Experian: Subprime Originations Increase, Scores Come Down

The subprime sector in recent months has been regaining share, signaling some loosening in underwriting practices. In fact, subprime lending accounted for nearly 40% of total loan financing ― including independent and franchised dealers ― as of Sept. 30. Last quarter’s 39.9% share was up from 36.7% in 3Q10, according to Experian Automotive’s latest data. Among prime loans, marketshare fell to 60.1% from 63.3%.

Specifically, 21.9% of loans new-vehicle loans were made to people with subprime credit, up 14.8% from the prior-year period.

Credit scores have been on the decline of late, too. “Scores continue to come down year-over-year,” said Melinda Zabritski, Experian’s director of automotive credit, during a conference call yesterday. The average credit score for new vehicles was 763 in the third quarter, down six points from 3Q10. For used vehicles, the average credit score was down seven points to 676. “We’re not quite back to 2008 credit scores, but definitely lower than we were in 2009 and 2010,” she said.

Interestingly, used vehicles financing is trending toward older models. Last quarter, 58.8% of the used vehicles financed were for model years from 2006 to 2011. This time last year, 2005-to-2010 vehicle vintages represented 63.4% of used-vehicle financing.

“You can see the later used-model vehicles are representing a smaller piece of the used-vehicle pie,” Zabritski said. “We are certainly seeing older vehicles increasing their role in the finance marketplace. It’s important to look at how far back in financing you bring into your portfolio.”

Looking deeper into the used-vehicle market, “independent dealers lost a little bit of momentum this year,” she said. Independent dealers were down to 28.9% of all used-car financing, whereas franchise dealers on the used-vehicle side moved up to 71.1%. Historically, the ratio has been closer to 70%-30%, she noted.

Meanwhile, there has been an overall return to new-vehicle financing ― 39.4% of all vehicles financed in the quarter were new, up 0.9% from last year. Used-vehicle financing was down 0.6% to 60.6%.

Additionally, banks accounted for 42.2% of total vehicle financing, up from 36.0% last year. Here’s a look at how other lender segments fared compared with 3Q 2010, according to Experian:

• BHPH: 8.9%, up from 8.4%
• Finance/Other: 12.7%, up from 12.5%
• Credit Unions: 17.4%, down from 19.5%
• Captives: 18.7%, down from 27.6%