Tag Archive | "Experian"

Experian: Auto Loan Balances Grow at Fastest Rate Since 2006


SCHAUMBURG, Ill. — The total dollar volume for outstanding automotive loan balances grew by $92 million from the second quarter of 2014 to the second quarter of 2015, according to Experian Automotive’s latest State of the Automotive Finance Market report. It was the largest dollar volume growth since 2006.

Findings from the report showed that total loan balances also reached a record-high $932 billion in the second quarter of 2015, up from $840 billion in the second quarter of 2014.

In addition to rapid growth and record-setting dollar volumes, the automotive loan market showed increased stability, as consumers continued to make timely payments. In the second quarter of 2015, the 30-day delinquency rate dropped to the lowest level for a second quarter period in the past five years at 2.32%, down from 2.37% in the second quarter of 2014. The 60-day delinquency rate was up, but only slightly, from 0.603% in the second quarter of 2014 to 0.607% in the second quarter of 2015.

“The automotive loan market is working the way it’s supposed to, with loans being made, vehicles purchased and payments made on time,” said Melinda Zabritski, Experian’s senior director of automotive finance. “The automotive loan market is gaining momentum while maintaining remarkable stability. It’s a good sign for the economy overall.”

Lenders maintained a balanced strategy in the second quarter of 2015. Subprime loans and deep-subprime loans grew as a share of the market but were balanced out by growth of the super-prime risk tier. The combined 20.02% share for subprime and deep subprime was up slightly from 19.92% in the second quarter of 2015. Super prime grew from 20.68% share in the second quarter of 2014 to 20.99% share in the second quarter of 2015.

“Overall, lenders are taking a balanced approach to their portfolios, with slight growth in subprime and deep subprime balanced by the uptick in loans to the super-prime risk tier,” Zabritski continued. “There really is nothing alarming about the growth seen in subprime loans, provided consumers continue to make timely payments.”

On a state-by-state level, the highest delinquency rates were found primarily in the South, while the states with the lowest rates typically were found in the Midwest and the Northwest.

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Consumers Relying on Financing, Experian Reports


SCHAUMBURG, Ill. —Consumers are relying on financing more than ever to buy their next vehicle, according to Experian Automotive. The firm’s latest State of the Automotive Finance Market report shows that the percentage of new vehicles purchased with financing in the fourth quarter of 2014 increased over the previous year to reach 84%. Used vehicles that were financed reached a record high of 55.2%.

Furthermore, the study shows that the average loan amount for a new vehicle in the fourth quarter of 2014 once again hit its highest level on record, reaching $28,381. This represents a more than $950 increase from a year ago and a $582 increase from the previous quarter. For used vehicles, the average loan amount increased $437 from last year to reach $18,411.

“In most parts of the country, vehicles are viewed as a necessity to everyday life, which is why we continue to see consumers willing to take out larger loans as the average price of vehicles continues to rise,” said Melinda Zabritski, Experian’s senior director of automotive finance. “As more consumers lean on financing, it’s important for them to consider all of the factors involved, including monthly payments, interest rates and loan terms. These insights will enable them to have a better understanding of their potential payment obligation and take the appropriate action in order to make the vehicle fit within their monthly budget and more easily meet payment terms throughout the life of the loan.”

Findings from the report also show that leasing continued to gain traction, as it jumped 3.6% from a year ago to reach nearly 30% of all new vehicles financed in the quarter.

In addition to the number of leases increasing in the quarter, the study shows that it was slightly more affordable and easier to obtain one. The average monthly lease payment decreased $12 from a year ago to reach $408 in Q4 2014. What’s more, the average new-vehicle lessee had an average credit score of 717 in Q4 2014, down two points over the same time period.

The study also found that the average credit score for a new-vehicle loan dropped 3 points in Q4 2014 to reach 712, and the average credit score for a used vehicle loan increased 2 points in the quarter to reach 648. Also in the fourth quarter, the average monthly payment for a new vehicle hit $482 — its highest level on record.

Interest rates for new-vehicle loans crept up in Q4 2014 to 4.56% and loan terms for new and used vehicles increased from a year ago to reach 66 months and 62 months, respectively. Captives were the only lender type to see an increase in market share year over year.

Experian’s quarterly State of the Automotive Finance Market report leverages information from its AutoCount database, which enables insights into the automotive-lending market by geography, credit score and vehicle registrations, among other factors.

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Some Fear That Auto Industry is Returning to Bad Habits


Big discounts. Six- or seven-year loans, in some cases to buyers who would have been turned down in the past, reported The Detroit News.

As the auto industry strives to sustain its post-recession comeback, car companies are resorting to tactics that some experts warn will lead to trouble down the road.

