Strong used-vehicle values and better than expected loan performance led to improved credit availability for auto loans in December.
Credit access loosened modestly in December, contributing to a 0.1% improvement from November to 94.9, “reflecting that auto credit was slightly easier to get in the month,” according to the Automotive Dealertrack Auto Credit Availability Index from Cox Automotive.
The monthly index is based on Dealertrack credit application data and indicates if access to auto financing is improving or getting worse, according to Cox.
The index improved every month during the fall, with delinquencies and charge-offs remaining lower than anticipated, Jonathan Smoke, chief economist for Cox Auto, told Auto Finance News.
Still, auto lenders have not returned to 2020 levels after tightening underwriting standards due to the COVID-19 economic crisis. Credit access for all auto loans came in 5% tighter year over year in December, and 4.4% tighter than in February 2020, before the pandemic hit the United States, according to Cox.
December saw a mix of credit access trends. New-vehicle financing tightened in December, while credit standards loosened for used-vehicle loans.
Credit unions, on average, loosened underwriting standards by 0.8% in December, while auto finance companies pulled back standards by 0.5%, according to Cox. Banks and captives, on the other hand, generally tightened access for auto loans at the end of the year.
For consumers with strong credit, captives are again turning to 0% APR deals to drive sales, contributing to an uptick in no-interest financing in January, Smoke added.
Meanwhile, loan performance is expected to deteriorate as accommodations end and unemployment remains high, he noted.
“I do not expect credit conditions to loosen in the coming months,” Smoke told AFN. “Longer term bond yields are higher to start the year, which is putting pressure on yield spreads that had widened to accommodate some aggressiveness in other areas like offering longer terms.”
Still, credit is also not likely to tighten much since vehicle values are expected to increase in the spring as demand continues to exceed supply, Smoke added. “With supply tight and not likely to improve much in the first half of the year, it is not likely that manufacturers will be as aggressive as they were last March and April,” he said.
Overall, credit conditions in the auto finance industry in the first half of 2021 are likely to mimic those seen in the last six months, Smoke told AFN. “The new-vehicle market will be favorable to consumers with great credit,” he said. “The used market will again thrive as credit will remain readily available for all types of borrowers.”
Auto Finance Innovation Summit, the premier event for technology in auto finance, returns March 16-17, 2021, as a virtual experience. The virtual experience will offer the quality networking and education of past events, all through an online platform. To learn more about the 2021 event and register, visit www.AutoFinanceInnovation.com.