SUBPRIME AUTO FINANCING - NAMVBC · Auto Loan Auto Loan Auto Loans Are A Gateway To Opportunity...

© Equifax 2014

SUBPRIME AUTO FINANCING Are we heading for another bubble?

NAMVBC 2015 Fall Workshop

Dennis Carlson – Deputy Chief Economist

September 11, 2015

© Equifax 2014

THE ROAD AHEAD

Economic Commentary on the Auto Space

© 2015 Equifax Inc. Atlanta, Georgia All rights reserved. 3

8

10

12

14

16

18

20

22

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

It’s Been a Very Good Year

Source: U.S. Bureau of Economic Analysis, Equifax;

New and Used Car Sales (Millions, NSA) and Share Financed (%, NSA)

0%

10%

20%

30%

40%

50%

60%

70%

0

10

20

30

40

50

60

70

2008

2009

2010

2011

2012

2013

2014

New Car Sales (L)

Used Car Sales (L)

Finance Share (R)

Monthly New Light Vehicle Sales (Millions, SAAR)


0

40

80

120

160

200

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014

Consumer Confidence (Present) Consumer Confidence (Expected)

Consumer Confidence Has Room to Grow…

Source: The Conference Board, Equifax; 3-month moving averages

?

4.5 years 3 years 1.5 years 6 years


8

12

16

20

24

0 50 100 150 200

… And Confidence Leads to More Auto Sales To

tal N

ew

Ve

hic

le S

ale

s (

10

00

s, S

AA

R)

Consumer Confidence Index: Present Situation (SA, 1985=100)

Source: U.S. Bureau of Economic Analysis; The Conference Board; Equifax

© 2015 Equifax Inc. Atlanta, Georgia All rights reserved.

2000

0123456789

Un

der

55

-91

0-1

41

5-1

92

0-2

42

5-2

93

0-3

43

5-3

94

0-4

44

5-4

95

0-5

45

5-5

96

0-6

46

5-6

97

0-7

47

5-'

79

80

-84

85

an

d o

ver

2014

0123456789

Un

der

55

-91

0-1

41

5-1

92

0-2

42

5-2

93

0-3

43

5-3

94

0-4

44

5-4

95

0-5

45

5-5

96

0-6

46

5-6

97

0-7

47

5-'

79

80

-84

85

an

d o

ver

But…The U.S. Population Is Shifting Older

6

Share of the U.S. Population By Age Group (%)

Source: Bureau of Labor Statistics; Equifax

Biggest Retiring Soon

Growing

28.6% 14.5% 12.4% 25.8%

Millennials Baby Boomers

Gen X Silent Gen

Greatest Gen

Gen Z

Shrinking

Between 2013 and 2014, the under-20 age group lost 0.2% share while the 65-and-older group gained 0.4%

6


1.90

1.95

2.00

2.05

2.10

2.15

2.20

1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

And Today’s Households Require Fewer Cars

Density Measured by Number of Vehicles per Household (NSA)

Source: Equifax, U.S. Bureau of Economic Analysis

© Equifax 2014

A DECADE IN REVIEW

Historical Highlights of Auto Lending


Auto Loan Originations Are Rising

10%

12%

13%

15%

16%

18%

19%

400

600

800

1,000

1,200

1,400

1,600

2007

2008

2009

2010

2011

2012

2013

2014

2015

Total Originations (left)

Auto Bank: Originations & Share

Subprime by Vintage (# 1000s (Left) & % 12-mo MA (Right), NSA)

Source: Equifax (Credit Trends 4.0); data as of July 2015; Subprime defined as loans originated with an Equifax Risk ScoreSM < 620

Auto Finance: Originations &

Share Subprime by Vintage (# 1000s (Left) & % 12-mo MA (Right), NSA)

25%

28%

30%

33%

35%

38%

40%

400

600

800

1,000

1,200

1,400

1,600

2007

2008

2009

2010

2011

2012

2013

2014

2015

% Subprime (right)

9


$0

$8,000

$16,000

$24,000

$32,000

$40,000

$48,000

$56,000

$64,000

$72,000

$80,000

380

420

460

500

540

580

620

660

700

740

780

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Average Loan Amt 10th PCTL 10th Percentile Risk Score Median Risk Score

