If the auto finance industry continues to see deteriorating conditions like rising LTVs and lengthening loan terms, things could be headed for trouble, Guerin Senter, President of Western Funding said at the Auto Finance Summit 2015 last month.
“I think if the industry continues down the current trend, with these advanced rates and the advance to values, I think some people are going to look back at Q2 of 2015 and think, ‘That was probably the start of the turning of performance,’” Senter said. “I can say that because I look at a ton of deals, deals still land of my desk every day, I oversee the program design, we frequently look at competitors’ bids, and some of the stuff out there is just scary.”
Western Funding, a subprime auto lender based in Las Vegas, has done “scary deals,” too, Senter said, but he believes that now is the time for lenders to start looking at early performance indicators.
“For us, one of the first things we look at is early delinquency,” he said. “We think that the amount of days past due, when the consumer pays, has a strong correlation to the likelihood and success of that deal performing.”
Consumer credit scores have become much more meaningful than they have been in the recent past, too, and a 550 today is not what a 550 was, even just two years ago, according to Senter.
“The borrower [maybe] hit a few bumps: they lost their job — they’re great potential — but whatever the reason was, they were out of the car for a time and coming back in,” Senter said. “Those stories that make sense, everyone likes to talk about them: Give the borrower another car, they get a job again, they’re off to the races, and everything’s great.”
Today, however, a low credit score might just be a “seasoned subprime customer,” and while that static credit score might be the same over the last few years, the customer’s performance is not, he warned.
It is easier today to get an auto loan than it has ever been, Senter said, and likened the current auto finance environment to the mortgage industry about 10 years prior.
“Back in 2004 – 2006, if you met someone that couldn’t get a home mortgage, you would have thought that was crazy, and in some ways, it feel like that with an auto loan today. When someone says they can’t get an auto loan today, you think, ‘What do you mean? We’re practically giving them away, anyone can get an auto loan,’” Senter said. So I think that those are important things to be aware of as we see the market continue to shift, and how that evolves.”
