NEW ORLEANS — The U.S. auto industry has some worries for 2017, higher new-car prices, falling used-car prices, and what to make of the Trump Administration. But for most auto lenders and most buyers, the availability of credit is not one of them.
“Credit is a really big deal,” said Jonathan Banks, vice president, vehicle analysis and analytics for J.D. Power and Associates, in a presentation at the National Automobile Dealers Association convention here last week. Banks defined auto credit as no less than, “the ability for the consumer to purchase what they want to purchase.” The credit freeze that immediately preceded the Great Recession made it difficult to get auto loans for all but the best-qualified customers, and that helped drive U.S. auto sales over a cliff, even before the rest of the economy followed suit.
At the NADA convention, Banks and other analysts said what problems auto credit has on the horizon today represent a return to “normal” after a sustained period of unusually favorable conditions. Positive factors have included high consumer demand, low interest rates, record-low delinquencies and defaults, and easy approvals even for risky customers. “Post-recession and in the recovery, we were in an environment that was perfect for facilitating demand,” Banks said. “We’re coming out of that crazy time when anybody who wanted a loan could get a loan,” he said. More recent headwinds include an uptick in delinquencies or late payments, a slight increase in defaults, and somewhat less willingness on the part of some auto lenders to make loans to the riskiest customers.
On the same panel at the NADA convention, Melinda Zabritski, senior product director of automotive finance for Experian Automotive, said auto lenders are becoming “a little bit more conservative in lending,” especially at the risky end of subprime. She said the percent of buyers with subprime credit who purchase used cars at franchised dealerships was reaching record lows – partly because more buyers with prime credit are also opting to buy used, in response to higher new-car prices.
“The used loan market becomes increasingly prime,” Zabritski said in her presentation.
Originally posted on Forbes