Subprime Lending Still On The Rise As GM Financial Grows Prime Lending Operations

Derek Kreindler
by Derek Kreindler

Subprime auto financing continues to grow, and while one analyst at Moody’s says that banks are largely staying out of the subprime space, overall lending continued to rise, with retail banks seeing some of the strongest growth. This expansion in lending, particularly subprime, was attributed as a key driver in auto sales. SNL cited forecasts for a SAAR of between 16 and 16.7 million in 2014, up from 15.5 million in 2013.

SNL Financial, a finance industry trade publication, directly attributed strong auto sales to the increase in subprime financing, drawing a connection between the increased SAAR and an increase the portfolios of subprime lenders. Consumer Portfolio Services Inc saw a 37 percent growth in receivables year-over-year, with over $1.2 billion in receivables for Q4 2014.

The increase in subprime lending along with looser underwriting standards has led ratings agencies to view the sector in a negative light. Fitch, which has issued a negative outlook in the sector as a whole, told SNL that overall, losses were at “historical lows” and that the increase in lenders will make the segment more competitive.

SNL also reports that Moody’s has cast an eye on underwriting standards, with Moody’s VP Mark Wasden stating that longer loan terms (due to higher prices, more durable cars and increased ownership periods) is a major factor.

While Wasden noted that banks were remaining “relatively conservative” regarding subprime lending, savings banks saw the biggest growth in overall lending among depository institutions, growing 16.06 percent year over year (compared to 11.24 percent for credit unions and 10.04 percent for commercial banks). Even so, commercial banks remained the dominant force, issuing $331.92 billion in loans, with savings banks accounting for just $21.49 billion.

Another notable development is the increasing reliance of GM Financial on General Motors – while this sounds redundant, General Motors vehicle financing now accounts from 70 percent of GM Financial’s business, and receivables have more than doubled to $33 billion in Q4 2013 from just $13 billion a few years ago. GM Financial, once known as AmeriCredit Corp, was largely a subprime focused business when GM bought it in 2010, but plans are underway to transition GM Financial to prime lending. While GM Financial is now stepping into the role that the legendary GMAC once occupied, Ally (GMAC’s successor), is shrinking from the auto lending market, suggesting a reversal of roles for GM’s two finance arms .

Derek Kreindler
Derek Kreindler

More by Derek Kreindler

Comments
Join the conversation
5 of 48 comments
  • Jjster6 Jjster6 on Mar 25, 2014

    I've unbanned myself. Some time ago I was banned for suggesting the German editor-in-chief had sand in his lady parts. I understand TTAC has changed their stance on banning people and I followed the email instructions to have myself unbanned. Several times. No response in over a month. Therefore I created a new account using a new email address. If necessary, feel free to re-ban me Baruth. However I don't think you even have lady parts so please welcome me back.

    • See 1 previous
    • Jack Baruth Jack Baruth on Mar 26, 2014

      I apologize for the lack of unbanning. We went through and unbanned everyone, even people who didn't ask. It's possible your account was just borked. Anyway, welcome back.

  • CapVandal CapVandal on Mar 26, 2014

    For everyone worried about 'here we go again' ..... " Fitch, which has issued a negative outlook in the sector as a whole, told SNL that overall, losses were at “historical lows” and that the increase in lenders will make the segment more competitive. SNL also reports that Moody’s has cast an eye on underwriting standards" The credit rating agencies had their 'come to Jesus' moment and are now aggressively suspicious. The buyers are no longer so naive. Anyone that loses a penny on credit with the label 'subprime' will be both fired and ridiculed. Where did the risk go? To the borrowers in the form of double digit interest rates.

    • Sunridge place Sunridge place on Mar 26, 2014

      'Where did the risk go? To the borrowers in the form of double digit interest rates' Ding, ding, ding...we have a winner! You can make a ton of $$ at 10%-18% APR(still below BHPH rates) with people considered subprime in the 550-650 credit score range with other criteria somewhat stable. Those customers are also among the most loyal in the business to a lender and a brand. Especially if you're able to service them as they step back up into near prime to prime.

  • 28-Cars-Later Seriously, $85. GM Delta I is burning hot garbage to the point where the 1990 Saturn Z-body is leagues better. My mother inherited an '07 Ion with 30Kish otc which was destroyed in 2014 by a tipsy driver with a suspended license (driver's license enforcement is a joke in Pennsyltucky). Insurance paid out $6,400 when it was only worth about $5,800 IIRC, but sure 10 year later the "hipo" Delta I can fetch how much?
  • Buickman styling does not overcome powertrain, follow the money. labor/materials.
  • VoGhost It's funny, until CDK raises their prices to cover the cost. And then the stealerships do even more stealing because they're certainly not taking the hit - why do you think they make all those political donations? So who pays in the end?
  • VoGhost I was talking today to a guy who pulled up in an '86 Camry. Said it ran like a top, got 30 mpg, the AC was ice cold and everywhere he goes, people ask to buy it. He seemed happy.
  • VoGhost TL:DL. Younger people less racist.
Next