Loans in Accommodation Decrease, Delinquencies Increase in October

We have observed auto loan credit loosening this fall, and access to all types of auto loans continued to improve in October. However, access remains tighter than year-ago and pre-pandemic availability levels.

Credit access for used vehicles sold by independent dealers improved the most in October. On a year-over-year basis, all loan types are tighter, with certified pre-owned having tightened the most while independent used has tightened the least.

By lender, the trends are more mixed. Credit tightened at auto-focused finance companies, while credit access loosened at banks, captives and credit unions. On a year-over-year basis, all lenders have tightened credit access, with credit unions having tightened the most and auto finance companies having tightened the least.

Banks have seen a decline of 2.5% year over year in loan accounts, while captives have seen 5.8% growth, and credit unions have seen a 0.1% decline. Dealer finance companies, which include BHPH, have seen 8.9% growth year over year but represent only 1.5% of auto loans.

LOAN ACCOMMODATIONS KEEP DELINQUENCIES AND DEFAULTS BELOW NORMAL LEVELS

The Coronavirus Aid, Relief, and Economic Security (CARES) Act pumped trillions of dollars into the economy and provided support for severely impacted businesses and workers. The CARES Act managed to temporarily reduce the impact of massive job losses. Auto loan delinquencies and defaults have been held artificially low because of stimulus support and loan accommodations. However, with waning fiscal support and a second wave of COVID-19 cases causing additional disruption, we are on track to end 2020 with more unemployed than we saw across the entire duration of the Great Recession.

Auto loan performance deteriorated again modestly in October, but performance remains better than last year or a typical year and much better than a typical recession. October is the third consecutive month of increases in 60-day delinquencies, according to a Cox Automotive analysis of Equifax data. Loans in accommodation were 3.3% of all auto loans in the first week of November. The number of loans in accommodation is down from 3.6% at the end of September but is 2.6 percentage points higher than in February. Relative to the level of accommodation pre-pandemic, approximately 1.9 million auto loans would most likely have fallen into delinquency and possibly complete default by now.

In October, 1.28% of auto loans were severely delinquent (defined as 60 days or more behind on payment), up from 1.26% in September. Auto loans that are severely delinquent are down 15% year over year. The subprime loans severe delinquency rate increased to 4.64% in October from 4.54% in September. Subprime accounts that are severely delinquent are down 14% year over year.

The default* rate in October was down by 1 basis point from September for loans in aggregate and also for subprime. May had been the lowest default rate for auto loans since at least 2015. Through October this year, an estimated 1.35 million loans have defaulted, down 36.1% year over year. For comparison, an estimated 2.1 million auto loans defaulted during the full year of 2019.

* Defaults are not defined as a status but reflect conditions beyond 120 days past due as well as repossessions. Bankruptcy accounts are excluded from this calculation.