Morgan Stanley elected to address the quality of credit inside the auto-loan market Thursday morning.
The bank's proprietary index, Auto Credit Quality index (ACQ), fell 3.5 percent month over month in July. This improvement in quality is driving improvements in the MS Auto Credit Availability index.
Morgan Stanley Auto Credit Quality Index
(Click to Enlarge)
Wording from Morgan Stanley analysts lean towards the bullish side of the data, though clearly a bit of worry was not able to be removed as the bank notes that the June 2014 reading is "already back to pre-crisis levels."
The reason things may be "different this time" could be the very low ABS 60+ Day Delinquency Ratio for all the major U.S. auto finance companies. This could be contributing to the nearly two percent move in Honda Motor (NYSE: HMC), General Motors' (NYSE: GM) roughly 20 basis point move and Toyota Motors' (NYSE: TM) roughly 25 basis point move during Thursday's trading session.
Lastly, the Auto Loan-to-Value percentage has slowly climbed back to pre-crisis levels over the past three years. This has been aided by an overly depressed Auto Loan Interest Rate.
Morgan Stanley said:
"We suspect part of the improvement in loan approval rates is that lenders have demanded more money down as a prerequisite for loan approval. As of June, average auto Loan-to-Value stood at 92.2%, well above the 85.6% trough in 2009, but also well below the peak of 95.6% seen in July 2006."
The data from Morgan Stanley shows that lenders have been much more selective of who they lend to and also have been demanding higher down payments from borrowers. The secondary used-car market has also helped manage auto-loan levels, thanks to continued strength in prices.
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