Vehicle discounts have risen 5.5 percent from a year ago. More than a quarter of new buyers are choosing to lease, a historically high percentage. Auto company lending arms are making more loans to people with low credit scores. The industry is adding factory capacity. And the average price of a car keeps rising, forcing some customers to borrow for longer terms to keep payments down.

Annual auto sales in the U.S. should top 16 million for the first time in seven years. But the pent-up consumer demand that has driven sales is ebbing. Sales are predicted to grow 5.5 percent this year, the slowest pace since the financial crisis.

The big discounts and other steps eventually should help push sales above 17 million, most experts say. But Honda Motor Co. U.S. sales chief John Mendel last week scolded competitors for using “short-term” tactics such as subprime loans, 72-month terms and increased sales to rental car companies to pad their sales.

“We have no desire to go there,” said Mendel, whose company’s sales through July have fallen 1.3 percent, trailing the industry.

Some on Wall Street see a price to pay.

“It could be a disaster later on,” says Morgan Stanley analyst Adam Jonas. “We’re clearly robbing Peter to pay Paul.” He sees sales growing to an annual rate of 18 million in 2017 — then sinking to 14 million a year later. That will mean factory closings, restructurings, and thousands of job cuts just for companies to break even.

Not all forecasts are that dire and on one — not even Jonas — is predicting a repeat of billion-dollar losses and cars piling up on dealer lots. Automakers have cut costs and are better positioned to handle a downturn than they were in 2008 and 2009.

Still, easier credit brings back not-so-fond memories for at least one auto dealer.

“It just seems like 2007 all over again,” said veteran Toyota dealer Earl Stewart of North Palm Beach, Florida. “The credit ease with which people are financed is as liberal and loose as it ever was.”

Among the numbers that concern some experts:

  • $2,702: Average discount per new car through July. They’re heaviest in two segments: Midsize cars (up almost 21 percent through July) and compacts (up 10 percent). Automakers need to move the cars because a lot of factory space is committed to building them.
  • 12.7 percent: The year-over-year increase last quarter in auto loans to “Deep Subprime” buyers — those with credit scores lower than 550. Loans to “subprime” buyers (credit score lower than 620) rose 5.3 percent, according to Experian. Combined, both are just over 12 percent of all auto loans. Those with lower credit scores generally have a higher default risk.
  • 32 percent: Percentage of auto loans that are 72 months or longer, up from 23 percent in 2008, according to LMC Automotive. Longer loans keep buyers out of the market because it takes longer to build equity for a trade-in.
  • 26 percent: Percentage of sales that are leases, up from 18 percent in 2008, according to LMC. A flood of expiring leases in three years could depress used-car prices, hurting new car sales.
  • 70 percent: The increase last quarter in auto repossessions, according to Experian Automotive. Sixty-day delinquencies are up 7 percent. Still, both are below 1 percent of all auto loans.

Karl Brauer, senior analyst for Kelley Blue Book, sees trouble in the juicy discounts. In 2007, spending on incentives was just under 9 percent of the average sales price for a vehicle. That dropped to around 8 percent in 2012 and 2013. It’s back up to 8.4 percent and likely will rise toward 9 percent later in the year, he says.

Based on an average sales price of just over $32,000, the additional discounts would cost the industry almost $5.2 billion per year.

“This was the trap that got everyone in trouble before the recession,” Brauer says.

Others are more sanguine. Melinda Zabritski, senior director of auto finance for Experian, says repossessions and delinquencies still are extremely low. And longer loan terms keep payments down, reducing late payments and defaults.

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The Sub-Prime Cinderella Story: Who Has The Glass Slipper?


After five years of consistent increases, used car prices are expected to collapse in 2014. According to NADA, the average price of a used car rose by 18 percent from 2007 to 2013, and is now roughly 10 percent higher than the average price of the past two decades. That bubble is expected to pop as NADA predicts 42 million units to hit showroom floors nationwide. Of that 42 million, 16 million units will be a result of lease-end models being returned to franchise dealers.

For an independent dealer selling used cars, this poses a significant obstacle. Beyond the drop in price per retail unit sold, other kinds of dealers will lay claim to 38 percent of the available used car inventory. However, there is an upside. According to a 2014 Equifax study, there is pent up demand for more than 26 million vehicles. With the labor force participation rate declining and moderate wage and employment growth, it’s a good assumption that consumers will continue the trend of preferring to buy used over new.

These recession-wary consumers are more willing to shop for the best price and financing available. This partly explains why used vehicles accounted for 62 percent of all vehicles financed for the fourth quarter of 2013, according to Experian.

