Subprime Originations Increase, Scores ‘Come Down’, Experian Says

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%