likely to be written off as a bad loan -- were flat vs. a year ago at 0.58 percent. That's the second-lowest rate Experian has on record, the credit bureau said. The lowest was 0.53 percent in the second quarter of 2006, Experian said.

Thirty-day delinquencies were the lowest for any second quarter on record, at 2.38 percent of outstanding loans, Experian Automotive said. Other recent quarters have been slightly lower. In the first quarter of 2013, the 30-day delinquency rate was 2.36 percent. Zabritski said delinquencies typically increase from the first quarter to the second quarter, but the seasonal increase this year was less than average.

More subprime loans

Low loan losses have helped sustain an increase in subprime lending, analysts said. Experian said subprime loans accounted for 35.2 percent of outstanding auto loans in the second quarter, up from 34.9 percent a year earlier.

Since the recession, consumers have been statistically more likely to pay their bills on time.

Zabritski said she was surprised auto delinquencies and repossessions remained at or near record lows in the second quarter despite the ongoing increase in subprime lending.

"I will admit I was expecting to see delinquencies increase for Q2 of this year," she said. "That's certainly not how the market came out."