Podcast: AFN and Experian talk affordability, credit, EVs 

Amanda Harris 0:03 Welcome to the road map from auto Finance News since 1996. The nation’s leading newsletter and automotive lending and leasing. It is Monday, March 24th and I’m Amanda Harris. Today’s special episode of the Weekly Wrap. Joining me to discuss industry trends is Melinda Zabriskie, head of automotive financial insights for Experian Automotive. Thank you, Melinda. Before we begin, I’d like to take a quick moment to thank our next for sponsoring this episode. And Melinda again. Thank you for joining me today. Before we dive into some of the latest data and industry takeaways, can you tell us a little bit about yourself and your role at Experian? Melinda Zabritski 0:38 Well, I have been with Experian and specifically Experian Automotive for going on 21 years. Like I said, I’m the head of automotive financial insights. I’ve been putting together a regular quarterly state of the automotive finance market every quarter since 2004. So spent a lot of time looking at what’s happening in the auto finance space, how the trends impact the industry and how the industry impacts the trends. Amanda Harris 1:05 Wonderful. Well, again, thank you so much for joining us. Yes, so experience latest report just came out highlighting Q4 trends across credit performance, affordability, electric vehicles, leasing and a tons more. There’s a lot to go through, but I would love to just kind of start with getting your thoughts on some of the key takeaways that stand out to you are the fourth quarter and especially as it pertains to some of the affordability standpoints there. Melinda Zabritski 1:29 Yeah. So Q4 was was very similar to a lot of what we saw throughout 2024. It was nice to see, you know, the the slowdown, especially on new vehicle financing, you know the slowdown of of loan amount increases. We still increase the average loan amount on new a little bit. It’s a little over 41,000. Average payment was pretty static year over year, you know right around that seven, 35732 amount. But it was also nice to see the continued trend on used vehicles, with the average used loan amount coming down and the average payment also coming down year over year. So those were those were some really good things to see. Of course. You know, one of the the big standouts was kind of that Q4 end of the year ramp up of EV sales and EV leasing and you know that did have a lot of impact on. Some of the other trends that we saw. For for the fourth quarter. Amanda Harris 2:28 Yeah, absolutely. We definitely saw ramp up, especially all that uncertainty around the tax credits and and everything is going to happen with with tariffs and tax credits and cut anything impacting pricing right now. So not surprised to hear that I would love to touch a little bit on you know, credit performance as well. Melinda Zabritski 2:43 Mm hmm. Amanda Harris 2:44 So no delinquencies, both 30 day delinquencies and 60 day delinquencies ticked up across auto loan balances in Q4, you know obviously. Melinda Zabritski 2:52 Yes. Amanda Harris 2:53 With prices kind of looming potentially being higher, tariffs and all that kind of playing into it. It what are your thoughts about, you know how credit performance will continue to trend in Q4 and beyond? Melinda Zabritski 3:03
Yeah. So probably the the the biggest indicator we look at are the 60 day delinquencies. You know, 30 day delinquencies, a consumer can miss a payment and a lot will self cure 60 days. A little harder to come back from, and we did increase year over year. You know, we’ve been steadily increasing for the past several years on that 60 day delinquency standpoint. You know we’re just under 1% of all the.
Automotive loans and leases that are open at being at that 60 day status.
