Subprime competition heats up as rates fall

Jim Henry
Automotive News -- December 7, 2011 - 8:43 am ET

Subprime auto loans keep growing, with competition heating up in the segment and interest rates edging lower for the riskiest customers, according to Experian Automotive.

"If you talk to some of the lenders, they say some of the larger subprime lenders are buying deeper, putting out more competitive rates," said Melinda Zabritski, Experian's director of automotive credit.

"That pushes the bigger lenders to do the same," she said last week.

That should be good news for dealers, who have complained that the comeback in subprime continues to lag the rebound in prime-risk loans.

Zabritski, during a Dec. 1 conference call, reviewed several positive trends in auto loans for the third quarter:

• Delinquencies and repossessions were down as a percentage of the total. For the industry, the average amount charged off per repossession was down 10.7 percent, to $6,820, Experian said.

• The average amount financed rose for new and used vehicles. (See table)

• Leasing was even with the year-ago quarter, at 22.7 percent of all new-vehicle financing, Experian said. That was up from only 14.2 percent in the third quarter of 2009.

Subprime loans made up 21.9 percent of all new-vehicle loans originated in the third quarter, up from 19.1 percent a year ago. For used vehicles, subprime made up 51.6 percent of loans, up from 48 percent a year earlier.

Zabritski said it was a year ago, in the third quarter of 2010, that subprime loans increased their share of total loans for the first time since the recession began.

"Ever since then, we've seen subprime increase," comparing quarters year-over-year, she said.

Interest rates were down for auto loans across all risk categories, according to Experian. In the prime-risk segment, it's likely that incentives played a role in bringing down the average interest rate, Zabritski said.

In the subprime segment, incentives were unlikely to be a factor, she said.

Subprime rates had more room to decline because auto lenders raised those rates more when credit was tight, she said.

For new vehicles, the average interest rate was 4.55 percent, down from 4.98 percent a year ago. For used, the average was 8.6 percent, down from 8.83 percent.

"We are certainly seeing the biggest [rate] decrease in these higher-risk areas," Zabritski said. "These did see increased rates when the market tightened."

You can reach Jim Henry at autonews@crain.com. Readers are solely responsible for the content of the comments they post here. Comments are subject to the site's terms and conditions of use and do not necessarily reflect the opinion or approval of Automotive News. Readers whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification.

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