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What’s Happening with Subprime Auto Loans?

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Auto loans have shot past the $1 trillion mark in the United States and now make up a significant component of the overall consumer debt picture.

Subprime auto loans – which are riskier loans made to customers with poor credit – have helped to drive the market since the Great Recession. However, with auto loan delinquencies ticking up in recent months, investors have been searching for answers about the sector.

Are we in for some sort of subprime auto loan crisis, or is there another explanation for what is going on?

Subprime Auto Loans: a Shifting Market

The data and perspective in today’s infographic comes from consumer credit reporting agency Equifax, and it helps to explain what is potentially going on in today’s auto loans market.

What's Happening with Subprime Auto Loans?

Does the recent uptick in auto loan delinquencies represent the unhinging of the market, or is it just standard fare?

Auto Loan Segmentation

The auto loan market is surprisingly diverse, and it’s comprised of many different types of lenders.

Each lender has a unique set of criteria for their ideal customer. For example, banks want very little risk and typically only lend to customers with prime credit scores (620 or higher). Dealer finance companies, on the other hand, are willing to take on more risk in their portfolios, and usually key in on subprime customers.

In fact, there are six different types of lenders in the auto lending space:

  1. Banks: Depository institutions that loan money to third-parties
  2. Credit Unions: Member-owned financial cooperatives
  3. Captive Auto Finance: Financing arm of an auto brand (i.e. Ford Motor Credit Company, etc.)
  4. Dealer Finance Companies: Associated with a dealerships or dealer chains
  5. Monoline Finance Companies: Focus on auto loans through multiple dealers/platforms
  6. Independent Finance Companies: Offer auto loans and other loan types

Because they each approach the market differently, there is strong segmentation in the market. The following chart from Equifax shows a snapshot of loans made in Q1 of 2015 and their cumulative non-performance after 18 months on the books:

Non-performance of auto loans vs. credit score

However, let’s look at this again by plotting the median credit score for new loans originated in Q1 of 2006, 2009, 2012, and 2015.

Non-performance of auto loans vs. credit score, longer time series

After the financial crisis, banks tightened credit standards until performance improved. Monoline and dealer finance companies, on the other hand, continued to lend to high-risk borrowers – and it is these companies that are seeing non-performance rates shifting higher.

In other words, it is the market share and relative performance among lenders that are the change drivers for aggregate loan statistics.

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Automotive

How Much Oil is in an Electric Vehicle?

It is counterintuitive, but electric vehicles are not possible without oil – these petrochemicals bring down the weight of cars to make EVs possible.

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How Much Oil is in an Electric Vehicle?

When most people think about oil and natural gas, the first thing that comes to mind is the gas in the tank of their car. But there is actually much more to oil’s role, than meets the eye…

Oil, along with natural gas, has hundreds of different uses in a modern vehicle through petrochemicals.

Today’s infographic comes to us from American Fuel & Petrochemicals Manufacturers, and covers why oil is a critical material in making the EV revolution possible.

Pliable Properties

It turns out the many everyday materials we rely on from synthetic rubber to plastics to lubricants all come from petrochemicals.

The use of various polymers and plastics has several advantages for manufacturers and consumers:

  1. Lightweight
  2. Inexpensive
  3. Plentiful
  4. Easy to Shape
  5. Durable
  6. Flame Retardant

Today, plastics can make up to 50% of a vehicle’s volume but only 10% of its weight. These plastics can be as strong as steel, but light enough to save on fuel and still maintain structural integrity.

This was not always the case, as oil’s use has evolved and grown over time.

Not Your Granddaddy’s Caddy

Plastics were not always a critical material in auto manufacturing industry, but over time plastics such as polypropylene and polyurethane became indispensable in the production of cars.

Rolls Royce was one of the first car manufacturers to boast about the use of plastics in its car interior. Over time, plastics have evolved into a critical material for reducing the overall weight of vehicles, allowing for more power and conveniences.

