Experian Automotive tried again this week to pop the talk about a “subprime auto loan bubble.”
Analysts said, “There’s always someone who claims that the bubble is bursting. But a level-headed look at the data shows otherwise.”
According to Experian’s State of the Automotive Finance Market report, 30-day delinquencies dropped and subprime auto financing reached a 10-year record low for the first quarter. Analysts indicated the 30-day delinquency rate dropped from 2.1 percent in Q1 2016 to 1.96 percent in Q1 2017, while the total share of subprime and deep-subprime installment contracts dropped from 26.48 percent in Q1 2016 to 24.1 percent in Q1 2017.
“The truth is, lenders are making rational decisions based on shifts in the market. When delinquencies started to go up, the lending industry shifted to more creditworthy customers. This is borne out in the rise in customers’ average credit scores for both new and used vehicle loans,” analysts said.
Experian noted that the average customer credit score for a new-vehicle contract rose from 712 in Q1 2016 to 717 in Q1 2017.
The company added the average customer credit score for a used-vehicle loan rose from 645 in Q1 2016 to 652 in Q1 2017.
In what Experian called “a clear indication” that finance companies have shifted focus to more creditworthy customers, super prime was the only risk tier to grow for new-vehicle financing from Q1 2016 to Q1 2017. Super-prime share moved from 27.4 percent in Q1 2016 to 29.12 percent in Q1 2017.
All other risk tiers lost share in the new-vehicle financing category:
• Prime: 43.36 percent in Q1 2016 to 43.04 percent in Q1 2017.
• Nonprime: 17.83 percent in Q1 2016 to 16.96 percent in Q1 2017.
• Subprime: 10.64 percent in Q1 2016 to 10.1 percent in Q1 2017.
For used-vehicle financing, Experian spotted a similar upward shift in creditworthiness.
Prime and super-prime risk tiers combined for 47.4 percent market share in Q1 2017, up from 43.99 percent in Q1 2017.
At the low end of the credit spectrum, subprime and deep-subprime shares fell from 34.31 percent in Q1 2016 to 31.27 percent in Q1 2017.
“The upward shift in used vehicle loan creditworthiness is likely caused by an ample supply of late model used vehicles,” Experian analysts said. “Leasing has been on the rise for the past several years (and is at 31.06 percent of all new vehicle financing today).
“Many of these leased vehicles have come back to the market as low-mileage used vehicles, perfect for CPO programs,” they went on to say.
Experian also mentioned another key indicator of the lease-to-certified pre-owned impact is the rise in used-vehicle financing share for captives. In Q1 2017, captives had 8.3 percent used-vehicle share, compared with 7.2 percent in Q1 2016.
In other findings:
• Captives continued to dominate new-vehicle financing share, moving from 49.4 percent in Q1 2016 to 53.9 percent in Q1 2017.
• 60-day delinquencies showed a slight rise, going from 0.61 percent in Q1 2016 to 0.67 percent in Q1 2017.
• The average new vehicle contract reached a record high of $30,534.
• The average monthly payment for a new vehicle installment contract reached a record high of $509.