Low baseline interest rates brought borrowing costs to historical lows, driving demand
New York, NY (PRWEB) June 26, 2014
Over the five years to 2014, operators in the Subprime Auto Loans industry are expected to perform well due to a resurgence in automobile sales. Historically low interest rates and strong investor demand for securitized subprime auto loan securities in secondary markets are expected to drive industry growth. According to IBISWorld Industry Analyst Brandon Ruiz, “To this end, industry revenue is expected to grow at an annualized rate of 4.5% to $10.1 billion over the five years to 2014, lifted by an estimated 2.2% in 2014.”
Over the five-year period, low baseline interest rates brought borrowing costs for subprime consumers to historical lows, driving up demand for industry financing to purchase vehicles. In turn, industry operators were able to meet higher demand by selling securitized subprime loans to investors, freeing up capital on their balance sheets to expand access to credit to new subprime consumers. With interest rates dampening returns on traditional asset classes such as stocks and bonds, investors increasingly sought higher investment returns from riskier assets, such as subprime automotive securities, facilitating the industry's recovery. Historically low default and delinquency rates on subprime auto financing have also attracted investor demand, driving up total subprime loan volumes. Higher volumes and falling losses have brought industry profitability back up to just below prerecessionary levels.
New car sales, improving consumer finances and continued strong demand growth from subprime borrowers and investors are forecast to spur industry growth over the next five years. “Although growth will be restrained by rising interest rates, which will raise borrowing costs and slow vehicles sales, stronger subprime borrower finances and access to credit will sustain demand growth over the five-year period,” says Ruiz. Moreover, aggregate household debt is forecast to increase, indicating stronger overall demand for consumer financing, including automobile financing. Per capita disposable income levels are also projected to rise, increasing consumers' propensity to purchase big-ticket items, such as automobiles. Over the five years to 2019, IBISWorld anticipates industry revenue will grow.
The Subprime Auto Loans industry exhibits a low level of market share concentration. Due to the recent financial turmoil, concentration increased slightly. Unable to access the frozen credit markets due to tightened credit standards, many smaller firms went under. Nevertheless, as demand for subprime auto loans rebounds from recessionary lows, internal competition is anticipated to intensify.
For more information, visit IBISWorld’s Subprime Auto Loans in the US industry report page.
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IBISWorld Industry Report Key Topics
The Subprime Auto Loans industry includes firms that finance automobile purchases through loans and leases for subprime borrowers, defined in this report as borrowers with a credit score below 620.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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