Increasingly, banks are finding good news in their auto loan portfolios, and they are talking them up. Whether that talk is merited is debatable.
Case in point is US Bancorp. During the bank’s earnings call yesterday, company officials said:
My concern is that some bankers are “selling” auto loan performance as a sign of the good banking times to come, and I am not convinced that the argument is true. There are, potentially, several reasons why autos are outperforming, say, mortgages, and some of those reasons are not necessarily related to macro credit trends. I won’t go so far as to say this “talk” should be stopped, but it certainly has its dangers. Or am I reading this situation the wrong way?
Credit Unions, who have been the most willing to lend during this credit crunch, are also experiencing dramatic differences in the performance of their indirect portfolios versus direct. Not a good sign for those putting all their eggs in the CU basket.
Bobby,
First, you are to be commended for stabilizing Navigator’s credit performance! That was no easy feat!
The question I was trying to get at was whether auto loan performance is a fair barometer for overall credit performance — as is increasingly being claimed — or whether the improvements in auto portfolio performance are attributable to the fine efforts put in by folks like you, your team, and others? Put another way, are we seeing an overall reversal of credit performance as expressed by autos stabilizing? My fear is that the short-term answer is no — and, therefore, these pronouncements that stabilizing auto performance “support our view that the pace of deterioration in credit quality is decelerating” are less than accurate.
JJ
An 88.4% approval rate still seems pretty high — and healthy — to me.
While we have seen stabilization in our portfolio performance, improvement in delinquency and defaults remains the goal for most of the industry. It’s not that we are not appreciative each day we aren’t running outside to see if the sky is falling any longer. It’s that, until we begin to see true job creation, not rhetoric about jobs save, and a marked decrease in unemployment levels, I don’t expect consumer portfolio’s performance across assets numerous classes to return to historical levels.
What they may be able to make a case for is IF they tightened their credit policy over the past year as many have then presumbly it could lead to better performance over mature portfolio. Volume and tightened credit policy could potentially “mask” underlying performance.
Jeff, I agree. The result might not be a function of improving consumer credit, just of positive results from tighter credit policies.