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Employment trends in your area can directly impact the performance of Buy Here Pay Here (BHPH) auto loan portfolios. Here's what you need to know:
Understanding these factors helps lenders manage risk and maintain portfolio stability. Let’s dive deeper into how employment trends shape loan performance.
We based our analysis on three key programs from the Bureau of Labor Statistics (BLS):
This employment data was combined with anonymized records from BHPH portfolios, including payment histories, default rates, and recovery outcomes. Together, these datasets form the backbone of our regional analysis.
We divided regions into four categories:
| Region Type | States Included | Industry Profile | Portfolio Size |
|---|---|---|---|
| Government-dominated | DC, VA, MD | Federal employment >25% | 22,500 loans |
| Manufacturing-heavy | MI, OH, IN | Manufacturing >20% | 45,000 loans |
| Service-oriented | FL, NV, AZ | Service sector >70% | 42,500 loans |
| Energy-dependent | TX, LA, OK | Energy sector >15% | 40,000 loans |
The study covered multiple market cycles, capturing both growth and downturn periods. We applied rigorous statistical techniques to analyze regional variations.
We used three main techniques to conduct our analysis:
Previous studies indicate that states in the South and along the Atlantic coast tend to have higher delinquency rates.
A mix of industries can help regions recover faster from economic shocks. For instance, research using data from Oregon showed that the Portland Metropolitan Area (PMA), with its varied economy, bounced back more quickly than areas dependent on a single industry.
Consistent workforce participation and steady job growth contribute to stronger portfolio performance. These patterns emphasize the need to analyze regional employment trends when assessing portfolio risks. Stability in employment often ties directly to consistent income levels within communities.
Communities with steady income levels tend to support more reliable borrower payment behavior. In contrast, areas with frequent income fluctuations may pose higher risks for portfolio health.
Industries like tourism, agriculture, and construction often experience regular seasonal changes. These predictable shifts require specific risk management strategies. Unlike broader market diversity, these seasonal patterns can further reduce portfolio risks when properly addressed.
Employment data highlights a strong link between diverse regional job markets and stable BHPH portfolio performance. Metropolitan areas with varied industries not only experience steadier household incomes but also show improved loan outcomes. Higher median household incomes and above-average FICO scores are associated with lower delinquency rates, showcasing the advantages of economic diversity. On the flip side, regions reliant on a limited number of industries face specific financial vulnerabilities.
Regions dependent on a single industry are more prone to employment instability, which directly impacts auto loan performance. This issue is particularly noticeable in nonmetropolitan areas where alternative job opportunities are scarce.
Take a look at these regional differences from Q3 2021:
| State/Region | 30+ Days Past Due | 60+ Days Past Due | 90+ Days Past Due | Average FICO Score |
|---|---|---|---|---|
| Mississippi | 15.1% | 8.7% | 6.2% | 681 |
| Washington, D.C. | 23.4% | 14.7% | 11.3% | 717 |
These numbers illustrate how single-industry regions face higher risks compared to areas with more diversified economies.
Southern and Atlantic coastal states report higher delinquency rates. By December 2021, new car prices had jumped by $6,220, reaching $47,077. This price increase, combined with regional employment trends, highlights the importance of market diversity when assessing financial risks.
States with limited industry variety and higher poverty rates - such as Louisiana, Mississippi, Alabama, Texas, and the Carolinas - tend to have higher delinquency rates. These areas also struggle with lower median household incomes and poverty levels above the national average.
The tools below use regional employment data to help shape more focused portfolio management strategies.
This system measures regional employment diversity by using the Chmura Economic Diversity Index. A score of 0.00 serves as the baseline for the U.S., with higher values indicating a greater concentration of risk. To assess regional portfolio risk, lenders analyze several factors: economic diversity scores at the county and MSA levels, employment sector concentration, local unemployment rates, and the stability of median household income. These metrics tie back to earlier findings on how regional employment trends influence portfolio performance.
Risk assessment extends beyond credit scores by factoring in both individual and regional characteristics. Important elements include employment tenure, industry stability, regional diversity scores, and the variety of income sources. Predictive analytics also play a role in spotting potential risks early. This method reinforces earlier insights, showing the importance of regional employment trends in evaluating credit risk. These guidelines support the creation of a more resilient portfolio strategy.
Distributing portfolios across different regions helps limit the impact of localized employment disruptions. Regular stress testing under various employment scenarios can also reveal potential weaknesses, ensuring better preparedness.
The diversity of regional employment plays a major role in how BHPH portfolios perform. Portfolios concentrated in single-industry regions face greater risks during economic downturns, underscoring the importance of spreading exposure across different geographic areas.
To stay ahead of potential risks, keep an eye on these key indicators:
These metrics act as early warning signs, helping to guide portfolio adjustments when necessary.
To address these findings and reduce risks, portfolio managers should:
Regular stress tests and close tracking of regional economic trends will help maintain portfolio stability. Using these insights consistently ensures a proactive approach to managing risks effectively.
More than a decade of Ivan's career has been dedicated to Finance, Banking and Digital Solutions. From these three areas, the idea of a fintech solution called Debepxert was born. He started his career in Big Four consulting and continued in the industry, working as a CFO for publicly traded and digital companies. Ivan came into the debt industry in 2019, when company Debexpert started its first operations. Over the past few years the company, following his lead, has become a technological leader in the US, opened its offices in 10 countries and achieved a record level of sales - 700 debt portfolios per year.
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