Concerns Mount, But Auto Finance Remains Stable

By Ted Craig March 04, 2019 543

Pundits started talking about an auto finance bubble again recently, thanks to a report from the Federal Reserve Bank of New York.

The report was based on the NY Fed’s Quarterly Report on Household Debt and Credit.

It shows that new-car finance increased by $9 billion in the fourth quarter, reaching  $584 billion. That is the highest level in the 19 years the NY Fed has recorded this data.

Much of this increase comes from the ever-climbing prices of new vehicles, which cause more consumers to finance their purchases.

The bigger issue is that while overall delinquency rates remain below 2010 peak levels, there were 7 million additional consumers 90 or more days delinquent on their auto payments at the end of 2018. 

The growing number of financed also drove that number. As a percentage, it’s below 2010.

Consumer advocates are jumping on the report to push for increased regulation.

“Americans deserve both protection from predatory and unfair practices in auto lending, and a transportation system that provides more people the freedom to live without owning a car,” said Ed Mierzwinski, U.S. PIRG’s senior director for federal consumer.

“Americans shouldn't have to fight their way through a thicket of tricks and traps at the auto dealer just to get the transportation they need to get to work or school."

PIRG claims “unfair lending practices” are really driving the growth of auto finance.

But analysts at TransUnion said auto finance today works to the benefit of both consumers and creditors.

“Generally, auto finance has been a healthy market,” said Matt Komos, TransUnion’s vice president of research and consulting.

Komos said consumers are getting access to financing and creditors are getting their payments on a regular basis.

Brian Landau, TransUnion’s auto business leader, said delinquencies of more than 60 days have been stable for the last five quarters, even as subprime financing grew in the second half of 2018.

Landau said TransUnion considers 60-plus-day delinquent as the most accurate indicator of performance.

If the market does deteroriate, the creditors change fairly quickly, Landau said.

In 2016, for example, they tightened after five years of loosening. When the outlook improved last year, creditors grew their subprime business again.

The latest data from Experian supports the judgment of a stable market.

The report shows 30-day delinquencies dropped in the fourth quarter to 2.32 percent from 2.36 percent in the fourth quarter of 2017. Sixty-day delinquencies increased to 0.78 percent from 0.76 percent the previous year.

“With more car shoppers using automotive financing options, it’s natural to see an uptick in the volume of delinquent loans,” said Melinda Zabritski, Experian’s senior director of automotive financial solutions.

“Lenders need to factor in additional historical trends, such as the percentage of subprime loan originations and shifting payment options, to gain a more complete picture and make the right lending decisions.”

The percentage of outstanding loan balances held by subprime and deep subprime consumers remained just below 20 percent, Experian reports. Overall, consumers financed 85.1 percent of all new vehicle purchases, compared to 81.4 percent in the fourth quarter of 2010.

Rate this item
(0 votes)
Last modified on Monday, 04 March 2019 17:05