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What’s Happening with Subprime Auto Loans?

Published

6 years ago

on

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

Global EV Production: BYD Surpasses Tesla

This graphic explores the latest EV production data for 2022, which shows BYD taking a massive step forward to surpass Tesla.

Published

1 month ago

on

April 20, 2023

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Global EV Production: BYD Surpasses Tesla

This was originally posted on Elements. Sign up to the free mailing list to get beautiful visualizations on natural resource megatrends in your email every week.

2022 was another historic year for EVs, with annual production surpassing 10 million cars for the first time ever. This represents a sizeable bump up from 2021’s figure of 6.7 million.

In this infographic, we’ve used data from EV Volumes to visualize the top 15 brands by output. The color of each brand’s bubble represents their growth from 2021, with the darker shades depicting a larger percentage increase.

Data Overview and Key Takeaways

The raw data we used to create this infographic is listed below. Volume figures for 2021 were included for convenience.

RankCompany20222021Growth from 2021
1🇨🇳 BYD1,858,364598,019211%
2🇺🇸 Tesla1,314,319936,24740%
3🇩🇪 VW Group839,207763,85110%
4🇺🇸 GM (incl. Wuling Motors)584,602516,63113%
5🇺🇸 🇮🇹 🇫🇷 Stellantis512,276381,84334%
6🇰🇷 Hyundai Motors (incl. Kia)497,816348,66043%
7🇩🇪 BMW Group433,164329,18232%
8🇨🇳 Geely Auto Group351,35699,980251%
9🇩🇪 Mercedes-Benz Group337,364281,92920%
10🇫🇷 🇯🇵 Renault-Nissan-Mitsubishi Alliance335,964289,47316%
11🇨🇳 GAC Group287,977125,384130%
12🇨🇳 SAIC Motor Corp.256,341237,0438%
13🇸🇪 Volvo Cars253,266220,57615%
14🇨🇳 Chery Auto Co.253,141107,482136%
15🇨🇳 Changan Auto Co.245,555105,072134%
16🌎 Other (41 companies)1,927,2111,326,26245%

Includes BEVs and PHEVs

BYD Auto

BYD Auto has leaped past Tesla to become the new EV king, boosting its output by a massive 211% in 2022. Given this trajectory, the company will likely become the world’s first automaker to produce over 2 million EVs in a single year.

BYD has a limited presence in non-domestic markets, but this could change rather quickly. The company is planning a major push into Europe, where it expects to build factories in order to avoid EU tariffs on Chinese car imports.

The company is also building a factory in Thailand, to produce right-hand drive models for markets like Australia, New Zealand, and the UK.

Tesla

Tesla increased its output by a respectable 40% in 2022, staying ahead of Western brands like Volkswagen (+10%) and GM (+13%), but falling behind its Chinese rivals such as Geely (+251%).

Whether these Chinese brands can maintain their triple digit growth figures is uncertain, but one thing is clear: Tesla is facing more competition than ever before.

The company is targeting annual production of 20 million cars by 2030, meaning it will need to keep yearly growth rates in the high double digits for the rest of the decade. To support this initiative, Tesla is planning a multi-billion dollar factory in Mexico capable of producing 1 million cars a year.

Hyundai

Hyundai Motor Company, which also owns Kia, posted a similar growth rate to Tesla. The South Korean automaker was a relatively early player in the EV space, revealing the first Hyundai Ioniq in 2016.

In late 2022, several countries including South Korea expressed their disapproval of the Biden administration’s Inflation Reduction Act, which withdrew tax credits on EVs not produced within the United States.

Hyundai is currently building a $5.5 billion EV factory in the state of Georgia, but this facility will not become operational until 2025. In the meantime, South Korea has revised its own EV subsidy program to favor domestic brands.

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