“The lender community is incredibly upbeat given the asset values they are recovering at auction,” Miller began.
“Our clients are also taking advantage of the time afforded them due to lower volumes to evaluate their business and make critical process and technology changes that they didn’t previously have time to execute,” he surmised.
“We see lenders putting their repo agents under the microscope as well, evaluating performance, managing each assignment more closely, and forging stronger relationships with a smaller number of vendors,” Miller added.
Trends in Delinquencies and Charge-offs
Stemming from what its lead analyst said was conservative lending activity, Experian Automotive determined repossession rates and average charge-off amounts all dropped year-over-year as the fourth quarter closed.
The overall repo rate slipped 5.8 percent to 0.63 percent, the lowest level of the past two years. Experian indicated the overall rate stood at 0.67 percent at the end of 2011 and 0.714 percent at the finish of 2010.
Experian indicated captive finance companies saw their repossession rates drop the most year-over-year, plunging 18.9 percent to 0.43 percent. The level continued a steady decline since 2010 when it was 0.60 percent.
Commercial banks also enjoyed a healthy decline in repossessions, according to Experian’s quarterly analysis. Banks’ repo rates sunk 15.2 percent to 0.31 percent, a level only bested by the rate posted by credit unions.
Experian noted the repo rate generated through credit unions came in a 0.18 percent, a level 5.5 percent lower than the fourth quarter of 2011.
By far, the highest repo rates came within finance companies and other providers, lenders such as Santander, Consumer Portfolio Services and others not holding bank deposits. Experian found their repo rate settled 4.7 percent lower to sit at 2.47 percent, reversing an end-of-year trend that produced a gain from 2010 to 2011.
Meanwhile, Experian determined lenders posted across the board declines in average charge-off amounts.
Overall, the fourth-quarter reading dropped $779 to $6,815, an amount approaching half of the level Experian reported two years earlier. At the end of 2010, the average charge-off amount was $10,315.
Experian broke down the average charge-off amount by lender category:
—Commercial banks: down $788 to $6,141.
—Captive finance companies: down $695 to $6,916.
—Credit unions: down $561 to $6,442.
—Other finance companies: down $761 to $7,126.
Melinda Zabritski, director of automotive lending at Experian Automotive, explained what the trends mean.
“We’re still seeing the effects of very conservative lending from 2008–2010,” Zabritski indicated. “This has had a positive impact on overall consumer delinquency as seen in the low repo rates.
“Especially when it comes to repossessions, the strong wholesale market has also helped reduce the severity of the losses as seen with the reduction in charge-off amounts,” she continued. “With such low delinquencies and strong performance it helps also shed light on why we’re seeing growth in subprime financing.”
Experian also discovered that trends regarding loans before they reach the repossession charge-off stage also are improving, too.