As Autos Plateau, Market Shifts to CUs and Captive Financiers

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Total U.S. auto loan balances have reached another record high for all financiers ($1.17 trillion) as credit unions maintain double-digit annual growth and banks experience a continuing slowdown, according to Experian’s year-over-year trends report for third quarter 2018.

Whether the majority of banks financing auto loans are ratcheting-down their lending “on purpose” versus “losing” market share wasn’t addressed. However, the State of the Auto Finance Market Report shows credit unions now make up 29 percent of financing, whereas banks have 32 percent, captive finance 22 percent, and third-party lenders 17 percent.

Meanwhile, according to Autodata Corp., new car-and-truck sales at auto dealerships across the United States (averaging a record industry peak of about 17.5 million annually from 2015 - 2018) are forecast to slow down and average 16.5 - 16.8 million in 2019 and 2020, respectivley.

Highlights from the Experian report are as follows, including insight across different types of lenders under various consumer credit circumstances:

  • Auto finance market share (combined loans and leases) continues shifting away from banks to credit unions and captive finance lenders. Credit unions now hold 23 percent market share versus captive finance (30 percent), third-party lenders (10 percent), buy-hear-pay-here entities (6 percent), and banks (31 percent).

  • Credit unions have inched up in their market share of both new and used-vehicle financing: 14.5 percent and 30 percent respectively today. In general, banks retain their majority footprint in used-vehicle financing while captive financiers retain their stronghold in new-vehicle financing.

  • Annual growth in auto lending risk mostly took place in "super prime" and "prime" (combined 13 percent). Other growth or retraction was as follows: "nonprime" (3.5 percent), "subprime" (2.3 percent), and "deep subprime" (negative 3 percent). The outstanding breakdown of total loan risk is 20 percent super prime, 42 percent prime, 19 percent nonprime, 15 percent subprime, and 4 percent deep subprime.

  • Both new/used (combined) and used financing has dropped to a six-year low for “subprime” auto loans. Also, the percentage of subprime remains below 20 percent of total auto loan balances, with all credit categories growing except “deep subprime” (growth slowing).

  • The 30-day delinquency rate for loans and leases (combined) improved for all types of lenders. Credit unions—having the lowest delinquency of all lenders—dropped from 1.33 to 1.21 percent. Others were as follows: third-party lenders (4.39 to 3.95 percent); captive finance (2.36 to 2.25 percent); and banks (1.99 to 1.94 percent). Also, the 60-day delinquency rate is showing widespread improvements across all lenders.

  • Average "new" and "used" credit scores show substantial improvement from 2015 - 2018 in all vehicle categories. These categories include "new lease, all new, and new loan,” as well as "franchise used, all used, and independent used." Altogether, the credit scores range today from 623 – 724 depending on which categories they fall in (versus 609 – 715 in 2015).

For more visual/graphical trends from Experian’s report (see below), click here!

  • Leasing shifts into more prime segments as consumers choose leasing at greater rates than 2017.
  • “Subprime” hits 11-year low in the loan market driven by decreases in used lending.
  • “Prime” consumers continue trend toward used vehicles.
  • Record highs are being experienced for average used loan amounts.
  • Average new loan term is decreasing among “prime” and “super prime” consumers.
  • Used loan terms are rising overall, but decreasing for high-risk franchise used loans.
  • Longer term loans continue to dominate the auto market.
  • New-vehicle monthly payments hit a record $530.
  • Used-vehicle monthly payments hit a record (range of $381 to $403 depending on seller catgeory) while franchise used loans creep closer to $400.
  • The gap between new and franchise used payments widen.
  • Interest rates are rising across the entire automotive loan market.

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