CUs Tighten Auto Lending Credit as Used Car Market Goes 'Bananas'

Cox Automotive’s monthly report on automotive credit showed two things: Credit unions tightened availability more than other lenders from March to April, and many comparisons with a year ago will be whacky.

Cox’s Dealertrack Credit Availability Index for all auto lenders, which is baselined to 100 at January 2019, was 98.4 at the end of April, an index value that was 0.4% higher than March, indicating auto credit became slightly easier for borrowers to get.

“New loans loosened the most, while financing provided through independent used dealers tightened the most,” according to the Cox report.

Meanwhile, Cox Automotive reported Thursday that dealers sold used cars at a seasonally adjusted annual rate of 22.4 million vehicles in April, up from SAAR of 22.2 million in March and 12.5 million in April 2020.

Economist Joseph Mayans, speaking at a consumer credit webinar sponsored by Experian Thursday, said supply issues are affecting numerous pockets of the economy, including houses and cars. New cars are becoming scarce because of a computer chip shortage, allowing generous incentives of a year ago to disappear and making used cars an appreciating asset.

“That [used car] market is going bananas,” Mayans said. “It’s very difficult to find a used car.”

The Dealertrack report issued Tuesday said factors that made lending more accessible in April were higher approval rates, narrower yield spreads and a higher share of terms longer than 72 months. Forces for tightening were a rising share of subprime borrowers, a rising share of negative equity and higher down payments.

Comparing April 2021 to April 2020, credit access tightened by 2.4%, “but that comparison is against abnormal credit conditions in April 2020. Compared to February 2020, access is tighter by 0.7%,” according to the Cox report.

The report showed little change in credit availability from April 2020 to April 2021 at credit unions, while banks and auto-focused finance companies loosened access.

Credit is tighter than a year ago from captives. “However, the year-over-year comparison for captives is against a time when lending by captives was particularly aggressive during the pandemic lockdown period.”

CUNA estimated credit unions held $382.5 million in auto loans as of March 31, down 0.7% from Dec. 31 and 0.4% higher than March 2020. New car loans dropped 3.2% from December and 6.5% from a March 2020. Used car balances rose 0.7% from December and 4.9% from March 2020.

Fed data showed other lenders held $852.3 billion in auto loans March 31, up 1.6% from Dec. 31 and up 6.1% from March 2020.