Despite the increasing share of prime auto loans originated last year, new research from the N.Y. Federal Reserve, with credit data from Equifax, shows overall performance of auto loans is steadily worsening.
Cox Automotive Chief Economist Jonathan Smoke said the decline is due to a bifurcated market, with growth in super-prime and subprime. “We have been seeing declining auto loan performance in subprime in monthly Equifax data,” Smoke told Auto Finance News in an email. “While we have not yet received the full December data yet, in November we saw the highest severe delinquency rate for subprime auto loans since November 2009. That’s a very scary comparison.”
However, historically high levels of prime auto originations are shifting the credit quality within the pool of outstanding auto loans, wrote N.Y. Fed economists in a report published this week. In fact, 30% of the $1.27 trillion in outstanding auto debt as of yearend 2018 was originated to borrowers with credit scores higher than 760. Further, 2018 marks the year with the highest level of auto loans and leases originated: $584 billion, versus $569 billion in 2017.
Originations have been steadily growing since 2011, drawing in “more subprime auto loan borrowers than ever,” the N.Y. Fed said. “The deteriorating performance of subprime auto loans is why we are assuming that credit will tighten in 2019 and will therefore lead to declining subprime loan originations, especially measured in dollars,” Smoke said.
By yearend 2018, more than 7 million Americans were at least 90 days delinquent on their auto loans. As a percentage of auto loans outstanding, 90-day delinquencies increased to 2.4% from 1.5% in 2012, according to the N.Y. Fed.
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