{"id":10579,"date":"2023-09-28T05:34:17","date_gmt":"2023-09-28T04:34:17","guid":{"rendered":"http:\/\/www.spglobal.com\/mobility\/en\/research-analysis\/have-lenders-and-consumers-taken-on-too-much-risk.html"},"modified":"2023-09-28T05:34:17","modified_gmt":"2023-09-28T04:34:17","slug":"have-lenders-and-consumers-taken-on-too-much-risk-in-the-used-vehicle-portfolio","status":"publish","type":"post","link":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/2023\/09\/28\/have-lenders-and-consumers-taken-on-too-much-risk-in-the-used-vehicle-portfolio\/","title":{"rendered":"Have lenders and consumers taken on too much risk in the used vehicle portfolio?"},"content":{"rendered":"

With more than one-third of used vehicle loans in 2023
\ncarrying loan-to-value ratios above 130%, used vehicle LTVs are at
\nhistoric highs. Have lenders (and consumers) taken on too much
\nrisk?<\/strong><\/h3>\n

As the transaction prices of used vehicles steadily rose through
\nthe pandemic, the corresponding funding needs of consumers who
\npurchase those vehicles also have increased. But so has the risk
\nthat lenders must consider when deciding to finance their
\ncustomers' vehicle purchases, according to analysis of data from
\nAutoCreditInsight by TransUnion and S&amp;P Global Mobility.<\/p>\n

The key metric in new- and used-car financing is the
\nloan-to-value (LTV) ratio. LTV weighs the value of the vehicle as
\ncollateral for the loan and the amount of risk the lender is
\nwilling to take to originate the auto loan. And while used vehicle
\nprices soared and mostly held firm, their underlying values as
\nassets have not necessarily kept pace. What remains to be seen is
\nhow used vehicle values will decline or hold steady with new
\nvehicle inventory, incentives, and demand.<\/p>\n

From the start of 2022 through Q1 2023, the average LTV on used
\nvehicles climbed sharply to 125 percent, an increase of 15
\npercentage points, according to TransUnion and S&amp;P Global
\nMobility AutoCreditInsight. In the second quarter of 2023, that
\npercentage eased slightly, to 123%.<\/p>\n

What's more, 40% of used vehicle loans in Q1 2023 originated
\nwith a starting LTV of 130% or higher, compared to only 22% hitting
\nthat level in Q1 2019. In Q2 2023, that percentage also eased
\nslightly, to 36%, but those are still near historic highs.<\/p>\n

In other words, lenders are loaning amounts of money far higher
\nthan the financed used vehicles are actually worth – at interest
\nrates far higher than they were two years ago. Could this weigh
\ndown the whole portfolio, or is it just a blip?<\/p>\n

\"\"<\/p>\n

Why is this number worth watching?<\/strong><\/h4>\n

“While consumers are broadly still doing well due to low
\nunemployment, recent trends of higher originating LTV's combined
\nwith higher vehicle prices and the possibility for quicker
\ndepreciation as vehicle values stabilize creates a pocket of
\nelevated risk in some auto portfolios,” said Satyan Merchant,
\nsenior vice president and automotive business leader for
\nTransUnion.<\/p>\n

“That said, with the exception of this recent pocket of higher
\nLTV originations, the overall portfolio is well collateralized,”
\nMerchant added.<\/p>\n

By contrast, new vehicle LTVs jumped slightly in 2021 and then
\nheld steady in 2022, before declining for the two latest quarters,
\nalmost back to pre-pandemic levels, according to AutoCreditInsight
\nby TransUnion and S&amp;P Global Mobility.<\/p>\n

\"\"<\/p>\n

\n“Used vehicles' value skyrocketed during the pandemic due to the
\ninventory constraints of new vehicles from supply chain and
\nproduction issues,” said Jill Louden, associate director for
\nAutoCreditInsight at S&amp;P Global Mobility. “However, auction
\nindices we've seen are starting to level out following huge spikes
\nof year-over-year growth in used vehicle pricing.”<\/p>\n

Auctions and dealers want used vehicles because they know they
\ncan sell them for an elevated price based on demand and scarcity
\nfor these products, Louden added. A new twist: Recent-model used
\nvehicles are going to be challenged again, as leasing cratered with
\nthe initial stage of the pandemic three years ago and as a result,
\nfewer vehicles are coming off lease and available in the
\nmarket.”<\/p>\n

“When consumers cannot buy new, due to lack of availability or
\npricing, then they are forced to buy used,” Louden said. “But when
\nthere is a lack of availability of near-new used vehicles, the
\npricing pressure works its way through the entire resale
\nchain.”<\/p>\n

Although there has been a lack of new-vehicle incentives from
\nOEMs who have not needed to discount sticker prices, that is
\nstarting to turn, as new-vehicle inventories have been rising on
\nmany vehicles.<\/p>\n

