Auto originations are at their highest level since 2008, but the credit tier mix has remained relatively steady with previous years, Equifax says.
More than 26.8 million auto loans and leases, totaling $554.8 billion, were originated between Jan. 1 and Nov. 30 last year, according to Equifax’s National Consumer Credit Trends Report released last week.
Loan and lease balances jumped 12.4 percent compared with the 2014 period while the number of loan and lease accounts rose 9.4 percent. The number of accounts and balance amounts were at their highest points since Equifax started tracking the data in 2008.
Of the loan and lease originations, 5.8 million were subprime, with a credit score below 620. Lower credit tier segments “are rising rapidly but somewhat proportionally,” Amy Crews Cutts, chief economist at Equifax, told Automotive News. Share has been steady. Through November, 21.6 percent of auto loans were subprime, compared with 21.4 percent in the 2014 period and 21.7 in the 2013 period.
Cutts expects the mix to stay consistent, but there’s a caveat, she said.
“The elephant in the room is the Fitch report,” which said delinquencies on subprime auto debt packaged into securities were at a 20-year high in February, she noted.
“Subprime ABS has deteriorated rapidly,” she said. Subprime loans are performing well for banks and credit unions, but there has been a change in performance for the finance companies, such as captives, she said.
“It appears to be limited to a handful of [lenders] who have been aggressive with underwriting criteria,” Cutts added.
She is optimistic about auto lending this year based on the economy, but lenders “may be reluctant to fund part of the market” because of Fitch’s findings. With that said, much subprime funding comes from sources outside of the ABS market, she noted.
Long loans steady delinquencies
The 60-day delinquency rate for auto loans and leases remained steady at 1.15 percent in January compared with January 2015. The peak delinquency rate was 2.84 percent in January 2009, Equifax’s report said.
One of the levers in helping consumers pay their loans on time is term length, Cutts said. Experian Automotive reported the average new-vehicle loan term reached 67 months in the fourth quarter.
It’s the shorter term lengths that “have the worst performance,” Cutts said. For a two- to three-year loan, paying $500 a month, for instance, “is a big pill to swallow,” she said.
“Extending [the term] on an asset that lasts a long time makes sense,” she said. It is “a prudent response to cars on the road today.”
Loan, lease balance rise
Finance balances are growing, too. Together, outstanding auto loan and lease balances rose 10.8 percent to $1.09 trillion in January. The number of accounts jumped 8 percent to 77.2 million.
Leasing increased at banks and finance companies, with banks’ lease penetration up 13.9 percent and finance companies’ penetration up 18.5 percent. However, the lease portfolio of finance companies, which includes captives, is five times bigger than banks’ lease portfolios, Equifax said.