There might be a lot of callback activity between dealerships and finance companies nowadays since the Dealertrack Credit Availability Index has declined for five months in a row.

Cox Automotive reported this week that the index came in at 92.5 in August, which is 0.5% lower than the July reading. The index also is down 1.7% year-over-year.

But amid all that tightening, the subprime space is a bright spot for getting paper bought.

Senior manager of economic and industry insight Jonathan Gregory offered his perspective in an analysis that accompanied the new index reading.

“The decrease in the index results from shortened loan terms and increased yield spreads, which make auto credit access more challenging for consumers,” Gregory said. “However, the percentage of down payment was flat month over month and had no impact on consumer credit access. Approval rates, the share of subprime loans, and the negative equity share increased slightly, positively impacting consumer credit access.

“In August, credit availability decreased for most types of lenders,” he continued. “Credit unions tightened their lending standards the most month-over-month compared to other types of lenders. On the other hand, finance companies that specialize in auto loans slightly eased their standards and have loosened the most compared to pre-pandemic levels.

“When looking at the trends over the past year, auto-focused finance companies tightened their standards the least, while banks tightened their standards the most,” Gregory went on to say.

Just like what might unfold during those callbacks, Gregory went through some of the numbers that likely played a role in credit continuing to tighten.

The Cox Automotive expert said average yield spread on auto financing booked in August grew by 27 basis points, making the rates consumers received less attractive relative to bond yields.

Gregory pointed out the average rate decreased by 18 basis points in August compared to July, while the five-year U.S. Treasury decreased by 45 basis points, resulting in a larger average observed yield spread.

“Since March of this year, we have observed a 98 basis point decrease in average auto loan rates,” Gregory said.

Meanwhile, Cox Automotive also indicated approval rates dropped 50 basis points in August, resulting in a slide of 3.2 percentage points year-over-year.

All is not bleak, however, as Gregory noted the subprime share increased 20 basis points in August, representing a 1.1 percentage point lift year-over-year.

“This marks the first increase in subprime share since March,” he added.

Whether it’s subprime or in other parts of the credit spectrum, Cox Automotive determined the share of contracts with terms longer than 72 months dropped 60 basis points in August after staying flat for four months in a row. The August reading also was down 1.6 percentage points year-over-year.

Furthermore, negative equity continues to be a challenge to getting financing finalized. Cox Automotive noted the number of contracts booked with negative equity rose for the second straight month. The August climb was 120 basis points.

Cox Automotive added that down payments remained flat in August and are steady versus a year ago.

Each Dealertrack Auto Credit Index tracks shifts in approval rates, subprime share, yield spreads and contract details, including term length, negative equity, and down payments.

The index is baselined to January 2019 to show how credit access shifts over time.

Gregory wrapped up his analysis by touching on various measurements of consumer confidence.

“The Conference Board Consumer Confidence Index increased by 1.4% in August as views of the present and future improved,” Gregory said. “Consumer confidence was down 5.0% year-over-year. Plans to purchase a vehicle in the next six months declined compared to July to the lowest level since February and was lower than August last year.

“According to the sentiment index from the University of Michigan, consumer sentiment increased 2.3% in August compared to July but was down 2.2% year-over-year,” he continued. “The median consumer expectation for inflation in a year declined to 2.8%, which was the lowest level since December 2020. The expectation for inflation in five years was steady at 3.0%. The consumer’s view of buying conditions for vehicles was unchanged from June and at the lowest level since December 2022 as views of interest rates and prices remained very negative.

“The daily index of consumer sentiment from Morning Consult saw further improvement in August, extending a streak of three-monthly gains, but it lost some momentum at month-end,” Gregory went on to say. “The index increased 0.3% for the full month, leaving it up 4.9% year-over-year.”