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  • Frank Tian

Auto Loan Update

🚗 How is the auto loan doing in 2023 so far?


Everything is up.


🟦 Auto Price Up


The new car price index continues to climb in May, +4.7% Y/Y. It has grown 21% since Feb 2020. Many models become luxury cars if you simply go by price.


High new car prices and limited inventory led people to used cars. The used car price index went up again in April and May, after reaching the recent bottom in March. It has increased by a whopping 44% since Feb 2020!


As a result, the US auto loan origination in Q1 2023 is still at $162 billion, at an elevated level compared to pre-pandemic.


🟨 Delinquency Up


Meanwhile, the auto loan delinquency level is growing.


This should not be surprising - many auto loan customers are subprime, they are usually the first to feel the pain in a slowing business cycle.


In Q1 2023, the flow rate of auto loan into 30+ days delinquency approached 7%, a level seen in the 2014-2019 pre-pandemic era.


As long as it stays in the 7 percent zone, it is still considered normalization.


🟩 Lending Standard Up


With higher auto price, higher interest rate, and higher delinquency, lenders naturally are pulling back from subprime customers.


The auto loan origination with Equifax Riskscore < 620 reached a two-year low in Q1 2023.


Several lenders have exited their lending businesses with dealers, such as Capital One and Citizens.


With more competition and less money to go after, sometimes it is best to leave the table.

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