Demand for new cars will likely spike in 2011 among consumers who lenders will be happy to do business with: those with very high credit scores.
More than 60 percent of the leases expiring next year are held by borrowers in the “super prime” category, meaning they have credit scores of 720 or better, reflecting excellent on-time payment histories, according to TransUnion, a Chicago-based credit reporting agency.
“These folks are either going to have to buy the car they’ve been leasing or get something new in 2011,” said Peter Turek, automotive vice president in TransUnion’s financial services group. “That’s a good sign for lenders.”
Even better: Another 30 percent of expiring leases are held by borrowers with credit scores that are “near prime” or between 620 and 659 on the FICO Inc. scale of 300-850, or “prime,” between 660 and 719.
That means subprime borrowers, those with the spottiest payment histories, make up just 10 percent of the pool of expiring leases next year. A better pool of potential borrowers should make it easier for auto lenders to write new loans and leases in 2011, which will help sales.
The auto business is already showing strength after a dismal 2009.
Morningstar analyst David Whitson said he expects about 11.5 million vehicles to be sold this year. That compares with 10.4 million last year — the worst year on a per capita basis since 1951, even with the help of the “Cash for Clunkers” program.
Whitson said he expects 2011 to be even better — about 13 million cars should get sold or leased.
That forecast matches one from Efraim Levy, a Standard & Poor’s equity analyst. And leasing tends to be the choice for people who want to replace their vehicles more often, and those who prefer to drive upscale models, Levy said.
Overall, auto analysts and TransUnion are seeing a loosening of credit availability for auto loans and leases. TransUnion said new loan originations rose 5 percent in the third quarter compared with the 2009 third quarter.
Lenders are also seeing better payment habits on the part of consumers. In the third quarter, the rate of auto loans with payments late by 60 days or more fell to 0.58 percent, from 0.81 percent a year ago.
The dramatic fall partly reflects the fact lenders have been cautious about who could get a loan since the delinquency rate peaked at 0.86 percent in late 2008.
“What’s actually been put on the books in the last 18 months are very high quality loans,” Turek said.
TransUnion expects the delinquency rate to be 0.62 percent at the end of the year — it usually rises slightly in the fourth quarter, as some people divert their cash to holiday spending. By the end of 2011, the rate is forecast to be 0.60 percent.
Auto loan delinquency is much lower than late payments on credit card or mortgages. The projected rise in the fourth quarter is in one sense a positive sign, Turek said, because it means delinquencies are returning to normal seasonal patterns rather than rising dramatically each quarter, as they did when the economy was getting weaker.
In the past year, the size of the average auto loan remained about the same, $12,500, TransUnion said.
TransUnion’s figures are culled from 27 million randomly chosen individual credit files, about 10 percent of its database.
