The latest data on subprime auto lending paints a mixed picture of the auto industry. The stocks of auto giants Ford Motor Company (NYSE: F) and General Motors Company (GM) are trading at some of the lowest earnings multiples in the stock market on fears that an auto industry downturn is imminent.
However, a new report from Experian suggests the auto market is actually growing and stabilizing.
According to the report, the percentage of total auto loans going to subprime borrowers with credit scores below 620 is 10.7 percent, its lowest level since 2012.
“For some time now, the story has been focused incorrectly on the rise in subprime lending,” Experian senior director of automotive finance Melinda Zabritski says. “But the data over the last several quarters has shown that the entire market is growing, not just subprime.”
While the Experian report focuses on the declining percentage of borrowers with subprime credit ratings, the Federal Reserve Bank of New York recently reported that total outstanding subprime auto debt has swelled to an all-time high of more than $282 billion. In addition, 2.4 percent of those subprime auto loans are now at least 90 days delinquent, a threshold classified as “serious.”
But so far this year, used car prices have defied expectations and held up relatively well, suggesting auto buyers are having no problem finding financing. Manheim reports that used car prices were up 8.1 percent in the month of October.
Total light vehicle sales are down 1.5 percent year-to-date. Through November, GM’s sales are down 1.2 percent and Ford’s sales are down 1.1 percent in 2017. While GM and Fordmay not be directly tied to the auto finance market, a potential breakdown in the auto credit market could trigger a major downturn in auto sales.
Companies that specialize in auto finance could be hit even harder than manufacturers. Earlier this year, Height Securities analyst Edwin Groshans said used car prices could soon start to depreciate. “The combination of lower used car auction prices and weakening credit quality will manifest…
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