How Auto Lenders Can Avoid the Mortgage Crisis Pitfalls

Paving the Way to Profitability

As auto loan originations near historic highs, lenders are concerned that a significant economic slowdown may result in a spike in loan defaults. There are lessons learned from the mortgage crisis that auto lenders can implement now to help manage regulatory and operational risks while maintaining profitability during a correction.

Auto lending has accelerated during the economic recovery. Auto loan originations reached an all-time high of $584 billion in 2018, and the total auto loan debt outstanding among U.S. consumers is more than $1.27 trillion, or about 9% of all household debt.

Further underscoring the potential deterioration of auto loans is that more than 7 million Americans had loans that were 90 or more days delinquent at the end of 2018, which is up by more than a million from the previous high at the end of 2010.

As loan delinquencies rise, additional regulatory scrutiny is sure to follow. To maintain profitability, auto lenders should consider the lessons from the mortgage industry, including tightening risk and operational frameworks and streamlining operations to prepare for the increase in default volume.

Special thanks to Brian Karp, who contributed to this article.

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