While we ended the year with an almost even split between independent and franchise dealer market share in used car financing, independent dealers are well positioned to tap further into the current consumer market. For example, picture what you think a typical independent dealer customer looks like:

  • What’s their credit score?
  • Do they rent or own their home?
  • Are they employed?
  • If they have gainful employment, in what industry segment are they employed?

The reality of today might surprise you. With the impact of the recession weighing on bank accounts, even prime consumers are now browsing independent dealership lots. Once you lower your eyebrows, try this number on for size: 11.4 percent of buy-here-pay-here customers fell into the prime and super-prime category in the fourth quarter of 2013.

But what’s even more interesting is the subprime category. This category has become the consumer segment that holds significant value to all dealers: franchise, independent and buy-here-pay-here alike. Of all buy-here-pay-here customers, 88 percent fall within the nonprime, subprime and deep subprime categories. 1 These same customers make up 37.3 percent of franchise dealership customers. 1 While franchise dealers are new to woo this category, they are aggressive, and in some cases offering more than what independents have in their quiver.

When it comes to providing value and creating lasting customer relationships, franchise dealerships have service departments and a deep bench of F&I products to protect and repair the customer’s vehicle. Providing benefits such as these, which have significant impact in preserving the customer’s bank account, has been an uphill battle for independent dealers, specifically in the F&I department.

With an inventory ranging from zero to 70,000 miles, franchise dealerships have significant options in providing consumer protection products. Beyond the manufacturer’s warranty, F&I product providers underwrite extensive vehicle service contracts, maintenance plans, appearance protection products and some forms of insurance, like GAP.

The benefit of this deep bench is they have a better opportunity to increase their value proposition with the customer. By providing extensive coverage on various aspects of their vehicles, they can give their customers significant protection for their bank accounts, while increasing dealership profit per retail unit with upgrades or extended coverage.

Independent dealers paint a different picture. Vehicles on an independent dealership lot have been through approximately three ownership cycles and typically range in mileage from between 30,000 and 150,000 miles. With this in mind, their F&I bench is significantly limited in comparison.

The majority of consumer protection products tailored for independent dealers limit coverage to mainly the powertrain of these older-model vehicles. The reasoning behind this is pretty straight-forward. Older model vehicles are expected to break down more and therefore F&I product providers are more hesitant to create extensive protection products for them as they would expect a higher number of claims submitted.

However, in this value versus cost environment, nonprime and subprime consumers have a new level of expectation in the terms of the products available to them from both franchise and independent dealerships. The recession has forced companies across all industries to re-evaluate the customer service experience, as well as their value proposition. There is no difference in the auto industry. Now, it’s not only prime and super-prime customers that demand the highest level of service, but rather all customers expect to have the same level of respect for their business. While some customers may not be able to afford a traditional vehicle service contract, they are still very interested in purchasing mechanical breakdown protection for their vehicle.

For this reason, F&I product providers are re-evaluating the products they develop for independent dealerships. For example, EFG Companies, a consumer protection product provider based in Irving, Texas, developed a vehicle service contract called Best ReGuards that extends past the powertrain specifically for independent dealerships. This product focuses on several extended coverages while maintaining a low cost price-point:

  • Engine
  • Turbocharger/Supercharger
  • Transmission
  • Transfer Case
  • Air Conditioning
  • Electrical
  • Fuel
  • Seals & Gaskets

Another trend in consumer demands goes beyond mechanical breakdown to include benefits around personal safety, such as roadside assistance. Again, the majority of roadside assistance plans available for independent dealers only provide limited services, if any. However, no matter their credit score, people from all walks of life need the ability to take care of themselves and their family in the event that they are stranded due to a breakdown. With that in mind, EFG paired the following roadside assistance benefits with the mechanical benefits of their Best ReGuards VSC for independent dealers:

  • Towing
  • Flat Tire Changes
  • Jump Starts
  • Lockout Service
  • Nationwide Coverage

Beyond the product itself, the company also backed it with the same product administration that franchise dealers receive. This further emphasizes and ensures the level of customer service on which independent dealers can rely, and that positively impacts their relationships with their customers.

You can see how growth in options such as this gives independent dealers a more valuable toolkit to address each customer’s specific need when it comes to protecting their vehicle. They also fortify independent dealership’s customer appreciation model, which increases their customer retention. With revamped F&I products that provide more comprehensive coverage and service, independent dealerships are positioned to:

  • Increase their product portfolio to generate greater profits
  • Cultivate customer relationships by providing new market opportunities
  • Match consumer buying trends to the dynamics of their dealerships

As supply is expected to outpace demand in 2014, independent dealerships need to expand their product portfolio to be more competitive in the market. Considering how few independent dealers have access to provide F&I products, you are going to see more providers recognizing this growing opportunity and focusing product development efforts on this fresh dealer segment.

