Driving to the bank: Auto loans rebounding in Ninth District

Maybe people like their cars more than their homes. While the housing market appears to be finally finding its legs, auto sales have been on a tear—especially in the Ninth District.

During and subsequent to the Great Recession, total auto loan debt declined precipitously to its trough around the end of 2011 (see first set of charts). Since then, however, auto loans have been squealing the tires. In the district, inflation-adjusted auto loan debt rose to 98 percent of prerecession levels, while national auto loan balances are at 88 percent, according to data from the Federal Reserve Bank of New York Credit Panel/Equifax.

The lending rebound has been shared among various financing options, but banks are in the lead car, particularly in the Ninth District. Federal Reserve Bank of New York Credit Panel/Equifax data show that banks (which include credit unions and savings and loans) hold the majority of vehicle loan debt in the district, and debt balances didn’t dip as far during the recession. Debt balances have since rebounded above prerecession levels, to $9.5 billion (see charts below). At the same time, vehicle loan debt held by finance companies (dealers and auto or sales finance companies, like car makers) plunged during the recession and remains considerably below the prerecession peak.

Nationally, the share is flipped. Finance companies still account for a majority of loans, but the margin has narrowed, in part because finance company loans saw a steeper drop through 2010 compared with banks, and their subsequent growth since 2011 has been very modest.

Performance among Ninth District states has varied—in fact, some states saw inflation-adjusted auto loan balances decline well before the recession. Northwestern Wisconsin has experienced little recovery since the end of the recession; by the end of 2012, real auto loan balances stand at only 90 percent of 2003 levels. At the other end of the spectrum, North Dakota auto loan balances are 40 percent higher over the same period. Other district states lie somewhere in the middle, though Montana did have a notable runup in debt levels prior to the onset of the recession.

Creditworthiness and delinquency also play a big role in the rebound. Vehicle loan balances generally dropped less during the recession and rose more afterward as borrower Equifax Risk Scores rose. So-called super-prime borrowers are responsible for a large percentage of vehicle debt, and they have been taking advantage of their access to credit to take out more vehicle loans given today’s low interest rates. And, again, this trend has been more prevalent in the Ninth District. Ninth District loan delinquency rates in the district also have been well above national rates before, during and after the recession.