The Subprime Also Rises

The share of subprime borrowers increased for auto loans and leases originated in first-quarter 2024, vs. the year-ago quarter.

That’s the first year-over-year increase for any quarter since second-quarter 2022 and a sign that dealership F&I managers may start getting customers with subprime credit scores financed more easily.

Subprime originations accounted for 15.8% of the first-quarter total, up from 14.5% a year ago, according to the latest Quarterly Report on Household Debt and Credit from the New York Federal Reserve. The New York Fed defines subprime as a credit score below 620.

Dealers report separately that to address consumer affordability problems tied to high sticker prices and high interest rates, they are ordering smaller, lower-content new vehicles and purchasing older used vehicles for resale.

For their part, automakers have increased incentive spending compared with recent lows. Several OEMs have also made older used cars eligible to participate in certified pre-owned programs, which include factory-backed warranties.

Those actions help with affordability, too, but at the risk of higher delinquencies. For context, New York Fed analysts say it’s important to remember delinquencies in general, not just for auto loans, have been “rising from artificial lows.”

Delinquencies were artificially low earlier in the global COVID-19 pandemic because of stimulus payments to taxpayers, student loan forgiveness and forbearance, and a moratorium on auto repossessions and mortgage foreclosures.

The New York Fed says about 4.4% of auto loans and leases were 90-plus days overdue for the first quarter, up from 3.9% a year ago. In first-quarter 2020, before the pandemic fully took hold, those overdue payments were about 5.1%.

Overall, auto loan and lease originations were $165.5 billion in first-quarter 2024, an increase of just 2.4% from a year earlier. Those numbers include financing for both new and used vehicles.

The increase in subprime share does not mean auto lenders are neglecting the highest-scoring credit tier. Originations for customers with “superprime” credit scores of 760-plus increased 6.9% compared to the year-ago quarter.