But effectively canceling any cash incentives – according to
\nTransUnion – has been the Fed's attempt to tame inflation with a
\nseries of 11 rate hikes from March 2022 through August 2023.<\/p>\n

Since the Fed began raising rates, average auto loan APRs have
\nincreased from Q4 2021 levels for new vehicles at 3.86% and used
\nvehicles at 8.28%, up to Q2 2023 levels of 6.85% for new, and
\n11.87% for used, Merchant said.<\/p>\n

These combined factors have pushed up vehicle payments, while
\ncarrying a LTV nearly 15 percentage points higher, and for a longer
\nterm. All of this adds risk – for lenders and consumers alike.<\/p>\n

The monthly payment increase isn't as large for used vehicles
\nduring this period because used prices started to retreat from
\ntheir peaks,” Merchant said. “But despite the used price declines,
\nmonthly payment still went up due to rate increases. New vehicles
\nhad both price and APR increases to contend with.”<\/p>\n

Here's the math<\/strong><\/h4>\n

According to S&amp;P Global Mobility and TransUnion data, the
\naverage monthly loan payment for a used vehicle in Q1 2019 was
\napproximately $390 with an LTV of 110% and an average monthly loan
\nterm of 63.6 months.<\/p>\n

However, March 2020 marked the pandemic's start and ensuing
\nhavoc on regional and global economies.<\/p>\n

By 1Q 2021, soaring used vehicle values meant the average
\nmonthly payment for a used vehicle surged to almost $414; but the
\nLTV dropped to 104% \u2014 due to customers having higher down
\npayments due to COVID-19 relief money and higher trade-in values
\ndue to used vehicle scarcity. Also, the average term jumped to 65.1
\nmonths.<\/p>\n

In 1Q 2022, however, the full effect of the pandemic began to
\ntake shape with respect to the car-buying public. Used vehicle
\nvalues continued to climb. As a result, used vehicles saw the
\naverage monthly payment jump by nearly $100 to $508, the LTV
\nincrease to 110% and the average term showing a modest increase to
\n67.2 months.<\/p>\n

Then conditions became dramatic. Through 2Q 2023, TransUnion
\ndata show that the average monthly payment for a used car jumped to
\n$533 while the LTV was 123%. These levels are stratospherically
\nhigh, although the LTV has retreated slightly from 125% in 1Q
\n2023.<\/p>\n

“An average monthly vehicle payment of more than $530 for used
\nvehicles is a big chunk out of the household monthly income, and we
\nsee these challenges on monthly payments continuing for now,”
\nLouden noted.<\/p>\n

“On the plus side, new vehicle inventories have returned on many
\nvehicles, which will help dealers get back more traditional retail
\nsales models and increase competition among OEMs – causing
\nincentives to return to the new vehicle market and reducing
\npressure on the used vehicle side,” Louden added.<\/p>\n

“Things right now are leveling out on the new side, and used
\nprices are slowly coming down,” Louden said. “But compared to
\npre-pandemic, it's still not a consumer-friendly market.”<\/p>\n

CONSUMER LOYALTY TO FINANCE COMPANIES FELL SHARPLY DURING
\nPANDEMIC<\/strong><\/a><\/p>\n

AUTO-FINANCE DELINQUENCIES RISE PAST GREAT RECESSION PEAK,
\nBUT\u2026<\/strong><\/a><\/p>\n

SUBSCRIBE TO AUTOCREDITINSIGHT<\/strong><\/a><\/p>\n

LOWER-CREDIT BUYERS PUSHED OUT OF NEW
\nVEHICLES<\/strong><\/a><\/p>\n

THE AUTO INDUSTRY SHARE WARS WILL RESUME IN
\n'23<\/strong><\/a><\/p>\n

SEPTEMBER AUTO INDUSTRY TRENDS<\/strong><\/a><\/p>\n

SUBSCRIBE TO OUR TOP 10 INDUSTRY TRENDS
\nNEWSLETTER<\/strong><\/a><\/p>\n\n

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SalesExecutive@ITSec.vip<\/p>","protected":false},"excerpt":{"rendered":"

