As we’ve seen in recent months, the subprime sector has made its way back into the marketplace, signaling some loosening in lending. According to Experian’s review of 3Q2011, subprime lending is approaching 40% of the marketplace of total loan financing– including independent and franchised dealers– up 8.7% from 3Q2010. Prime is down 5% to 60.11% of all financing.
Specifically, on new-vehicle financing, the total subprime market has increased to about 21.87% of all new-vehicle financing, up 14.8% from 3Q 2010.
Credit scores have seen a change as of 3Q2011 as well. “Scores continue to come down year-over-year,” said Melinda Zabritski, director of automotive credit for Experian. The average credit score for new-vehicles is 763, down six points from this time last year. For used-vehicles, the average credit score is down seven points to 676. “We’re not quite back to 2008 credit scores, but definitely lower than we were in 2009 and 2010.”
Interestingly, in used-vehicles, financing is trending toward older vehicle models. For 3Q2011, 58.84% of all used-vehicle financing were for cars with model years from 2011-2006. This time last year, vehicles in age from 2010-2005 represented 63.44% of all 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 are down to 28.94% whereas the franchise dealers on the used vehicle side moved up to 71.06%. Historically it’s a bit more like 70-30, she noted.
On the new-vehicle end, there has been an overall return to new vehicle financing– 39.39% of all vehicles are new, up 0.9% from last year. Used vehicle financing was down 0.6% to 60.61%.
Additionally,while banks are doing 42.2% of total vehicle financing, up 22.6% from last year, here’s a look at how the rest of the lender types are doing compared to 3Q 2010, according to Experian:
- Captives: down 29% to 18.74%
- BHPH: up 11.4% to 8.9%
- Credit Unions: down 6.5% to 17.43%
- Finance/Other: up 1.4% to 12.72%
Cody, below are several of the areas a Finance Source (FS) and or the CFPB will want to review when they look at the Dealers multiple Customer relationships, and their loan origination process. I have tried to bring these point home for a long time, and now there on every dealer and or their lenders door step.
1. Can the FS or the CFPB adequately understand both the policies and procedures a dealership is using, repeatedly when the dealer arranges financing for their customers?
2. Can the Customer and or the CFPB review each auto loan package with multiple lender offerings provided to the Customer in a side by side comparison, with full transparency and full disclosure of all cost and coverage’s? (If not all dealers and or lenders will not be compliant)
3. Can the FS or the CFPB review the criteria the dealer is using to place each of their customers in different risk classifications, assign pricing and finance or participation fees?
4. Also, how discretion for each loan’s risk is managed, monitored and documented?
5. Does the FS have a written agreement with the Auto Dealers that addresses Fair Lending along with their loan origination responsibilities?
This is not a complete list of what the FS and or the CFPB must be able to access and review on each and every sold or pending vehicle sale at the dealership. For the dealer to be in full compliance they must be able to disclose to the Customer, Multiple lenders offers with a full disclosure of all details of those offers in a side by side comparison of those offers. The Customer must have the ability to review all details of the offer, and then have the ability to make a selection from those offers for the lender(s) that are most probable to finance their auto loan package. When a dealer operates in this manner they will get their deals financed faster with less resistance from the Customer, the FS and or the CFPB, those that don’t comply will face major problems with their FS, and or potentially with the CFPB.
I saw this coming a long time ago and my company E-net Financial Services, Inc. built a program that will allow the dealer and or Financing Source comply to these new rules and regulations.
Bill Fowler