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It goes without saying that the first quarter of 2020 has been tumultuous across the board. While it can be difficult to keep up, having a solid pulse on the auto finance market can help increase your financial institution’s auto loan portfolio. Experian recently released their State of the Automotive Finance Market report from Q1 of 2020. I'd like to share some highlights of the report with you and offer insight for your financial institution on the state of the auto finance market going forward into the second quarter of this most unusual year.
Delinquency Trends Remain Stable
While auto loans can offer profitability for a financial institution, there are also some downfalls and risk when it comes to the lending industry. In recent years, the auto-loan industry has seen a rise in delinquencies. And, of course, this is never a good thing for financial institutions.
The rise in auto loan delinquencies remained relatively flat during the first quarter of 2020. We saw 30 day delinquencies fall very slightly from 1.73% in the first quarter of 2019 to 1.68% this year. 60 day delinquencies remained stable, barely shifting from 0.67% in 2019 to 0.66% in Q1 of 2020.
Record High Loan Amounts and Monthly Payments
Average loan amounts and monthly payments reached record highs this quarter. Average new lease payments reached $466 per month with an average 36.76-month lease term in Q1. Total loan amounts vary by risk tier; however, average loan amounts were $33,739 and $20,723 for new and used auto loans, respectively.
Banks Continue to Increase Market Share
The trend of banks gaining market share continued in the first quarter. Banks’ market share of total financing of new and used unit loans and leases inched up from 32.4% in Q1 of 2019 to 33.4% this year. Looking at new auto financing, banks increased their market share year-over-year from 27.6% to 30.0%, while their market share of used auto financing remained almost flat, from 36.3% to 36.0%.
Credit Scores Continue to Increase YOY
Credit scores have continued their upward trend in the first quarter of 2020. The average credit score for new loans and leases is 721—up two points from 719 in 2019. The credit score for used cars moved up for both franchises (682-685) and independent dealerships (615-620).
The Impact of COVID-19 on Loan Originations
As predicted in March, things have gotten rocky since my last blog post. Here is a brief glimpse at how loan originations were impacted by COVID-19 in April:
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YOY change in April title volume
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New -50.8%
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Used -54.0%
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Percentage of new vehicles leased
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April 2019: 30.0%
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April 2020: 24.0%
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Market Share of new financing
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Captive
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April 2019: 54.58%
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April 2020: 55.72%
Once the COVID-19 pandemic begins to decline, the recovery for the auto loan industry will be slow and we will likely feel the lasting effects well into next year, if not longer. I believe that the recovery will be more like a Nike™ swoosh than the V-shaped curve that many experts predicted early on.
These are challenging times for financial institutions as they try their best to adapt to change while still serving their account holders.
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