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COVID-19 and Auto Loan Origination Trends

Jose J. Canals-Cerda and Brian Jonghwan Lee ()
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Brian Jonghwan Lee: https://academics.gsb.columbia.edu/phd/people/student-profiles/brian-jonghwan-lee

No 21-28, Working Papers from Federal Reserve Bank of Philadelphia

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.

Keywords: auto loans; loan originations; COVID-19; consumer credit; bank and non-bank finance (search for similar items in EconPapers)
JEL-codes: G01 G21 G23 L62 (search for similar items in EconPapers)
Pages: 37
Date: 2021-08-12
New Economics Papers: this item is included in nep-ban and nep-isf
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DOI: 10.21799/frbp.wp.2021.28

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