And it equates to about 1.16% of balances. You know. So while it is at one of the peaks, it’s unlike what we saw with the recession, where delinquency pretty much came out of nowhere. I wouldn’t say anyone has been surprised with the increased levels of delinquency and a lot of the lenders that you know I’ve been chatting with recently, whether it’s been captives or even more on the bank side, many of them are seeing really no changes in delinquency. But. Overall, like I said, it’s a little higher than it’s been in many years. But again, it’s it’s not really been anything that has been a surprise for lenders. Amanda Harris 4:13 Yeah, absolutely. Any thoughts about how this is playing out? You know, for subprime versus prime or been hearing for a while that subprime losses a little bit, a little bit higher of course per typical, but we’ve been seeing this kind of divergent between prime and subprime. And I’m wondering if. Melinda Zabritski 4:26 Mm hmm. Amanda Harris 4:30 That’s kind of still playing out. Melinda Zabritski 4:31 Yeah, it is. You know, the majority of delinquency we see is going to fall in the subprime space. You know, subprime accounts for almost 80% of of of all of the delinquencies or the defaults, especially when you’re looking at things like charge offs. But we’re increasingly seeing, you know, some of the elevated levels of default in that near prime sector. Prime is performing very well still and and interestingly enough, even though the majority of the default does occur down in that deep subprime. Crime. You know, the 500 and below 600 and below levels. They’re not really experiencing that much of an increase in defaults. It’s been kind of flat for the subprime market for the past couple years. It really has been a little bit more stress in that near prime, you know, low 600 scores that we have seen a little bit of an increase in defaults.Amanda Harris 5:24 Gotcha. And is there any indication of, you know why that particular sector would be struggling more or is it just coming off of maybe they were doing well and now we’re seeing some stabilization or? Melinda Zabritski 5:35 There’s a lot of factors that come into play, you know, in part also, consumers overall have have increased their credit scores. So some of those are consumers who might have been on the upper end of the five hundreds and are now in the low 6 hundreds and are. A little bit more stressed and it’s it’s playing out in the delinquency. Amanda Harris 5:54 Yeah, absolutely. I’m curious to know, you know, kind of see, I guess what we’ll both be watching. How lenders kind of respond to that and and whether we’ll see any additional tightening. In other words, you know quite a bit of tightening coming out of all the COVID volatility. But I’m here to kind of see how that plays out in what lenders do. So I definitely want to turn to. You mentioned this at the beginning, but I want to touch on leasing. You know that’s a a big part, especially as you kind of talked about the affordability concerns at the beginning. We’ve got looming tariffs and and all things that will just raise prices again. Are even more so. Let’s just kind of hear how leasing played out in Q4 and kind of what your expectations are over the next coming months. Melinda Zabritski 6:32 Yeah. So, earlier in 24, you know leasing did start to come back. You know, we ended up, you know, right around the 2425% point of new vehicle sales. So you know about one in four new cars was leased and we did hold steady at that for Q4. You know, there’s there’s of course a lot of speculation about potential growth in, in leasing really again tied to the affordability level. You know on average leasing payments are quite a bit lower than the loan payments, so. There certainly savings there and of course you know the ability to get the latest and greatest car every four years and especially on the EV space, you know, seeing very high rates of leasing, you know about 50% and also Ev’s about almost 20% of the. Entire new lease market. So that was that was actually a bit eye opening for Q4 because when you think about that it was you know one in five of the new cars that were leased in the fourth quarter. Were EVs. But again, it’s also a very attractive method for consumers to not have to worry about the vehicle in two to three years when they’re returning to market. There’s been again a lot of speculation on again, potential impacts on increased prices for the new car market and if we see some sharp increases, it’s very likely that we’ll continue to see more incentives and more leasing to bring down those payments. Amanda Harris 7:58 Yeah, absolutely. You know, one of the things that we’re hearing about, you know, the price is going up is just seeing more of those more affordable cars kind of in that 30 thousand, $20,000 range being harder and harder to find. Melinda Zabritski 8:10 Mm hmm. Amanda Harris 8:10 Is that your thought as well? Is that just going to impact the ability to even find an affordable car? Melinda Zabritski 8:15 Yeah, just based on everything that we’re reading coming out of the manufacturers that of course has been a lot of what they’re saying is potentially limiting production of those lower priced vehicles. And you know that certainly will impact not only affordability on the new car market, but obvious. What’s new today is used tomorrow, so certainly having that spillover impact of. Raising the average value of the used cars, especially the late model, used cars.
Be available in the next several years. Amanda Harris 8:47 Yeah, absolutely.
OK, great. Another thing that kind of stood out to me in Q4 was the captive market share. So, especially as we’re talking about tariffs, they’re going to be largely impacting, you know, many large captives. You know, the big three is kind of disproportionately potentially impacted negatively just because of how they’re produced over your thoughts on just, you know, where market share stood in Q4.