Risk at Auto Loan Origination

10

Source: Equifax (Credit Trends 4.0); data through July 2015; Originations through June 2015

Average Loan Amount for

10th Percentile ($, NSA)

Origination Equifax Risk

ScoreSM by Select Deciles (NSA)

$0

$8,000

$16,000

$24,000

$32,000

$40,000

$48,000

$56,000

$64,000

$72,000

$80,000

380

420

460

500

540

580

620

660

700

740

780

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Banks and Credit Unions Captives and Finance Companies


16%

18%

20%

22%

24%

26%

28%

30%

32%

0

2

4

6

8

10

12

14

16

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Prime Subprime % Subprime (R)

Subprime Originations Holding Steady Year to Date Total Auto Originations & Share Subprime by Vintage (# Millions & %, NSA)

Source: Equifax (Credit Trends 4.0); data through July 2015; Subprime defined as loans originated with an Equifax Risk ScoreSM < 620


A Historical View of Auto Loan Terms

0.0%

2.5%

5.0%

7.5%

10.0%

12.5%

15.0%

17.5%

20.0%

22.5%

25.0%

27.5%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Prime Subprime

20%

25%

30%

35%

40%

45%

50%

55%

60%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Prime Subprime

Estimated APR by Year (NSA)

Share of Originations with

Duration > 5 years (NSA)



0%

20%

40%

60%

80%

100%

0%

20%

40%

60%

80%

100%

2006 2011 2015

<= 450

451-500

501-520

521-540

541-560

561-580

581-600

600-620

Lending Standards Remain Tighter than 2006 % YTD Subprime Auto Originations by Equifax Risk ScoreSM Band (%, NSA)


© Equifax 2014

OVERTURE, CURTAINS, LIGHTS

A look at subprime performance today


Subprime Delinquencies Continue to Fall

Source: Equifax (Credit Trends 4.0); data as of August 2015; Subprime defined as loans originated with an Equifax Risk ScoreSM < 620

Subprime Auto Total 60+ DPD Rate (% of Accounts and % of Balances, NSA)

15

2%

3%

4%

5%

6%

7%

8%

2%

3%

4%

5%

6%

7%

8%

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Accounts Balances


2014 is Performing as Expected

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0 1 2 3 4 5 6 7 8 9 10 11 12

Maximum (2006-2013) 90th Percentile

Median 10th Percentile

Minimum (2006-2013) 2014 Average Vintage

Months on Book

Cumulative Write-Off Rate by Vintage for Deep Subprime Auto Loan

Segment (% of Balances, NSA)

Source: Equifax (Credit Trends 4.0); data as of July 2015. Deep subprime defined as loans originated with an Equifax Risk ScoreSM < 550.


2015 is Outperforming 2014 (so far)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0 1 2 3 4 5 6

Maximum (2006-2014) 90th Percentile

10th Percentile Minimum (2006-2014)

2014 Average Vintage 2015 Average Vintage

Months on Book

Source: Equifax (Credit Trends 4.0); data as of July 2015. 2015 Vintages are January – June. Deep subprime defined as loans originated with an Equifax Risk ScoreSM < 550.

Cumulative Write-Off Rate by Vintage for Deep Subprime Auto Loan

Segment (% of Balances, NSA)

© Equifax 2014

CHANGING LIVES?

A look at the impact of Subprime Auto Loans


32

52

0 10 20 30 40 50 60

NoAutoLoan

AutoLoan

Auto Loans Are A Gateway To Opportunity

Median 3-Year Increase in Equifax Risk ScoreSM For Deep Subprime

Credit Consumers (% of Balances, NSA)

Source: Equifax (Credit Trends 4.0). Deep subprime defined as loans originated with an Equifax Risk ScoreSM < 550. Compares June 2010 deep

subprime auto loan borrowers to sample of deep subprime credit borrowers with no new auto loan in 2010. 3-year score measured June 2013.


Auto Loans Are A Gateway To Opportunity

2.2%

8.7%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

No Auto Loan Auto Loan

Percent of Consumers With An Equifax Risk ScoreSM Moving

From Below 550 to Above 640 After 3-Year Period (%, NSA)

20

Source: Equifax (Credit Trends 4.0). Deep subprime defined as loans originated with an Equifax Risk ScoreSM < 550. Compares June 2010 deep

subprime auto loan borrowers to sample of deep subprime credit borrowers with no new auto loan in 2010. 3-year score measured June 2013.

