The old sports adage that says rules were made to be broken certainly applies to the auto finance industry. In 2015’s end-of-year quarter, it raced past several key records.
Among the most noteworthy records to fall were outstanding auto loan balances, which climbed 11.5% from the prior-year period to $987 billion in the fourth quarter. This was the highest level on record since Experian began publicly tracking auto finance data in 2006.
Rising vehicle costs also pushed several key metrics to new highs. The average monthly payment for a new vehicle, for instance, rose to a record $493, while the average amount financed soared to a new high of $29,551.
While not at a record-breaking pace, subprime financing grew during the period as well. However, the market remains mostly prime, a sign that finance sources remain disciplined in their lending practices despite the records set during the period. The following is a look at some of the trends that shaped the automotive finance industry during the fourth quarter of 2015.
Record Drivers
The boost in sales contributed to a strong quarter for all lender types across the industry. But the growth in balances was primarily fueled by finance companies and credit unions, which increased their balances from the prior-year period by 22.5% to $166 billion and 15.9% to $241 billion, respectively.
Banks, however, continued to maintain the largest share of loan balances at approximately $337 billion, a 7.6% increase from the prior-year period. Captive finance companies experienced modest growth of 6.3%, with the segment’s fourth quarter balances totaling approximately $244 billion.
High-Risk Tiers Show Moderate Growth
Despite the increase in outstanding balances by finance companies — which typically specialize in subprime and deep-subprime auto loans — the high-risk tiers experienced only modest growth in market share in the fourth quarter. According to the data, the share of subprime and deep-subprime loans accounted for 16.8% and 4% during the period, compared to 16.6% and 3.8% in the year-ago period, respectively.
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