F&I and Showroom, July 2017

www fi magazine com 24 F I and Showroom July 2017 AUTO FINANCE A Auto loan balances grew 782 from the year ago period to a record 1083 trillion in the first quarter marking the first time in four years balances grew by only single digits So while steady overall growth has slowed after robust gains in 2014 116 2015 1133 and 2016 1106 The biggest contributor to that slowdown was the apparent retreat by finance sources from the high risk tiers with subprime lending falling to a 10 year low Also falling was the 30 day delinquency rate a clear sign of the industrys health And despite the subprime pullback every finance segment registered year over year growth in their open automotive loan balances Leading the way with growth of 1539 were credit unions followed by finance companies at 608 banks at 606 and captive finance companies at 377 The following is a look at some of the trends that shaped the auto finance industry in 2017 s opening quarter MOVING UPSTREAM One of the key indicators of the auto finance industrys overall health is the level of delinquencies And in the first quarter the percentage of auto loans 30 days delinquent dropped from 21 in the year ago quarter to 196 Sixtyday delinquencies did rise however inching up from 061 to 067 in the first quarter The drop in the 30 day delinquency rate reflects an overall pullback from subprime lending Like a pendulum lending strategies tend to swing back and forth When things are going well finance sources tend to test the subprime waters to see how deep they can wade When delinquencies rise as they have in recent quarters the industry swings back the other way toward more creditworthy borrowers Well that pendulum definitely swung away from the high risk tiers during the first quarter with the total share of subprime and deep subprime loans dropping from 2648 in the year ago quarter to a 10 year low of 241 The result was a rise in average credit scores for both new and used vehicle financing For the former the average rose five points from a year ago to 717 In fact credit standards have tightened so much that the only market Finance sources responded to the recent uptick in delinquencies by moving upstream in the first quarter pushing subprime lending to a 10 year low BY MELINDA ZABRITSKI GETTYIMAGES COM SAKLAKOVA 600 700 800 Q4 2009 Q4 2008 Q4 2007 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Q1 2013 Q1 2014 Q1 2015 Average New Score Average Used Score 711 726 736 732 727 723 715 712 640 647 657 659 653 650 646 648 Average Loan Credit Scores by Vehicle Type 700 800 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 New Loan New Lease All New 721 724 714 713 710 714 716 715 712 717 730 721 718 716 722 Average New Credit Scores Average Used Credit Scores Percentage of Open Loans by Risk Segment 0 20 40 60 80 100 Deep Subprime Prime Nonprime Subprime Super Prime 3194 2857 4349 1456 953 048 2887 4391 1686 974 062 068 4344 1717 1013 Q2 2014 Total Loan Market Share Bank 3490 BNHP 758 Captive 2721 Finance 2721 Credit Union 2721 New Loan Risk Distribution 80 100 2915 2718 600 700 800 Q4 2009 Q4 2008 Q4 2007 Q4 2010 Q4 2011 Q4 2012 Q4 2013 Q4 2014 Average New Score Average Used Score 711 726 736 732 727 723 715 712 640 647 657 659 653 650 646 648 Average Loan Credit Scores by Vehicle Type 700 800 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 New Loan New Lease All New 721 724 714 713 710 714 716 715 712 717 730 721 718 716 722 Average New Credit Scores 500 600 700 800 Q1 2013 Q1 2014 Q1 2015 Q1 2016 Q1 2017 Franchise Used Independent Used All Used 672 595 671 671 673 679 593 596 601 610 644 641 642 645 652 Average Used Credit Scores Tracking the Subprime Retreat