Timeline:

  • 1916
    Rolls Royce uses phenol formaldehyde resin in its car interiors
  • 1941
    Henry Ford experiments with an “all-plastic” car
  • 1960
    About 20 lbs. of plastics is used in the average car
  • 1970
    Manufacturers begin using plastic for interior decorations
  • 1980
    Headlights, bumpers, fenders and tailgates become plastic
  • 2000
    Engineered polymers first appear in semi-structural parts of the vehicle
  • Present
    The average car uses over 1000 plastic parts

Electric Dreams: Petrochemicals for EV Innovation

Plastics and other materials made using petrochemicals make vehicles more efficient by reducing a vehicle’s weight, and this comes at a very reasonable cost.

For every 10% in weight reduction, the fuel economy of a car improves roughly 5% to 7%. EV’s need to achieve weight reductions because the battery packs that power them can weigh over 1000 lbs, requiring more power.

Today, plastics and polymers are used for hundreds of individual parts in an electric vehicle.

Oil and the EV Future

Oil is most known as a source of fuel, but petrochemicals also have many other useful physical properties.

In fact, petrochemicals will play a critical role in the mass adoption of electric vehicles by reducing their weight and improving their ranges and efficiency. In According to IHS Chemical, the average car will use 775 lbs of plastic by 2020.

Although it seems counterintuitive, petrochemicals derived from oil and natural gas make the major advancements by today’s EVs possible – and the continued use of petrochemicals will mean that both EVS and traditional vehicles will become even lighter, faster, and more efficient.

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The Hydrogen City: How Hydrogen Can Help to Achieve Zero Emissions

Cities are drivers of growth and prosperity, but also the main contributors of pollution. Can hydrogen fuel the growth of cities with clean power?

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In the modern context, cities create somewhat of a paradox.

While cities are the main drivers for improving the lives of people and entire nations, they also tend to be the main contributors of pollution and CO2 emissions.

How can we encourage this growth, while also making city energy use sustainable?

Resolving the Paradox

Today’s infographic comes to us from the Canadian Hydrogen and Fuel Cell Association and it outlines hydrogen technology as a sustainable fuel for keeping urban economic engines running effectively for the future.

The Hydrogen City: How Hydrogen Can Help to Achieve Zero Emissions

The Urban Economic Engine

Today, more than half of the world’s population lives in cities, and according to U.N. estimates, that number will grow to 6.7 billion by 2050 – or about 68% of the global population.

Simultaneously, it is projected that developing economies such as India, Nigeria, Indonesia, Brazil, China, Malaysia, Kenya, Egypt, Turkey, and South Africa will drive global growth.

Development leads to urbanization which leads to increased economic activity:

The difficulty in this will be achieving a balance between growth and sustainability.

Currently, cities consume over two-thirds of the world’s energy and account for more than 70% of global CO2 emissions to produce 80% of global GDP.

Further, it’s projected by the McKinsey Global Institute that the economic output of the 600 largest cities and urban regions globally could grow $30 trillion by the year 2050, comprising for two-thirds of all economic growth.

With this growth will come increased demand for energy and C02 emissions.

The Hydrogen Fueled City

Hydrogen, along with fuel cell technology, may provide a flexible energy solution that could replace the many ways fossils fuels are used today for heat, power, and transportation.

When used, it creates water vapor and oxygen, instead of harmful smog in congested urban areas.

According to the Hydrogen Council, by 2050, hydrogen could each year generate:

  • 1,500 TWh of electricity
  • 10% of the heat and power required by households
  • Power for a fleet of 400 million cars

The infrastructure requirements for hydrogen make it easy to distribute at scale. Meanwhile, for heat and power, low concentrations of hydrogen can be blended into natural gas networks with ease.

Hydrogen can play a role in improving the resilience of renewable energy sources such as wind and solar, by being an energy carrier. By taking surplus electricity to generate hydrogen through electrolysis, energy can be stored for later use.

In short, hydrogen has the potential to provide the clean energy needed to keep cities running and growing while working towards zero emissions.

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