Auto Credit Availability Loosens in September for the First Time in Five Months

Access to auto credit expanded for the first time in five months in September, according to the Dealertrack Credit Availability Index for all types of auto loans. The All-Loans Index increased 1.1% to 103.7 in September, reflecting that auto credit was easier to get in the month compared to August. The improved access meant conditions were looser than before July. With the increase in September, access was looser by 4.8% year over year, and compared to February 2020, access was looser by 4.5%.

Dealertrack Credit Availability Index

Auto loan access increased in September for the first time in five months

The trends in credit availability factors were mixed in September, but consumers benefited from the largest moves in yield spreads narrowing and subprime share increasing. The average yield spread on auto loans narrowed, so rates consumers saw on auto loans were more attractive in September relative to bond yields. The average auto loan rate increased by 40 Basis Points (BPs) in September compared to August, while the 5-year U.S. Treasury increased by 66 BPs, resulting in a narrower average observed yield spread.

The subprime share increased to 11.7% in September from a low of 11.3% in August. The share of auto loans with negative equity also increased slightly in September, which also benefited consumers.

Working against consumers in September, the approval rate fell, the share of loans with longer terms declined, and the down payment share increased.

All loan types saw loosening in September. All new loans loosened the most. Used loans through independent dealers loosened the least in the month. On a year-over-year basis, all channels saw higher credit access, with certified pre-owned (CPO) loans having loosened the most.

Credit access also expanded across all lender types in September, with credit unions loosening the most and all other lender types loosening similarly. On a year-over-year basis, all lenders had looser standards, with auto-focused financed companies having loosened the most.

Each Dealertrack Auto Credit Availability Index tracks shifts in loan approval rates, subprime share, yield spreads and loan details, including term length, negative equity, and down payments. The index is baselined to January 2019 to provide a view of how credit access shifts over time. Across all auto lending in September, yield spreads narrowed, the subprime share increased, and the share with negative equity increased, so those factors helped access improve. The approval rate declined, terms shortened, and down payments increased, and those moves worked against credit access.

Measures of Consumer Confidence Mixed in September

The Conference Board Consumer Confidence Index® increased by 4.2% in September. Both underlying measures of present situation and expectations saw gains, but expectations improved the most. Plans to purchase a vehicle in the next six months increased and were up year over year. The sentiment index from the University of Michigan also saw a slight gain in September. The Michigan index rose 0.7%, with only views of current conditions improving. Both the Conference Board and Michigan data sets do not include survey data representing the entire month, and sentiment weakened in the final days of the month. Morning Consult’s timelier daily Index of Consumer Sentiment declined in September with moves down in most of the last 14 days of the month. That index ended down 0.7% for the month, though it had been improving earlier in the month. Stock market declines and gas price increases likely influenced the more recent decline.

The Dealertrack Credit Availability Index is a new monthly index based on Dealertrack credit application data and will indicate whether access to auto loan credit is improving or worsening. The index will be published around the 10^th of each month.