© Equifax 2014

A STITCH IN TIME

A Closer Look at Select Subprime Vintages


A Geographical Look at Subprime Auto: Originations

Q1 2015 Subprime Auto Originations by State (% total originations, NSA)



A Geographical Look at Subprime Auto: APRs

Q1 2015 Median Subprime Estimated APR by State (%, NSA)



3.0% 5.6% 7.8% 8.3% 7.4% 6.0% 545

550

555

560

565

570

575

580

585

0%

5%

10%

15%

20%

25%

30%

35%

40%

<=

$200

$201-$300

$301-$400

$401-$500

$501-$600

> $600

Median Credit Score (R)

24

Q1 2014 Subprime Performance Insights

9.4% 10.4% 5.9% 5.6% 6.1% 545

550

555

560

565

570

575

580

585

0%

5%

10%

15%

20%

25%

30%

35%

40%

<=

36

37-48

49-60

61-72

> 72


Frequency and Median Credit

Score by Payment Amount (%, NSA)


Score by Loan Duration (%, NSA)

Monthly Payment Loan Duration

12 month Cumulative Write off Rates:


12 month Cumulative Write off Rates:


3.7% 2.2% 3.9% 8.6% 13% 16% 510

530

550

570

590

610

0%

5%

10%

15%

20%

25%

< 5%

5%-10%

10%-15%

15%-20%

20%-25%

> 25%


25

Q1 2014 Subprime Performance Insights

13% 12% 10% 9% 8% 6% 5% 3% 0%

5%

10%

15%

20%

25%

0%

5%

10%

15%

20%

25%

<=

450

451-500

501-520

521-540

541-560

561-580

581-600

601-620

Median Estimated APR (R)


Score by Estimated APR (%, NSA)

Frequency and Median Estimated

APR by Credit Score (%, NSA)

Estimated APR Credit Score


12 month Cumulative Write off Rates: 12 month Cumulative Write off Rates:


Q1 2014 Vintage Write Off Rate Heat Maps

Risk Score

Est

imat

ed A

PR

Estimated APR

Lo

an D

ura

tio

n

Risk Score

Mo

nth

ly P

aym

ent

Estimated APR

Mo

nth

ly P

aym

ent

Source: Equifax (Credit Trends 4.0); data through July 2015;


Economic Trends Commentary is the

new line of publicly released studies

coming from Equifax.

These are currently distributed through

press releases – here are the URLs: Student Loan Insights April 2015:

http://www.equifax.com/assets/corp/student_loan_research.pdf

Subprime Auto February 2015: http://www.equifax.com/assets/corp/subprime_auto_economic_commentary.pdf

Subprime Auto August 2014: http://media.globenewswire.com/cache/23864/file/28405.pdf

Credit Score Myths June 2014: http://www.equifax.com/assets/WFS/busting_cs_myths_wp.pdf

Effects of Proposed Minimum Wage Increase May 2014: http://www.equifax.com/assets/WFS/miinimum_wage_wp.pdf

− Yes, I know Minimum is misspelled …

Economic Trends Commentary



http://www.equifax.com/assets/corp/subprime_auto_economic_commentary.pdf



http://media.globenewswire.com/cache/23864/file/28405.pdf



http://www.equifax.com/assets/WFS/busting_cs_myths_wp.pdf



http://www.equifax.com/assets/WFS/miinimum_wage_wp.pdf




Questions?

For further information please contact:

Dennis Carlson Deputy Chief Economist - Equifax 706.304.0100 Email: [email protected]

The opinions, estimates and forecasts presented herein are for general information use only. This material is based upon information that we consider to be reliable, but we do not represent that it is accurate or complete. No person should consider distribution of this material as making any representation or warranty with respect to such material and should not rely upon it as such. Equifax does not assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice. The opinions, estimates, forecasts, and other views published by Equifax’s' Economic Insights group represent the views of that group as of the date indicated and do not necessarily represent the views of Equifax or its management.

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