CARY, N.C. -

Recent data and analysis from the American Bankers Association, Cox Automotive and KeyBanc Capital Markets all point toward healthy ongoing performance and a positive outlook for the auto finance market.

According to results from the American Bankers Association’s Consumer Credit Delinquency Bulletin, direct auto loan delinquencies in the second quarter ticked up just 1 basis point year-over-year from 0.71 percent to 0.72 percent. Meanwhile, indirect auto loan delinquencies fell from 1.58 percent to 1.45 percent. To recap, ABA classifies an indirect auto loan as a contract arranged through a third party such as a dealer while a direct auto loan is one arranged directly through a bank.

“The steady forward march of the economy has continued to strengthen consumers’ financial positions,” ABA chief economist James Chessen said. “Consumers continue to impress with their ability to manage debt prudently and keep spending under control. 

“The drop in gas prices from last year has provided a big boost to disposable income and has freed up money that makes debt obligations a bit easier to handle,” Chessen continued.

With consumers having more resources to maintain their commitments, finance companies aren’t backing off in the origination department.

According to the August dealer survey from KeyBanc, 83 percent of respondents indicated banks and finance companies remained “aggressive” in August, and 17 percent reported lending was becoming more aggressive.

KeyBanc also mentioned 67 percent of dealers surveyed in August said that subprime financing availability remains intact as the remaining 33 percent reported an increase.

Furthermore, Cox Automotive chief economist Tom Webb discussed employment trends, first going over data that might cause alarm.

Webb acknowledged nonfarm payrolls grew by a “disappointing” 142,000 in September. That reading, plus downward revisions to July and August numbers, pushed the three-month moving average to 167,000 – well below what is considered the self-sustaining 200,000 level.

“Other employment indicators such as the labor force participation rate (down) and earnings (flat) were also disappointing. And, with a loss in September, the number of people employed full time fell below its pre-recession peak reached way back in November 2007,” Webb said.

“With respect to the retail used vehicle market, and more specifically credit availability, one can take comfort in the low of initial jobless claims and the high number of job openings per job seeker,” he continued. “This might not spell robust economic growth, but it does give job holders the confidence to borrow and lenders the confidence to lend.”

In a follow-up conversation with SubPrime Auto Finance News, Webb reinforced why initial jobless claims and job openings are the two metrics finance companies should watch closely.

Webb indicated the initial jobless claims “in shorthand you could say are the probability of a person losing their job, which is a key determinant in a loan default.”

And comparing the of number job openings relative to the amount of job seekers, Webb added, “you would assume even those who have lost a job have a better opportunity to quickly find another one; again a situation which could preclude a default.”

As the ABA reported Q2 auto delinquencies came in at manageable levels, the organization’s bulletin also highlighted the composite ratio — which tracks delinquencies in eight closed-end installment loan categories — fell 17 basis points to 1.36 percent of all accounts, continuing a three-year trend of remaining well below the 15-year average of 2.27 percent.

“A strong job market and rising incomes will go a long way toward keeping delinquencies at these historically low levels,” Chessen said.  “With global events creating more uncertainty about the pace of the U.S. economy, it’s even more important for consumers to maintain their disciplined approach to managing debt.” 

Webb closed his overall economic assessment by focusing back on auto financing

“The borrowers are paying back those loans,” Webb said. “I don’t believe the retail financing environment can get any better that it’s been because it’s terrific.

“Generally you would expect some deterioration in loan performance before you have any change in originations, and we haven’t seen that at all,” he continued. “The loans are performing extremely well. Until that changes or until the overall financial market changes, it’s good money. People are in an environment where they’re searching for yield. Auto loans provide that yield and actually at very low risk.”