With more than one-third of used vehicle loans in 2023
\ncarrying loan-to-value ratios above 130%, used vehicle LTVs are at
\nhistoric highs. Have lenders (and consumers) taken on too much
\nrisk?As the transaction prices of used vehicles steadily rose throu…<\/p>\n","protected":false},"author":479,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"site-container-style":"default","site-container-layout":"default","site-sidebar-layout":"default","disable-article-header":"default","disable-site-header":"default","disable-site-footer":"default","disable-content-area-spacing":"default","footnotes":""},"categories":[3267],"tags":[61,122,127,129,124,128,125,132,131,133,126,130,123,66,94,88,97,56,64,65,60,3344,3351,3357,3360,3335,3340,3362,112,3353,40,75,95,3350,3352,3356,3343,3359,3339,3345,3334,3341,104,3354,33,120,3358,3349,3337,3348,105,101,98,115,30,29,41,86,3342,3361,70,69,68,72,71,26,118,108,87,3355,46,55,48,52,54,51,50,83,3338,62,58,57,3336,109,35,3346,59,63,85,79,82,96,80,27,81,114,44,42,43,45,38,39,110,117,100,111,116,3300,73,89,90,92,91,93,84,78,37,102,34,36,77,67,74,99,113,3347,119,28,121,32,47,49,53,103,31,76],"class_list":["post-10579","post","type-post","status-publish","format-standard","hentry","category-car-or-automobile","tag-airpods","tag-anime","tag-anime-characters","tag-anime-cosplay","tag-anime-edits","tag-anime-merchandise","tag-anime-movies","tag-anime-news","tag-anime-recommendations","tag-anime-reviews","tag-anime-series","tag-anime-streaming","tag-animes","tag-app-store","tag-app-store-samsung","tag-appgallery","tag-appgallery-oneplus","tag-apple","tag-apple-music","tag-apple-tv","tag-apple-watch","tag-auto-financing-guide","tag-automobile-industry-news","tag-automobile-laws-and-regulations","tag-automobile-shows-and-expos","tag-automobile-specifications","tag-automobile-technology","tag-autonomous-vehicles","tag-bbc-sport","tag-best-cars-for-long-drives","tag-best-mobile-games","tag-bixby","tag-bixby-xiaomi","tag-car-accessories","tag-car-comparison","tag-car-customization-ideas","tag-car-insurance-advice","tag-car-interior-design-ideas","tag-car-maintenance-tips","tag-car-resale-value","tag-car-reviews","tag-car-safety-features","tag-champions-league","tag-city-cars","tag-cyberpunk","tag-cyberpunk-2077","tag-driving-tips-and-tricks","tag-eco-friendly-cars","tag-electric-vehicles","tag-family-cars","tag-fantasy-football","tag-fifa","tag-football","tag-formula-1","tag-fortnite","tag-free-fire","tag-free-mobile-games","tag-freebuds-pro","tag-fuel-efficiency-tips","tag-future-of-automobiles","tag-galaxy-a52","tag-galaxy-note-20","tag-galaxy-s21","tag-galaxy-watch-4","tag-galaxy-z-fold-3","tag-game","tag-games","tag-golf","tag-harmonyos","tag-highway-cars","tag-how-to-backup-iphone","tag-how-to-factory-reset-iphone","tag-how-to-reset-iphone","tag-how-to-restore-iphone","tag-how-to-unlock-iphone","tag-how-to-unlock-iphone-5","tag-how-to-unlock-iphone-6","tag-huawei","tag-hybrid-cars","tag-ios","tag-ipad","tag-iphone","tag-latest-car-models","tag-live-soccer","tag-lol","tag-luxury-cars","tag-macbook","tag-macos","tag-mate-40-pro","tag-mi-11-lite","tag-mi-home-security-camera-basic-1080p","tag-mi-home-security-camera-basic-1080p-huawei","tag-mi-smart-band-6","tag-minecraft","tag-miui","tag-mlb-scores","tag-mobile-game-design","tag-mobile-game-development","tag-mobile-game-marketing","tag-mobile-game-monetization","tag-mobile-games","tag-mobile-gaming","tag-nba-scores","tag-nba-standings","tag-nfl","tag-nfl-scores","tag-nhl-scores","tag-off-road-vehicles","tag-one-ui","tag-oneplus","tag-oneplus-9-pro","tag-oneplus-buds-pro","tag-oneplus-nord-ce-5g","tag-oxygenos","tag-p40-pro-plus","tag-poco-x3-pro","tag-pokemon","tag-premier-league","tag-pubg","tag-pubg-mobile","tag-redmi-note-10-pro","tag-samsung","tag-samsung-pay","tag-soccer","tag-sports","tag-sports-cars","tag-steam","tag-steeam","tag-top-10-anime","tag-valorant","tag-when-do-the-iphone-7-come-out","tag-when-does-the-iphone-7-come-out","tag-when-is-the-iphone-7-coming-out","tag-world-cup","tag-xbox-series-x","tag-xiaomi"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/wp-json\/wp\/v2\/posts\/10579","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/wp-json\/wp\/v2\/users\/479"}],"replies":[{"embeddable":true,"href":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/wp-json\/wp\/v2\/comments?post=10579"}],"version-history":[{"count":1,"href":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/wp-json\/wp\/v2\/posts\/10579\/revisions"}],"predecessor-version":[{"id":10580,"href":"https:\/\/gamefootballmobileanimeiphone.com\/index.php\/wp-json\/wp\/v2\/posts\/10579\/revisions\/10580"}],"wp:attachment":[{"href":"https:\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