Martin and S&P Global in 2019 observed a trend toward longer new- and used-vehicle loans, noting that year also marked the first time an automaker's captive finance company — Toyota Motor Credit Corp. — sold a securitized bundle of loans containing 84-month terms. Toyota Credit was allowed to fill up to 15 percent of the pool with 84-month debt.
Now, Martin told the conference, both Ford Credit and GM Financial were incorporating 84-month auto loans into debt packages sold to investors. However, this remained less than 10 percent of those debt pools, she said.
Nicky Dang, associate managing director of structured finance at Moody's, said captives carrying 84-month loans on their books wasn't a new development. But until recently, the debt hadn't reached the point where it could be sold to investors.
"They just accumulated the mass, and also significant performance data, to start including them in the securitization platforms," she told Automotive News in November.
Martin said her analysis of noncaptive 84-month loans found they produced four times the losses seen in 60-month loans. However, this was relative, she said: If 60-month loans had a 0.5 percent loss rate, a loss rate four times that amount would be 2 percent — still a prime level of performance.
"If it's priced appropriately, it could be a very profitable line of business," Martin said.
Dang also noted loans typically ended far sooner than their maturity dates, averaging in the two- to three-year range because of prepayments.
GM Financial North American Operations President Kyle Birch observed during another Auto Finance Summit session that a 60-month loan used to be long for the industry. Now, loans are often 72 months, and could be even longer. But he said the longer maturities combined with low interest rates helped preserve affordability.
"It gives people the capability to buy the vehicle that they want," Birch told the conference Oct. 28.
Birch was joined on the panel by representatives from two other major auto lenders. Wells Fargo Auto head Tanya Sanders said her bank didn't write 84- or 96-month terms, though it monitored them. U.S. Bank Dealer Services CFO Dan Brogan said his company approved such terms, though not "to everybody."
Brogan noted vehicles last longer than in the past, making longer loans more viable.
"We're more confident that the collateral will hold its value longer-term as well," he said.