Credit Loosening, Detroit's Subprime-Lending Deals Booming
By Bill Visnic December 9, 2010
Here's another signal auto-industry sales may begin to firm up in 2011: the credit environment, long cited as one reason for 2010's spastic auto sales rebound, is showing definite signs of improvement.
Melinda Zabritski, director of automotive credit for Experian Automotive, said earlier this week in a webcast with media and analysts that lenders across the financing spectrum appear to finally be easing credit standards, if the 8-percent increase in subprime lending in the third quarter (compared with the third quarter of 2009) is one indicator.
It is the first time since 2007 lending to the subprime buyer has increased, Zabritski said.
Average credit scores for both new and used-car loan originations also are down, albeit slightly, another sign credit requirements are loosening. The average credit score on a new-vehicle loan in the third quarter was 769, down six points. The average credit score on a used-vehicle loan - used-vehicle financing comprised 60.95 percent of the market in the quarter - was 683, down one point from the same period last year.
Meanwhile, other trends reported by Experian Automotive indicate the acquisitions by General Motors Co. and Chrysler Group LLC of sub-prime lending specialists Americredit Corp. and Santander Consumer USA Inc., respectively, already are paying out-sized dividends: Americredit's share of the total consumer auto-loan market skyrocketed 256.3 percent in the third quarter and Santander's share ballooned by 176.9 percent.
Both now are among the market's top 20 lenders, which collectively currently account for 78 percent of all auto-loan financing, said Zabritski.
And the share for all "captive" lending units also is on the upswing: captive lenders' share of all new-vehicle financing in the third quarter rose 16.2 percent to a share of just over 50 percent of the market.
General Motors closed its acquisition of Americredit on Oct. 1 and said it would rename the company General Motors Finance Company Inc., effectively making it the start of a new captive finance unit. Chrysler's arrangement with Santander to provide Chrysler dealers with attractive-rate subprime financing was estimated by Chrysler earlier this year to be worth as much as 2,000 additional monthly sales at the market's former depressed levels.
Another noteworthy gainer in financing was Hyundai Motor Finance. Fueled by Hyundai's rapidly expanding sales and market share, the company's captive-finance unit also has prospered mightily, its share of the total auto-loan financing market jumping 198.1 percent in the third quarter. Hyundai Finance ranked as the eleventh largest lender in the U.S. market, its share exceeding that of Ally Bank (formerly GMAC) and other large banks.
In a good sign for the healing economy, Experian's Zabritski also said that delinquencies on auto loans in the third quarter dropped for the first time since 2007. Thirty-day delinquencies on all auto loans dropped under 3 percent for the first time in three years and the total amount of all 30-day delinquent loans decreased by $4.5 billion in the third quarter.
Other Signs Maybe Not So Good
But some lending-market metrics reported by Experian don't bode as well for automakers looking for an increase in showroom traffic.
Experian said that although the average amount financed for new-vehicle purchases rose a hefty $2,530 (to $25,273) compared with the third quarter of 2009, average balances for all outstanding loans have been "steadily decreasing over the last several years." The number indicates what other metrics also say: consumers are holding their existing auto loans - and thus their current autos - longer.
Also, the total of all outstanding auto loans fell by $38 billion in the third quarter, another indicator consumers are not replacing existing vehicles in their households.
The total average age of all auto loans in the third quarter was slightly more than 28 months, up one month from last year. Optimists might look at this trend as indicative of growing pent-up demand that might - sooner than later - lead to a new-vehicle sales rebound.
Graphics by Experian Automotive
LEAVE A COMMENT