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Subprime Buyers Finding More Financing for New Models


Finance companies still aren’t shying away from giving contracts to subprime consumers based on the fourth-quarter information from Experian Automotive.

According to its latest State of the Automotive Finance Market report, Experian highlighted today that financing became easier to obtain in Q4 2013, as the average credit scores for both new leases and loans decreased from the previous year. The average credit score for a new-vehicle lease dropped 16 points to 719 in Q4 2013 from 735 during the previous year.

The average credit score for new vehicle loans, however, saw a slightly smaller decrease year-over-year, dropping from 724 in Q4 2012 to 715 in Q4 2013.

Analysts determined market share for nonprime, subprime and deep subprime new vehicle loans also rose slightly in Q4 2013 to 34.1 percent from 32.8 percent in Q4 2012.

For used vehicles, Experian noted nonprime, subprime and deep subprime loans accounted for 62.8 percent of all loans, down 1.6 percent from 63.8 percent in Q4 2012.

“We are still seeing remarkable stability in the automotive finance industry, even as lenders continue to ease slightly on credit standards to provide loans and leases,” said Melinda Zabritski, senior director of automotive credit for Experian Automotive. “What makes this good news for consumers is that the more credit-challenged car shoppers who need a vehicle may find that they have more financing options to choose from and can more easily shop around for the best rates and terms.”

As Zabritski referenced, more consumers are choosing to lease vehicles, bringing the share of new vehicles financed with a lease to its highest level since the company began publically reporting the data in 2006.

Experian found that 28.4 percent of all new vehicles financed were leases in Q4 2013, up from 24.8 percent the previous year.

“Leasing continues to grow in popularity among car shoppers, especially those hoping to stay within a strict monthly budget,” Zabritski said. “Our analysis this quarter showed that the average monthly lease payment was $51 lower than the average loan payment, which can make a big difference to consumers trying to stretch their dollar.”

To be exact, Experian discovered the average monthly payment for a new-model loan came in at $471 in Q4 while the monthly commitment to a new-vehicle lease came in at $420.

Other findings from the report showed the average amount financed for a new vehicle was $27,430 in Q4 2013, up from $26,691 in Q4 2012. This marked the highest average loan amount for a new vehicle since 2008 and the first time the amount has exceeded $27,000.

Additionally, the average loan amount for a used vehicle during the quarter was $17,974, up $345 from the previous year, which was also a record-high since 2008.

In other trends:

• Average monthly loan payments for used vehicles were up from $348 in Q4 2012 to $352 in Q4 2013.

• New-vehicle interest rates were up to 4.37 percent in Q4 2013 from 4.36 percent in Q4 2012.

• Used-vehicle interest rates were up to 8.71 percent in Q4 2013 from 8.48 percent in Q4 2012.

• The average credit score for a used vehicle loan rose from 644 in Q4 2012 to 646 in Q4 2013.

KeyBanc Dealer Survey Refutes Inkling of Subprime Pullback


Evidently dealers who participate in the monthly survey orchestrated by KeyBanc Capital Markets did not see the same conditions in subprime vehicle financing during December as leadership from CarMax noted.

KeyBanc's survey results showed 50 percent of respondents indicated subprime lending availability is loosening and the remainder indicated availability is unchanged. When CarMax conducted its quarterly conference call and announced a new initiative to jump deeper into the subprime financing space, company executives explained how the strategy came as a result of the exact opposite of what KeyBanc's survey participants said.

"In December, CarMax's statement about a pullback they were seeing in subprime financing terms ignited inventory concern," KeyBanc analysts said.

"Our dealer survey and channel check does not seem to support this view and indicated a favorable and improving subprime lending environment in December with 50 percent of respondents who indicated lenders maintained availability of funds to subprime consumers and 50 percent who indicated subprime financing availability was loosening further," they continued.

KeyBanc cited information from CNW Research that noted improving subprime approval rates in December (the latest reported data) at 13.1 percent relative to November's 12.7 percent and October's and September's 12.6 percent.

And CNW's latest Retail Automotive Summary shed even more light on the subject. CNW president Art Spinella indicated that when the firm analyzed used-vehicle buyers, "FICO scores tell a good story about the easing of credit criteria for buying used."

Spinella said nearly 47 percent of all used vehicles financed in December went to consumers with FICO scores of 670 or less.

That availability of financing, especially to consumers with soft credit histories, is projected to boost both used-vehicle performance as well as F&I potential going forward, according to the KeyBanc survey.

Specifically looking at F&I, results showed trends remain favorable as record-high gross profit per unit remains on an increasing trend. KeyBanc found that 50 percent of respondents reported an increase of more $50 in the month of December on a year-over-year basis while 30 percent reported relatively flat results. Only the remaining 20 percent experienced a pullback of more than $50.

"Outlook remains positive largely driven by higher product penetration rates through consistent reviews and training," KeyBanc said.

In the used-vehicle segment, KeyBanc discovered 50 percent of respondents indicated a used-vehicle gross profit per unit increase more than $50 in December on a year-over-year basis. Analysts found that 30 percent indicated gross profit per unit remained the same, and the remaining 20 percent indicated used-vehicle gross profit per unit declined by more than $50 from the same month last year.

"Going forward, we believe headwinds driven by high cost of inventory will stabilize as used-vehicle prices decline in response to improving supply of late-model used vehicles," analysts said.

"We maintain that used car volume will accelerate into 2014 as supply of late-model used vehicles continues to improve," they continued. "Late-model used-vehicle sales have lagged the overall used-vehicle market throughout recovery due to constrained availability as a result of a substantial decline in new-vehicle sales throughout the 2008/2009 timeframe.

"Coming out of the decline, new-vehicle sales have increased at a compound annual growth rate of 12 percent throughout the 2010/2012 timeframe, increasing availability of late-model used vehicles with approximately a two-year lag," KeyBanc pointed out.

"Franchised dealers are likely to benefit going forward as late-model used vehicles tend to re-enter the market through trade-in, allowing franchised dealers first hand opportunity to claim the highly desired inventory," the firm went on to say.