Trend good despite higher levels, more nonprime borrowing
Most
states saw delinquency rates below 0.51% in the second quarter, according to
TransUnion research. The highest delinquency rates seen in the states were
Louisiana (0.60%); Mississippi (0.60%); and Oklahoma (0.55%). The top three states in terms of rate
of increase year over year in the second quarter were Delaware (up 45.16%);
Idaho (up 36.84%); and Montana (up 4.175). Highest levels of auto debt--the
level went up nationally--were seen in Texas (average of $15,232 per borrower);
Louisiana ($14,973); and Alabama ($14.960). To access an interactive version of the map above, go to TransUnion's special
web page.
By Steve Cocheo, executive editor
Auto loan delinquency rates hit new
lows for the second quarter in a row in the April-June period, reports
TransUnion.
TransUnion has tracked auto lending
delinquencies--which the company defines as the percentage of borrowers who are
60 or more days past due--since 1999. In the second quarter, delinquencies came
to 0.33%. A year earlier, delinquencies came in at 0.44%, so year over year
there was a 25% drop. In the first quarter of this year, delinquencies stood at
0.36%.
At the same time that borrowers'
performance improved, their level of auto borrowing increased. TransUnion research found that average
auto credit rose almost 6% year over year. In the second quarter of 2012, auto
debt per borrower came to an average of $13,427, versus $12,689 in the second
quarter of 2011.
TransUnion also found that
performance improved even though nonprime borrowers' participation in auto
credit has been growing again, at a rate of 9% in the second quarter versus the
second quarter of 2011. (The company defines nonprime borrowers as those having
VantageScores of less than 700, on a scale of 501-990.)
Reasons behind the numbers
Multiple reasons lay behind the
improved delinquency numbers, according to TransUnion analyses and an ABA BJ interview with Peter Turek,
automotive vice-president in the company's financial services business unit.
"It's not surprising that auto loan
delinquencies remain at record low levels," says Turek. He pointed out that recent
TransUnion research has indicated that consumers today put more value on
their auto loans than they do on their credit cards and mortgages.
"This is partly due to the need for
transportation to get to work or to seek employment in a difficult job market,"
says Turek. However, he also pointed out that a strong used car market has
given borrowers more equity in their vehicles than has traditionally been the
case.
"They feel that they have some skin
in the game now," Turek explains.
Overall, says Turek, "Consumers
want to keep their auto loan relationships in good standing." The trend is a boon
for lenders, he said, as funding rates are extremely low and auto lending is
good business for creditors. More conservative underwriting combines with the
factors already mentioned for a good outlook for lenders, Turek adds.
"It's a very attractive segment
right now to lend in," with average maturities of 39 months, Turek points out.
And a potential bonus for all
concerned will be that when some buyers come to trade in their vehicles for
newer models, "they won't be rolling negative equity into new loans," says
Turek.
Rise of nonprime borrowing
Overall, Turek says the company's
research indicates that both auto dealers and lenders have grown much more
responsible, in the aftermath of the credit crisis, in credit policies and
practices.
Does this, then, mean that there is
cause for concern in the growth of nonprime borrowing for autos?
Turek doesn't think so, pointing
out that even at the higher levels reached in the second quarter, lenders have
not yet reached the levels of nonprime lending seen during the buildup to the
credit crisis. TransUnion
reports that 33.6% of new auto loans were issued to non-prime borrowers in the
second quarter of 2011, and in the second quarter of 2012 that number rose to
36.6% percent.
This is not to say that the nonprime
lending increase will not have any effect.
"With the increase in nonprime
borrowing, we do anticipate that auto loan delinquencies will begin to
increase," Turek says. "We are at such a low auto loan delinquency level--far
from normal standards--that a slight rise through the end of the year should be
expected, though the overall rate will likely remain relatively low."
And then there is the potential
impact on used-car prices of the new models for 2013. Introduction of the new
season's offerings typically softens used card prices somewhat, Turek
acknowledges, and there are an anticipated 25 new choices expected to come out.
TrackBack URI for this entry
Subscribe to this comment's feed