The recent Auto Finance Summit in Las Vegas offered useful insights
into the thinking of the US motor finance industry, and showed
their preoccupations to be broadly similar to those of their UK
counterparts. The credit crunch was top of the agenda, and a
presentation by William Strauss, senior economist at the Federal
Reserve Bank of Chicago, offered cautious hope: “The US currently
has job growth and income growth, therefore we are likely to avoid
a recession.” However, delinquency rates on indirect loans are
“rising to levels we haven’t seen since the recession in the 90s,”
he warned. 

Strauss flagged up rising energy prices as a major factor behind
the fall in light truck sales, with “passenger cars trending
higher” – which was one of the few references to green issues in
any session. Still, he predicted that new vehicle sales would still
be above 16m in 2008, although he warned that a recent trend for
softening residual values was likely to continue into the next
year.
 In the US, the customer is king – and keeping him happy is
paramount. For motor finance houses in the US who engage in
indirect lending through dealers, it is the dealer whom they must
keep satisfied. Research by JD Power found that moving an extra
point up the ‘satisfaction scale’ from 4 out of 5 to 5 out of 5
doubles the propensity of a dealer to send business to a particular
lender, with support of a full spread of risk a very important part
of the product offering, However, supporting all credit scores
means moving into the area of non-prime lending – a sticky subject
at the moment for US lenders.

 Director of structured finance ratings at Standard &
Poor’s, Amy Martin assured delegates that the asset-backed
securities market was strong and stable, even if it has not been
able to escape the turmoil in global financial markets entirely.
Ratings downgrades are however still rare, she said, while ratings
upgrades are conversely much more frequent – by a ratio of 18:1
since 1985. Martin pointed to the trend in the US for longer loan
terms as a particular concern of hers, with 72-month loans not
infrequent – even though losses on 72-month loans are significantly
higher than they are for 60-month loans (see chart). This trend has
recently been noted in the UK, especially in the sub-prime arena.
The US market is very different to the UK – but there are still
clearly lessons to be learnt.