With the total balance of auto loans for new and used vehicles approaching $1 trillion in the U.S., the folks at Experian want you to know that no matter what the numbers say, there’s no speculative bubble forming in the industry. Just ask Melinda Zabritski, the group’s director of automotive finance, who is quick to dismiss the growing chorus of Chicken Littles who are concerned about subprime auto lending:
Whenever there is an uptick in the number of loans to subprime and deep subprime customers, there is the potential for a ‘sky is falling’ type of reaction, [but] the reality is we are looking at a remarkably stable automotive-loan market, in part because consumers are continuing to stay on top of their payments.
That would be great if it were true. Of course the reality is that, according to the NY Times, early delinquencies (i.e. borrowers who have missed a payment within 8 months of origination) are at their highest level since 2008:
More than 2.6% of car-loan borrowers who took out loans in the first quarter of last year had missed at least one monthly payment by November, the highest level of early loan trouble since 2008 [and] more than 8.4% of borrowers with weak credit scores who took out loans in the first quarter of 2014 had missed payments by November [also] the highest level since 2008, when early delinquencies for subprime borrowers rose above 9%.
Combine that with the fact that the percentage of total auto loan originations made to subprime borrowers surged to 27% in 2013 (the highest level since 2006), the same year that 1.1 million U.S. households took out auto title loans (i.e. the new home equity loan), and you’ve got a rather strong argument for the contention that anything we learned in 2008 about the perils of loose lending standards has now been completely forgotten.
Reinforcing this point is Wells Fargo, who notes that things are now officially back to “normal,†where “normal†is amusingly defined by the conditions that prevailed in 2006:
