CNW: Subprime Approvals Up by More Than 60 Percent This Month

September 24, 2012

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BANDON, Ore., and CHICAGO — Part of the reason CNW Research projected used-vehicle sales to climb by more than 8 percent this month is the soaring number of subprime loan approvals.

According to the firm's September Retail Automotive Summary, subprime approvals for both new- and used-vehicle sales are 62.5 percent higher this month than they were a year ago.

"Like the new-car market, all dealers are finding it easier to place subprime used-vehicle paper," CNW president Art Spinella stated.

Breaking down its sales predictions, CNW thinks franchised dealers will turn 1.33 million used models this month, marking an 11.7 percent gain.

Thanks to inventories and supply becoming more stable and improvements in inventory make-up, the firm contends independent dealers are looking at a significant year-over-year used sales gain in September. Expectations are for independent lots moving 1.28 million units, which would translate into a 9.7-percent jump from a year ago.

"Expect continued strong showings for independent dealers over the coming quarter as long as the supply issues continue to improve and new-car dealers have solid trade-in volumes," Spinella projected.

"There was a slight weeding-out process over the summer eliminating some weaker indies," he pointed out. "CNW expects the loss of 200 to 500 used-car outlets by the end of the year."

TransUnion: U.S. Credit Risk Declines Despite Increases in Consumer Borrowing

Meanwhile, TransUnion's proprietary Credit Risk Index — a measure of the risk inherent in the U.S. credit-using population — decreased in the second quarter, reversing the increases seen in the prior two quarters.

Quarter-over-quarter, analysts discovered the second quarter CRI for the U.S. decreased 1.57 percent from 123.98 to 122.03. On a year-over-year basis, the CRI had a nominal 0.66 percent increase.

TransUnion reiterated a higher index indicates a higher level of credit risk.

"After upticks in the prior two quarters, it was good to see the credit risk level decline this quarter to roughly the same level it was last year," explained Charlie Wise, director of research and consulting in TransUnion's financial services business unit.

"Delinquency rates for major loan types have all declined in the first half of 2012, and that contributed to the drop in the risk index in the second quarter," Wise continued.

On a related note, the firm discovered demand for consumer credit showed an increase of 21.4 percent in the second quarter from the same period a year ago as measured by TransUnion's Total Inquiry Index. This increase brought the TII to the highest quarterly level since the third quarter of 2007, which was before the start of the past recession.

"The increase in consumer-initiated inquiries indicates stronger consumer demand for credit, and may be a signal that consumers are beginning to increase their spending on discretionary items and larger-ticket purchases, reflecting stronger consumer sentiment and confidence toward the U.S. economy," Wise highlighted.

As TransUnion has been reporting, delinquency rates for major consumer loan types, including bankcard, auto, and mortgage, all declined on a quarter-over-quarter basis in each of the first two quarters of this year.

Furthermore, analysts pointed out delinquency rates for each of these loan types remained flat or declined year-over-year. They explained these improvements in loan delinquency rates have offset moderate increases in consumer borrowing over the past year, including increases in auto loan balances and increases in the average bankcard balance per consumer.

"Consumers have stepped up their borrowing over the past year, particularly in bankcards and auto loans," Wise noted. "New card and auto loan originations have both grown over the past year, and average balances per consumer for both these loan types increased between Q2 2011 and Q2 2012.

"Despite those increases, we are pleased to see that delinquency rates have remained flat or declined," he went on to say. "Consumers are maintaining consistent payment behavior on their bankcards and auto loans, as well as on mortgages, which is the key reason why the U.S. Credit Risk Index has remained flat over the past year."

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