Use Data & Analytics to Make Informed Auto Lending Decisions

The automotive finance industry has faced myriad challenges since the start of the pandemic. Every segment of the industry encountered some headwinds, including credit unions. In fact, when captives offered heavy incentives in 2020, credit unions saw a significant decrease in market share.

But new data shows the trend is starting to level out, with credit unions achieving some market share gains – and there’s opportunity for more growth.

According to Experian’s “State of the Automotive Finance Market: Q4 2021” report, the total share of auto financing is on the rise again for credit unions, increasing to 20.86% in Q4 2021, up from 18.86% the previous year. The increases occured across new and used vehicle lending. In Q4 2021, credit union market share of new financing was up to 13.75%, from 11.24% in Q4 2020, while the used market share saw a slight uptick, going from 25.13% to 25.93% over the same period.

More opportunities could be on the horizon for credit unions in coming quarters. Amid ongoing inventory challenges, used vehicles continue to see increased demand – a focal point for credit unions.

Average Monthly Loan Payments Continue to Climb

One notable impact of the ongoing inventory shortage is sharp increases in average vehicle loan amounts. The average new vehicle loan amount increased by $4,300 from Q4 2020 to Q4 2021, reaching $39,721. Used vehicles saw an even more significant year-over-year increase, from $22,630 to $27,291.

Understanding previous year-over-year percentage increases helps clarify just how significant these trends are. For example, in Q4 2019, the year-over-year increase in average used vehicle loan amount was 3.44%, then slightly higher in Q4 2020 at 8.33%. But in Q4 2021, it saw a 20.59% increase – more than four times the previous year’s increase. New vehicle financing experienced the largest year-over-year increase in the last five years, though not quite as dramatic as used; the average new vehicle loan amount increased 12.14% from Q4 2020 to Q4 2021, compared to 6.39% from Q4 2019 to Q4 2020.

Increasing average loan amounts naturally drove increases in year-over-year average monthly payments. In Q4 2021, the average monthly loan payment for new vehicles reached $644, up from $579 in Q4 2020. Likewise, the average monthly loan payment for used vehicles reached a record high at $488 in Q4 2021, up from $417 in Q4 2020.

Considering this quarter’s increases in average loan amounts and monthly payments, used vehicles continue to be a more budget-friendly option compared to new vehicles. Watching the data and these evolving trends will be crucial for growing market share in the coming months.

Auto Finance Continues to Move More Prime

Overall, the automotive finance market continues to shift more into prime. In Q4 2021, we saw prime and super prime borrowers comprise the majority of total automotive loan originations, at nearly 64% of originations, with prime increasing to 45.56% in Q4 2021, up from 43.30% in Q4 2020. However, super prime borrowers saw a slight decrease, going from 19.92% in Q4 2020 to 17.58% in Q4 2021.

In comparison, the total subprime share fell just over 16% overall, decreasing to 14.24% in Q4 2021 from 14.63% in Q4 2020, and deep subprime going from 2.08% in Q4 2020 to 1.79% in Q4 2021. While subprime originations had been on a downward trajectory for a few years, it was further accentuated by the pandemic, as subprime originations remain near record lows. With the market shifting more prime, this could help create new opportunities for credit unions.

Delinquency Rates Remain Stable, Despite Increases

Despite year-over-year loan amounts increasing, delinquency rates remain steady. The data shows a slight increase in 30-day delinquencies in Q4 2021, rising to 1.86% from 1.81% in Q4 2020, while 60-day delinquencies saw a smaller increase, going from 0.64% to 0.66% year-over-year.

It’s notable that in addition to the year-over-year stability in delinquencies, these percentages remain lower than pre-pandemic levels. The 30-day delinquency rate hit 2.42% in Q4 2019 and the 60-day delinquency rate 0.83% over the same period. However, with sharp increases in average vehicle loan amounts and monthly payments this quarter, the delinquency rate will be an important metric to monitor in the coming months.

While we’ve witnessed many challenges disrupt the automotive industry during the pandemic, it remains resilient. For credit unions to sustain growth, it’ll be important to continue leveraging advanced data and analytics to understand the trends in this dynamic environment to make more informed lending decisions for the future.

Melinda Zabritski is senior director of automotive financial solutions for Experian, headquartered in Schaumburg, Ill.