Melinda Zabritski 8:55 Mm. Amanda Harris 9:08 And how things are kind of changing or could change in the coming months. Melinda Zabritski 9:12 Yeah. So in Q4, we we actually saw quite a big increase in bank market share, a lot of that was due to some of the banks who again kind of, you know pulled back a little bit the last couple years and now are being a bit more. Aggressive growing share. You know, credit union share has steadily decreased over the past. You know, past couple years they put on a lot of business. In 2022, their share has been steadily down. And of course, captives, especially on the new car side. You know, definitely dominating, especially any of the captives running incentives. You know, it’s hard to compete with those incentives, of course, that also is going to be your very prime consumer, which is most of the new car space. But you know the captive share, while they do dominate on new, it did come down a little bit ’cause. Like I said, we were seeing some increased shares with the banks and also with the finance companies and especially when we look at new cars. We always have to consider that there are various relationships outside of the captives between the manufacturers and other lenders who are supporting their new vehicle sales, so that does carry over into some of the share shift that you see between captives, finance companies and banks on the new. Car side. Amanda Harris 10:26 Yeah, absolutely. Great. And you know, I also wanted to touch on, you know, interest rates. You mentioned incentives. We we seen definitely a pick up of that and now everyone’s kind of watching. Rates were held steady yet again, so haven’t yet come down. Melinda Zabritski 10:39 Yeah. Amanda Harris 10:39 But they weren’t. They didn’t go up again, so I think that’s good. But they didn’t come down. So I would love some thoughts on just how that’s gonna play out, you know, on affordability and some of these other trends we’ve been talking about. Melinda Zabritski 10:49 You know it. It certainly impacts it. You know when you can’t really change rates very much and even in the prime space, you know, if it’s if it’s not an incentive, you know, even in the prime space, you know, we see rates that are, you know, 7-8 percent, you know, from the bank so. Unless it’s a prime consumer able to take advantage of of incentives, you know the rates are quite high. Usually, the decreases that we’re seeing in in rates really again are. Caused by incentives and on new cars, we did see the average rate come down, but again driven by the captives driven by those incentives on the used car side. You know we really didn’t see that much change on rates. You know, we’re still looking at rates, you know, in the in the mid 11% range. They did come down a little bit. But again, it’s even in the very super prime space on used you are seeing rates around 8%. So with any decrease.
Increases in rates. If we do have sizeable increases in pricing and rates stay the same. The only other trigger to pull is going to be term. And you know, we already have the majority of loans for both new and used, you know, at 72 month terms.
So you know, yeah, we’re going to move to 84 and and some lenders do specialize in even longer terms. But that’s really going to be the only trigger to pull to help keep those payments so. So I think you know without rates coming down, there certainly is going to be an increased impact on affordability for for auto lending. Amanda Harris 12:28 Yeah, absolutely. And we do see those longer term loans. We know that plays out in, in credit risk is higher and the risk of default gets higher. And then securitizations, the risk gets longer too. It’s just the whole the whole domino effect. Melinda Zabritski 12:40 Yeah. And and majority of lenders, both new and used you know as term goes up rates also increase sometimes for some lenders it’s not that big of an increase but for others it certainly is. And then in the used car space, like I said, the the carry over into used values and high demand for used especially the older used vehicles are less likely to have the longer terms. And if you have a sharp increase in in those values which again we saw. With the high demand a couple years ago. We see some sizable jumps in those payments because most of those, you know, older vehicles are 4860 months. It’s the late model. Use that you get the 72’s and some of those longer terms. But yeah, that that will be about the only trigger left to manipulate. Amanda Harris 13:30 Yeah, something to keep an eye on for both of us. I’m sure we’ll keep an eye on that. Definitely great. Well, any other thoughts on just the overall, you know stay of the market headed into Q1, some things that you are are keeping an eye on? Melinda Zabritski 13:43 I’m still really keeping an eye on the potential. You know any any ramp up of sales, you know there there’s been a lot of discussion especially towards the end of last year, you know early part of this year you know our consumers trying to get ahead of the purchases you know is there that kind of KN. Jerk reaction to go out and make your purchase before you know any increases. Impact on EVs, you know, again, we’ve seen that ramp up of EV sales. Over the last couple months, but again, I think there there is a lot of speculation about what this year is going to bring to the industry and you know increasingly at the conferences that I’ve been at lately and the lenders have been talking with you know there aren. A lot of answers out there. There are again a lot of speculation and I think everyone’s just kind of eagerly waiting to see what will happen. Amanda Harris 14:34 Yeah, us as well. So stay tuned.Everyone will be following everything closely for sure. Well, great. Well, thank you so much, Melinda. This has been a very insightful conversation. I really, really appreciate your thoughts here and that will do it for today’s episode. Thank you for joining us on the road map. Be sure to follow us on X and LinkedIn and we will see you online at autofinancenews.net in here next time.