J.D. Power: 72-Month New-Model Financing Contracts Stay at 'Record Levels'
By Nick Zulovich, Editor
May 11, 2012
WESTLAKE VILLAGE, Calif. — The number of new-vehicle financing contracts for 72 months
or longer might have softened slightly in April from the previous month, but J.D.
Power and Associates senior director Thomas King told SubPrime Auto Finance
News the figures remain "at record levels from a historical perspective."
J.D. Power's April Industry Health Review showed new-model
financing deals for at least 72 months constituted 29.3 percent of new-vehicle
sales last month. While that level represented a 2.9-percent softening from
March's reading of 30.1 percent, it was still 19.9 percent higher than a year
"I wouldn't classify 72-month contracts as losing momentum.
While 72-month penetration dropped slightly from March, it remains at record
levels from a historical perspective," King explained.
"Demand for extended term loans remains (and is expected to
remain) strong as buyers look to keep monthly payments low in the context of
lower incentives and elevated average transaction prices," he continued.
King then touched on what kinds of buyers predominantly are
falling into the 72-month contract category.
"Across buyer credit tiers, demand for 72-month loans is
highest among buyers with the lowest credit scores," King noted. "Since buyers
with lower credit scores are a major contributor to the overall growth in
industry sales, they are a becoming a larger opportunity for lenders looking to
grow their portfolio.
"Although the use of extended term loans does increase the
risk associated with a finance contract (from a lender perspective), a
combination of strong residual values on new vehicles and strong used vehicle
prices (which means that buyers with a trade can reduce their loan to value
ratio) are helping to mitigate that risk," he went on to say.
Beyond the overall readings, J.D. Power's data also showed
which vehicle categories have the highest levels of 72-month contracts.
All 10 vehicle segments the firm tracks posted
year-over-year sales gains of at least 9 percent where the financing was
written for 72 months or more. The highest sales percentages came from opposites
as far as fuel efficiency — large pickups (48 percent) and subcompacts (40
Each category except the premium conventional segment had
sales percentages between 22 and 38 percent, according to J.D. Power.
Editor's Note: Sister publication Auto Remarketing will have
analysis from J.D. Power on April's leasing trends early next week.