Yajnik: Loan Delinquency Increase A Return To "Norm"

Cameron Aubernon
by Cameron Aubernon

As fears of increasing auto loan delinquencies are giving some lenders pause, Capital One Auto Finance president of financial services Sanjiv Yajnik calls said increase a return to “norm,” with pent-up demand and greater competition will maintain availability of credit.

Automotive News interviewed Yajnik last week about the state of auto loans, beginning with a recent statement made by Capital One CEO Richard Fairbank about how lending had experienced a “once in a lifetime” period of growth prior to the start of the Great Recession. He explained the resulting downturn led to a higher quality of lending due to both lenders and consumers becoming more conservative, prompting “very low losses and good returns” that are continuing to this day for the most part:

Now as we come out of the downturn, conditions are becoming more normal. Some consumers are coming to the high side of what they should be borrowing. Private equity-funded lenders and other lenders are coming back to autos. Some lenders are developing habits in loan amounts and loan approvals that mean one has to be discerning in what loans you approve. It’s not the volume of loans; it’s the quality.

Yajnik goes on to state that while auto lending continues to increase overall, top-line growth is still in the offing. He also cautioned lenders to “be careful with maintaining the right customers with the right cars,” and to take “the high road” when lending, lest a repeat of 2008 occurs.

Cameron Aubernon
Cameron Aubernon

Seattle-based writer, blogger, and photographer for many a publication. Born in Louisville. Raised in Kansas. Where I lay my head is home.

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  • Sco Sco on Mar 13, 2014

    "one has to be discerning in what loans you approve. It’s not the volume of loans; it’s the quality" I reject this message. Sincerely, Paul Blanco

  • PrincipalDan PrincipalDan on Mar 13, 2014

    I love that people don't understand that just because the bank says you can borrow X amount, that doesn't mean that you should borrow the maximum. I'm sure the banks and the automakers will offer to loan me $30-35K but I'm comfortable with less than $25,000 and that's where I'll keep it.

  • Big Al from Oz Big Al from Oz on Mar 13, 2014

    "Pent up demand" might be an overstatement. If the "pent up demand" was that large why do the financiers require near on home mortgage length loans to move cars? Why is the vehicle oversupply increasing. What would happen if the US Federal Reserve stops printing money? Hmmm.....sounds like he's justifying a position to suit him and the industry he represents and not the truth. I would take his comments with a grain of salt.

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    • Highdesertcat Highdesertcat on Mar 14, 2014

      @highdesertcat BAFO, I agree with what you wrote but I would add that there is now a new national political philosophy that has arisen in America, and that is of the never-ending taxpayer funded bailouts, handouts and nationalization. It started under Shrub and Hank Paulson. O***a and the 'crats just doubled down on it, inspired by the Larry Summers economic philosophy and doctrine that you cannot ever dump enough money into the American economy to keep it afloat. The majority in America ate this sh!t up. Free money! Free food stamps. Free cell phones. So things have changed since Post-WWII America. I can live with that, as long as I don't have to pay for it. It's scary to think how many people with money in America have withdrawn their support by sitting on and sheltering their money. Loans of any kind usually go to the folks who do not have the cash to pay for their purchases. Some people like to offer the argument that you should conserve your capital and gamble with other people's money in the form of a loan. I think that's BS. I know of no one with money who prefers a loan over paying cash for their purchases, although old people often may want to redistribute their personal wealth before they die so the government doesn't get a hold of it. In that case, they may choose to let Probate handle their financial affairs when they die penniless. But that normally only applies to people who have reached the age of 73 or older.

  • CapVandal CapVandal on Mar 14, 2014

    Where to start: 1. I don't know how many auto loans are 'packaged' as collateralized debt obligations. The market for these went to zero in 2008-2009. Banks can keep them for their own account or package them. 2. The problem with pre 2008 CDO's was the quality of the assets, the structures of the deal, and unrealistic ratings. And most of all, the total lack of due diligence on the part of the buyers. 3. Post 2009 deals have none of these problems. 4. Minor point but structured debt isn't a derivative. A classic derivative is an instrument that 'derives' its price from that of an underlying asset. The value of an American call option, for example, is largely determined by the market price of the underlying asset. 5. Buyers are no longer naive about these instruments. They actually read the prospectus. Well, maybe that is too much, but they had their come to Jesus moment and haven't forgotten 6. Rating agencies also had their come to Jesus experience and are much more conservative. They have downgraded the hell out of everything and race to be the first agency to do it. 7. There is plenty of room in the bottom tranches. These are not typically sold to investors but are held by the principals of the deal. Anyone that is really curious can read the prospectus -- which are available for free on the SEC web site. I actually read a fair chunk of an auto deal last year. 8. Believe it or not -- mortgage backed securities were sold in the 1920's. And they went tits up in the 1930's. No one that bought one of those deals is still alive -- and I don't expect to see the same abuses in the lifetime of current investors. 9. We will NEVER see another CDO^2 -- or CDO's of CDO's. They were unbelievably complex. No one could value these things with any precision and they were the worst of the worst. 10. I agree that there are still sketchy instruments being traded ... primarily Credit Default Swaps -- which are financial weapons of mass destruction. These things need regulation. Unfortunately, a lot of them could simply move to the Cayman Islands or some other off shore, lightly regulated country. 11. Simple common sense will tell you that auto loans that have interest rates of 20-30% have room for a LOT of defaults before they lose money. finis Sorry for the length.

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    • CapVandal CapVandal on Mar 15, 2014

      @CapVandal Just to Clarify one point. A lot of economists would object to my characterization of QE. In fact, it is hard to get economists to agree on anything. QE and the Fed open market operations increase the monitory base or 'narrow money' or M1. Treasuries and agency mortgage backed securities (which are essentially government guaranteed) can't be immediately spent and are either not money or 'broad money'. However, if I printed money that looked authentic, I would spend it and it would increase the money supply. I sure as hell wouldn't invest it in bonds. The Feds balance sheet increases on both the asset and liability side. http://www.frbsf.org/education/publications/doctor-econ/2010/march/banks-excess-reserves-monetary-policy Look at slide 2, which is a nice graph of the Fed's balance sheet. I'm not an economist and haven't read an economics book in decades. For people that are highly dissatisfied with the US economy, I would suggest spending some time in Argentina and reading Irving Fisher's discussion of a deflationary spiral. http://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf The only global economies that I think are better than the US are Norway and Switzerland. Norway has 5 million people, Switzerland 8 million and good luck getting in Switzerland.

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