The automotive finance market favored customers in higher credit tiers in the months leading up to the coronavirus outbreak in the U.S., credit bureau Experian said Tuesday in its latest State of the Automotive Finance Market report.
Subprime market share shrank in the first quarter as loan amounts hit record highs, an indication that credit markets were tightening before the pandemic.
Lenders are now moving to stem losses from potential delinquencies related to COVID-19 and tighter credit and lending rules could force more buyers out of the market.
Melinda Zabritski, Experian’s senior director of automotive financial solutions, said a slightly tighter auto finance market and affordability concerns continued in the first quarter, with customers who have credit scores above 660 making up a larger portion of the new- and used-vehicle market.
The share of subprime loans tumbled to historic lows, making up less than 23 percent of total auto loans in the first quarter, according to Experian. The average credit score for a new-car buyer reached 721, and the average credit score for used-car buyers also rose incrementally, to 660.
Affordability remained a major factor influencing buying decisions, Experian said, as the average monthly auto payment reached a record high in the first quarter of $569. Loan amounts for new vehicles hit a record high of $33,739.
The report, which focused on data from Jan. 1 through March 31, likely didn’t include much impact from COVID-19, which wasn’t declared a national emergency until mid-March, noted Zabritski. Yet the force of the pandemic’s economic shock on auto lending likely will manifest in the second quarter, during which Zabritski expects seismic shifts in what previously had been consistent trends.
“We’ve never had this situation where car buyers can’t go shopping, whether they can afford to or not,” Zabritski said.
Buyers in prime credit levels and above flooded the used-vehicle market over the past year or so, seeking affordability without compromising technology and safety advances. Some of that activity reversed in April with the aggressive financing deals automakers promoted at the onset of the coronavirus-related closures, Zabritski said.
Sales fell across the board in April when shelter-in-place orders in key automotive markets were in full force. New-vehicle title changes in April dropped 51 percent compared with the same month in 2019, reflecting the deceleration of auto sales during the height of the shutdowns. Used-vehicle title changes fell 54 percent over that same period, Experian noted, and leasing fell to 24 percent, compared with 30 percent in April 2019.
Delinquencies also fell in automotive accounts in the first quarter, Experian said. The report follows that of TransUnion, which said last month that the rate of auto borrowers more than 60 days past due on their loans fell in April.
The percentage of auto loans and leases 30 days past due and 60 days past due fell from 1.98 percent to 1.93 percent, Experian said, led by improvements at automaker captive arms. At captive lenders, delinquencies dropped from 1.95 percent in the first quarter of 2019 to 1.44 percent in the first quarter of this year. Credit data may vary across the bureaus, which rely on different mechanisms of analysis and definitions of the credit tiers.
Lower delinquencies in the first quarter is a sign of economic improvement in the months leading up to when stricter measures were imposed to slow the spread of the coronavirus outbreak in the U.S., Zabritski said.