Subprime Car Buyers Haven't Defaulted This Much Since '96

Steph Willems
by Steph Willems

Grunge was on its way out the door, Pepsi aficionado Bob Dole was challenging William Jefferson Clinton for the keys to the White House, and the Ford Contour was still a relatively new sight on American roads.

That was the last time this many U.S. car owners fell way, way behind on their subprime auto loans.

According to Fitch Ratings (via Bloomberg), the delinquency rate of subprime auto loans hit 5.8 percent in March, a figure not seen since 1996. Even during the recession, the number of buyers with payments more than 60 days past due just barely nudged over 5 percent.

Following a recession-era spike in subprime car loan defaults, the rate climbed steadily from about 2011 onwards, surpassing the peak of that earlier spike in 2015. Delinquency rose as lenders began approving an ever-greater number of auto loans in the years after the economic downturn — many of them to buyers with poor credit scores. In recent years, “ deep subprime” loans emerged as a concern.

For automakers, the explosion of auto loans, including subprime ones, during the economic recovery helped push the industry to record sales volumes. We’ve since hit a plateau.

Just one year ago, the number of auto loans classified as such (basically, customers with a FICO score below 550) reached nearly a third of all subprime loans. Naturally, lenders were urged to proceed with caution. According to Equifax figures from January, it seems some took that advice to heart — between January 2018 and a year earlier, the number of auto loans and leases approved for subprime car buyers fell 10 percent.

As for who’s approving the riskiest loans, Equifax points the finger away from the big banks.

“Neither banks nor credit unions have done ‘deep subprime’ lending,” Gunnar Blix, deputy chief economist at Equifax, told Bloomberg. “That’s mainly done by smaller dealer-finance and independent finance companies” (that rely on asset-backed securities to stay afloat).

[Image: EveryCarListed P/ Flickr]

Steph Willems
Steph Willems

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  • CincyDavid CincyDavid on May 19, 2018

    https://seekingalpha.com/article/4174775-santander-consumer-usa-doubling-worsening-subprime How would you like to be Santander?!?...their largest customer is FCA.

    • CapVandal CapVandal on May 20, 2018

      They are sitting at close to a 52 week high. I wouldn't dare short them. They seem to be survivors.

  • CapVandal CapVandal on May 20, 2018

    Santander Consumer USA Holdings Inc., a specialized consumer finance company, provides vehicle finance and third-party servicing in the United States. Its products and services include retail installment contracts and vehicle leases, as well as dealer loans for inventory, construction, real estate, working capital, and revolving lines of credit. The company also offers financial products and services related to motorcycles, recreational vehicles, and marine vehicles; originates vehicle loans through a Web-based direct lending program; purchases vehicle retail installment contracts from other lenders; and services automobile, and recreational and marine vehicle portfolios for other lenders. In addition, it provides private-label credit cards and other consumer finance products, as well as point-of-sale financing. The company was founded in 1995 and is headquartered in Dallas, Texas. Santander Consumer USA Holdings Inc. is a subsidiary of Santander Holdings USA, Inc. The premise of the article is that something wrong. But SC is profitable. So much for that.

  • Lou_BC I've been considering a 2nd set of tires and wheels. I got stuck in some gooie mud that turned my Duratrac's to slicks. I personally would stick to known brands and avoid Chinesium knock-offs.
  • Carson D How do you maximize profits when you lost $60K on every vehicle you produce? I guess not producing any more vehicles would be a start.
  • Carguy949 You point out that Rivian and Tesla lack hybrids to “bring home the bacon”, but I would clarify that Tesla currently makes a profit while Rivian doesn’t.
  • Cprescott I'm sure this won't matter to the millions of deceived Honduh owners who think the company that once prided itself on quality has somehow slipped in the real world. Same for Toyoduhs. Resting on our Laurel's - Oh, what a feeling!
  • Jrhurren I had this happen numerous times with my former Accord. It usually occurred when on a slow right curve in the road. Somehow the system would get confused and think the opposite lane (oncoming traffic) was an impending head-on collision.
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