Vehicle Finance Industry meeting Demand for credit by U.S. consumers

Notwithstanding press reports to the contrary, thoughtful review of data about the state of vehicle finance demonstrates that the market has grown in recent years with continued participation across the credit spectrum.  The vehicle finance industry is meeting the demand for credit by American consumers, and outstanding loans and leases are performing well. 

Reports of high numbers of delinquent vehicle finance contracts obscure the fact that current delinquencies exist as a proportion of a historically large number of outstanding loans and leases.  Outstanding loans and leases combined at the end of Q4 2018 were $1.27 trillion. That’s an increase in outstandings of 79% from the $710 billion at the end of 2010, according to a recent NY Fed report.

The current delinquency rate is lower than it was at the end of 2010, which marked the beginning of the recovery from a severe recession and the lowest per-capita U.S. auto sales in 70 years.  The delinquency rate was 4.47% for the fourth quarter of 2018 vs. 5.27% for the fourth quarter of 2010, expressed as a percent of the total loans and leases outstanding, according to the NY Fed.

NY Fed analysts’ recent assessments of the health of the auto finance market observe “(A)fter years of growth across the credit score spectrum, 2018’s strength in auto loans was primarily driven by those originated by the most creditworthy individuals, while originations to those with scores below 720 have leveled off, albeit at high volumes,” according to the analysts’ blog.

Alarmed assertions of a surge in subprime vehicle finance are not supported by data.  Rather, “the high volume of prime originations has caused a quality-shift in the outstanding pool of auto loans and, as of the fourth quarter of 2018, 30 percent of the $1.27 trillion in outstanding debt was originated to borrowers with credit scores over 760,” they said.   

“Meanwhile, the share of total auto loans outstanding that was originated to subprime borrowers fell to 22 percent,” the analysts’ blog continued. “In fact, these percentages would suggest the overall auto loan stock is the highest quality that we have observed since our data began in 2000. “

AFSA supports the consumer finance industry and consumer choice.  The available metrics from mainstream sources confirm that the vehicle finance market is meeting the needs of a larger group of American consumers, across the credit spectrum, with good performance.