LINTHICUM, Md. – The subprime market is expanding, as indicated by a cumulative increase in organizations, a growth in portfolio dollars and a higher approval rate, according to the National Automotive Finance Association’s 2005 Non-Prime Automotive Financing Survey.
           
The survey, which will be released in the near future, divided respondents into classes based on portfolio account size.  The small and medium class consisted of mostly independent finance companies, the majority of which financed used vehicles only and provide financing through independent dealers.  In the large class, half were banks or holding company subsidiaries, most of which provided financing through franchised dealers, and nearly all of which financed both new and used vehicles.
           
An increased use of automatic decisioning is apparent in the survey.  Automatic approval rates are up 1 percent, and automatic decline rates are up 5 percent from 2002 in the subprime market.  Along the same lines, the survey notes increased reliance on technology and competitiveness within the industry as probable leading factors in the dramatic increase in application processing time.
           
In 2004, 52 percent of applications took less than 30 minutes to process, up from 33 percent in 2003.  only 4 percent of applications took two hours or more, sharply down from 14 percent in 2003.  Those with less than 30 minutes processing times are more likely to use custom score cards, according to the survey report.
           
“Technology is significantly increasing the turnaround time on dealer applications,” said Jack Tracey, executive director of the NAF Association.  “This is presently being done through aggregator portals that have developed over the last three or four years.”
           
The Internet is gaining a larger role, being used more frequently to prequalify, approve, service, collect, and transact vehicle disposals, said Tracey.  The only decrease in Internet usage came in advertising, approval of indirect aggregators and price comparison disposals.
           
Respondents to the survey report a 6 percent origination dollar growth, from $23.3 billion in 2003 to $24.8 billion in 2004.  The report also shows that loan origination ratios, dollars and accounts financed are up this year.  Portfolio dollars are 4 percent higher, while account volumes remain relatively unchanged as compared to last year.
           
There appears to be a broad source of financing options available in the non-prime market, though smaller respondents may be more likely to finance vehicles that tend to be less expensive and have higher mileage, the report indicated.

On average, vehicle loan dollars financed have increased 4 percent (from $12,880 in 2003 to $13,478 in 2004) while the percentage of vehicles approved in the application ratio trend is up 7 percent from last year and up 2 percentage points from the seven-year average.  Small and medium-sized respondents report higher average origination ratios than large-class respondents.
           
Maximum maturity for used vehicles based on model year are lengthening in most categories, however the maximum allowed miles at origination are mostly on the decline.  Small and medium respondents exclusively finance vehicles with 100,000 miles or more.
           
Approximately half of both large and small classes charge-back dealers if a vehicle is repossessed.  Bankruptcy is on the decline, however the amount of Chapter Seven bankruptcies is marginally higher, from 0.74 percent to 1 percent. Average monthly repossessions increased slightly, while average monetary losses receded slightly.  Overall, however, average losses decreased in 2004 when compared to 2002 and 2003.
           
The survey included a list of 18 companies that responded both in 2004 and 2005, and listed eight companies that participated in this year’s study alone.