DALLAS — Auto delinquencies are rising across the industry, but the increase has been most prominent in subprime segments. Although Commerce Bank mainly extends auto loans in the prime spectrum, it’s still keeping a watchful eye, said Robert Griffin, the bank’s indirect lending manager.
“It’s easy to say ‘that’s subprime, it’s not us,’ but when you see changes in subprime, there is always a little bit of a trickle effect into the lower portion of our paper, even if it just affects our nonprime paper — and that’s a small percentage,” Griffin told Auto Finance News during a meeting at CBA Live this week. “Prime banks don’t have much movement in delinquency without noticing it, so even if our lower paper doesn’t perform well, we see it as an impact.”
Last year, the bank intentionally pulled back on auto loan originations and tightened its underwriting to mitigate the effect of rising delinquencies, he added. But it’s not just delinquencies that can impact the portfolio, it’s also used-car values.
“That’s probably the No. 1 question I get:‘What’s going on with used prices?’” Griffin said. “Obviously, they are declining some, which will affect our loss per unit some, which does get attention. But, hopefully we can offset that because we haven’t gone to 84-month loan terms and that’s an intentional strategy as a restraint for our type of bank.”
Commerce Bank has also limited its loan-to-value ratios, particularly in regions where delinquencies have been high, in order to limit the impact as values depreciate, he added.
With used-car-values, “there are a lot of headwinds and tailwinds,” Griffin said. “It’s not just off-lease volume.”
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