COVID-19 and Auto Loan Origination Trends

37 Pages Posted: 18 Aug 2021

See all articles by José J. Canals-Cerda

José J. Canals-Cerda

Federal Reserve Bank of Philadelphia

Brian Jonghwan Lee

Columbia University - Columbia Business School; Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: August 1, 2021

Abstract

We study the impact of the COVID-19 crisis on auto loan origination activity during 2020. We focus on the dynamic impact of the crisis across lending channels, Equifax Risk Score (Risk Score) segments, and relevant geographic characteristics such as urbanization rate. We measure a significant drop in auto loan originations in March‒April followed by a near rebound in May‒June. Originations remain slightly depressed until October and fall again in November‒December. We document the largest drop and the smallest rebound in the subprime segment. We do not find any suggestive evidence that used car loan originations exhibited patterns significantly different from the rest of the market. We also document a more pronounced impact in the Northeast and the Pacific, seemingly influenced by the higher urbanization rate in these regions. Bank-financed originations experienced the largest drop and the smallest rebound, thus resulting in a loss of market share and continuing a 10-year trend of bank share loss in auto lending. We find that the drop in auto loans originated by banks was particularly significant among subprime borrowers. The impact of the COVID-19 crisis across origination channels contrasts with the experience during the Great Recession when banks contributed the largest support to the auto loan origination segment during periods of stress and finance company-originated auto loans were depressed.

JEL Classification: G01, G21, G23, L62

Suggested Citation

Canals-Cerda, José J. and Lee, Brian Jonghwan, COVID-19 and Auto Loan Origination Trends (August 1, 2021). FRB of Philadelphia Working Paper No. 21-28, Available at SSRN: https://ssrn.com/abstract=3904518 or http://dx.doi.org/10.21799/frbp.wp.2021.28

José J. Canals-Cerda (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Brian Jonghwan Lee

Columbia University - Columbia Business School ( email )

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United States

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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