Magazine article American Banker

There's No Crisis in the Auto Loan Market

Magazine article American Banker

There's No Crisis in the Auto Loan Market

Article excerpt

Byline: Melinda Zabritski

I'm not exactly sure who coined FEAR as an acronym for "false evidence appearing real," but it's an apt description for some views of the current automotive finance market.

Some recent opinion articles suggest that the increase in today's auto finance delinquency rates could herald a disastrous lending environment. But this is a very narrow view of what's happening in the auto finance market today.

To put a fine point on it: If you only look at delinquency rates, you'll miss the big picture. On the surface, there is no doubt that auto delinquencies are on the rise. But this doesn't signal a pending disaster for the auto finance market.

Let's talk about what really matters. Following the Great Recession, subprime lending, not just in auto finance, nearly disappeared. Now, auto lending, like other consumer finance markets, has returned to "normal." In other words, subprime lending, along with lending to all risk tiers, has grown over the last several years as consumers have returned to the auto market. With loan volume expanding, of course, there will be a rise in delinquent payments. It's to be expected.

Why? The rise in delinquent payments is simply a natural outcome of the current market conditions.

After the trough of the recession in 2009, lenders had little funding to lend. So they focused on originating loans to prime borrowers. As the market stabilized and returned to normal lending standards, we started to see dramatic increases in year-over-year subprime lending. …

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