Tag: Fitch Ratings

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Business Growth Economy

The Devil In Delinquencies

Experian’s Q3 State of the Automotive Finance Market Report revealed that 60-day auto loan delinquencies rose past pre-COVID levels, prompting concern for the auto lending industry. According to Fitch ratings, a record number of subprime borrowers are behind on auto loan payments by more than 60 days, hitting 6.11% in September. Vehicle repossession rates are also on the rise, leaving many without transportation. High delinquency and default rates mean lenders could face significant losses as they have more difficulty recouping funds.  

Another interesting data point is the scale of student loan debt compared to auto loan debt. In the first quarter of 2023, more than 43 million people in the U.S. were holding federal and private student loan debt, totaling more than $1.77 trillion overall. However, in September, the Wall Street Journal reported that the total amount of auto loan debt had surpassed student loan debt. At the end of Q2 2023, auto loan debt reached $1.58 trillion compared to $1.57 trillion in student loan debt.

Much of the loan debt can be attributed to the rise in car payments. According to Edmunds, the average new car payment in Q3 2023 reached $736 per month – a 4.6% increase over a year earlier.  Experian reports that three times as many people paid more than $1,000 monthly toward an auto loan. Think about how this trend line correlates with the rise in delinquencies.

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Categories
Economy F&I

Navigating the Perfect Storm

Brien Joyce Vice President EFG Companies
Contributing Author:
Brien Joyce
Vice President
EFG Companies

One of the hot topics at the 2016 NADA Convention was the much debated subprime bubble in relation to rising delinquency rates. Again, industry experts worked to calm everyone’s nerves about Fitch Ratings’ latest report, which brought to everyone’s attention that as of February, 60-day delinquencies had risen to 5.16 percent, the highest rate since 1996. Even so, experts have once again stated that there is no bubble and delinquency rates are rising at a healthy level in conjunction with vehicle sales.

However, with the Federal Reserve raising interest rates by 25 basis points this past December, and the expectation that rates will rise again later this year, it can be posited that lenders will tighten restrictions within the subprime space. The last thing anyone wants is for higher interest rates to coincide with rising delinquency rates, creating a perfect storm that could potentially cause that debatable bubble to pop.

As you evaluate your portfolio risk and determine the best go-forward plan to maintain your market share, consider looking at avenues outside of those traditional lending benefits commonly used by the industry, like APR. While the industry has typically competed for ground on APR, lenders, especially in the subprime space, often have their hands tied on how low they can go due to Federal Reserve rate increases and portfolio risk.

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Categories
Business Growth F&I

Don’t Let Delinquency Keep You Down

Mark Rappaport President EFG Companies
Contributing Author:
Mark Rappaport
President
Simplicity Division
EFG Companies

Currently, the headlines are offering a lot of doom and gloom for the subprime auto finance market with regards to rising auto loan delinquency rates and the sheer amount of subprime paper.

According to the February Equifax National Consumer Credit Trends Report, 21.7 percent of all auto loans originated between January and November, 2015 were issued to consumers considered to be in the subprime market.

This marks the fourth year where the subprime segment accounted for between 21 and 22 percent of all auto loans.

In addition, Fitch Ratings reported that in February, 60-day delinquencies experienced a 12 percent year-over-year increase, bringing the delinquency rate to 5.16 percent. This is the highest delinquency rate since October, 1996. To put this into perspective, delinquencies peaked at 5.04 percent during the 2008 financial crisis.

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