Dealers Can Expect Higher Super Prime Originations

Increased inventories combined with price declines are bringing car shoppers with super prime credit ratings into dealerships.

A recent report by TransUnion – Q2 2024 Quarterly Credit Industry Insights Report (CIIR) – shows Q1 2024 originations rose 10.4% year-over-year (YoY). That compares to the overall Q1 2024 originations of 6 million, which is down 0.4% YoY.

“While originations remained down YoY, the fact that they were up significantly among super prime (borrowers) is a sign that increased inventories and price declines have gotten lower-risk borrowers off the sidelines and into the market,” says Satyan Merchant, TransUnion’s senior vice president, automotive and mortgage.

As WardsAuto reported, Ally is among the few lenders that are eager for dealers to share loan applications from all prospective buyers. TransUnion reports originations for those with subprime credit scores were down just over 27% from 2019, likely due to affordability concerns and skittish lenders.

In fact, Kelley Blue Book reports that July 2024 marked the fourth consecutive month that auto credit availability declined. According to the Dealertrack Credit Availability Index, part of Cox Automotive, that dip was across all lender types and channels, such as banks and credit unions.

Jonathan Smoke, chief economist for Cox Automotive, expects auto credit to remain tight due to the “weak performance of auto loans.”

July marked the third consecutive month-over-month increase in 60-day+ delinquencies, Smoke says. Defaults increased 3.4% in July and were up 42.3% YoY. Defaults on subprime auto loans increased 2.5% and were up 35.9% YoY. The annualized default rate for the month of July was 3.02%, which was ten basis points higher than in June, reports Cox.

So, what does that mean for dealers?

“Higher delinquencies are worth watching, and they are impacting loan availability at this time,” says TransUnion’s Merchant. “Potential for rate declines, coupled with more normal inventory levels and reduced prices, could provide relief to consumers in this market.”

And that, of course, means relief to dealers as well.