COVID-19 and the Auto Loan Market

Abstract

We study the impact of COVID-19 on the auto loan market during 2020. We first examine the dynamic impact of the pandemic on auto loan originations across Equifax Risk Score segments and document the largest drop and the weakest rebound in the subprime segment. We also find that the Northeast and the Pacific experienced the most severe contraction in auto loan originations, seemingly influenced by the higher urbanization rate and mobility activities in these regions. We analyze lending dynamics across financing sources as households adapt to the pandemic environment. Bank-financed originations experience a significantly larger drop in the initial months of the pandemic and a subsequent weaker rebound relative to finance companies and credit unions. Banks continued to lose market share during the pandemic, a trend that started in the years after the Great Recession. Bank market share loss proved most significant for subprime borrowers and market share gain by finance companies was more significant in counties with a stronger bank presence. We then examine the impact of county-level bank dependence on auto loan originations and find a significant contraction in originations associated with bank dependence. These lending dynamics contrast with the experience during the Great Recession, when banks contributed the largest support to the auto loan market while finance company lending was depressed.

Keywords: auto loans, loan originations, COVID-19, consumer credit, bank and non-bank finance

JEL Classification: G01, G21, G23, L62