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NAF Association Survey: 96% Non-Prime Auto Lenders Agree, Competition Heating Up


Hanover, Md. – The 17th annual Non-Prime Auto Finance Survey to be produced is the most comprehensive of its kind with information coming directly from the finance companies. The participating financing sources were asked to respond to the survey questions covering a variety of topics including originations, servicing and loss management operations. Data for both calendar years 2011 and 2012 were collected. The year-over-year comparisons discussed within the survey are based on answers by the same respondent groups, ensuring comparability.

“This all-new report provides a wealth of unique insights into below-prime auto finance in America,” said Prestige Financial’s Aaron Dalton, who chaired the committee to revamp the report from prior versions. “It combines exclusive and actionable survey data with invaluable figures from Experian, to form the hallmark of the Association’s ongoing efforts to promote even greater transparency throughout the industry.”

Key observations:

  • Below-prime market growth is the strongest growth found in the medium sized lender segment (10,001 – 100,00 accounts);
  • Average advances are up across the board;
  • Speed to market continues to increase, with only 28 percent of applications taking longer than 45 minutes, compared to 45 percent in the previous year; and
  • Collateral protection activity is widespread with GPS tracking and insurance tracking used by nearly 60 percent.

The 2013 Survey has had a substantial overhaul. Benchmark Consulting created a new, easier to read format and includes data provided by Experian. Unlike broader industry reports, the data within this survey has been limited strictly to below prime, providing unique aggregations. The data from Experian represents key market developments for the automotive financing segment and while direct comparisons cannot be made, the data does provide both market insights and directional comparison that is useful.

“After nearly two decades of valuable data gathering and analysis performed on behalf of the non-prime auto finance industry, the National Auto Finance (NAF) Association was pleased to be able to expand its survey to its Members as well as to the auto industry as a whole,” said Marguerite Watanabe, Connections Insights.

The 2013 Non-Prime Auto Finance Survey is available for purchase through the Association’s Web site, www.nafassociation.com, for $500.

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Interest Rates at Lowest Levels Since 2008, Experian Reports


SCHAUMBURG — Experian Automotive announced that the automotive loan market showed continued improvement, with interest rates for new- and used-vehicle loans reaching the lowest levels since 2008, according to its quarterly automotive credit analysis.

In the fourth quarter 2011, average credit scores for new- and used-vehicle loans dropped, the percentage of loans to customers with nonprime, subprime or deep subprime credit scores increased, and lenders increased their willingness to make loans between six and seven years long, according to Experian.

“The improved automotive lending market is good news for consumers in the market to buy a vehicle,” said Melinda Zabritski, director of automotive lending at Experian Automotive. “The confluence of low interest rates, longer loan terms and an increase in loans outside of prime provide a great opportunity for more people to find a vehicle that suits their needs.”

Consumers continued to do a better job of repaying loans in the end-of-year quarter as loan delinquencies fell. The 30-day delinquency rate fell 6.57 percent from the year-ago quarter to 2.79 percent. The 60-day delinquency rate also fell by 9.51 percent from 0.79 percent in the fourth quarter 2010 to 0.72 percent in the last quarter of 2011.

Another positive sign for the lending market is that the overall dollar volume of loans at risk dropped to $18.5 billion, a $1.862 billion drop from the fourth quarter 2010. Meanwhile, the total volume of open loans rose by $23.9 billion in the fourth quarter last year to $658 billion.

“Lenders are clearly on much more solid ground than they were two or three years ago,” Zabritski said. “With delinquencies and total dollar volume at risk down, lenders have been able to adopt more aggressive strategies. This tends to benefit everyone, from lenders to automotive retailers to the end consumer. With more lenders aggressively competing for business, it’s a great time for consumers to buy or finance a vehicle.”

Average interest rates for new-vehicle loans fell to 4.52 percent from the year-ago quarter. Average interest rates for used vehicle loans fell also to 8.68 percent from 8.71 percent in the fourth quarter 2010.

Average credit scores for new-vehicle loans dropped six points to 761, while average credit scores for used-vehicle loans dropped nine points to 670. New-vehicle loans to nonprime, subprime and deep subprime customers increased by 13.8 percent from a year ago.

Loans of 73 to 84 months accounted for 14.1 percent of all new-vehicle loans and 9.04 percent of all used-vehicle loans, up 47.1 percent and 41.1 percent from the fourth quarter 2010, respectively.

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