This past year will go down as a great one for automakers, in part because they financed fearlessly. Car loans have long been a means to an end—selling more vehicles—but banking has turned into an increasingly lucrative side business as an improving economy helped push late payments to minuscule levels.
The volume of car loans outstanding in the U.S. increased 8.2 percent in 2013 to $866 billion, according to Federal Reserve data. Here’s a look at how that stack of debt has changed over time:
A big chunk of the monthly payments on those loans is going straight to the companies making the cars. Here’s a look at what that kind of borrowing has meant for some of the country’s biggest automakers.
In the first nine months of the year, GM (GM) posted an operating profit of $75 million at its finance unit, good for a 12.5 percent increase over the year-earlier period. Toyota’s (TM) lending unit did even better, squeezing $42 million in profit through three quarters for a 26 percent surge. Meanwhile, Ford (F) car loans inched up 2 percent to $26 million in income this year through October.
At most of these companies, financing accounts for roughly 6 percent of total revenue. Of course, that kind of business-model shift increases credit risk, the last thing carmakers should have to worry about. But at the moment, people signing up for car loans are being diligent about making their payments. Only 1 percent of borrowers last month were more than 50 days delinquent, according to data analyst TransUnion.
What’s more, 27 percent of auto loans in the first half of the year were to subprime borrowers with rusty credit scores, up from 18 percent in 2009. If the car companies don’t make those loans, banks might not either—and those consumers would probably buy clunkers on the resale market.