An increase in delinquencies among subprime borrowers has been the primary driver behind a rise in the national auto loan delinquency rate.
According to TransUnion, that rate, which is the percentage of accounts that are 60 or more days past due, increased slightly year over year from 0.82% in the first quarter 2012 to 0.88% in the first quarter of 2013.
A rise in delinquencies for subprime borrowers from 5.09% in Q1 2012 to 5.50% in Q1 2013 was a primary driver of the increase, data from TransUnion’s Industry Insights Report showed.
Still, while delinquencies are up, on a quarter-over-quarter basis, the 60 or more days past due auto loan delinquency rate experienced a seasonal 12-basis point drop from 1% in Q4 2012, according to TransUnion. Subprime borrower accounts also saw a quarterly decline from 6.02% at the end of 2012.
TransUnion has been monitoring the auto loan landscape closely for some time to see if increased subprime lending would start pushing delinquency rates up, said Peter Turek, vice president of automotive for TransUnion.
“We found that while subprime borrowers are receiving more auto loans, the percentage of these loans to all auto loans made remains the same as last year so there has not been a dramatic effect to the overall delinquency rate,” Turek noted.
TransUnion’s analysis also found that subprime borrowers in Q1 2013 made up 15% of all auto loan accounts. This was the same percentage as Q1 2012, and a much smaller percentage than what has been observed in the last few years.
In contrast, auto loan account balances in the subprime category have experienced a rise of 6.6% from $11,266 in Q1 2012 to $12,006 in Q1 2013. In the past two years, balances for subprime consumers have increased more than 11%, according to TransUnion.
While the auto loan market has been performing exceptionally well the last few years, there is some concern about the subprime market, Turek cautioned.
“On one hand, subprime borrowers make up a smaller percentage of the overall market and their delinquency rates are actually the same as they were two years ago,” Turek explained. “However, their account balances have risen more than $1,200 in that same period placing more of an economic burden on lenders if they were to go delinquent.”
For credit unions and other lenders, it means as the sheer number of delinquent consumers rise, they will need to stay focused on managing their portfolios, Turek offered.
“The increase in the number of auto loans points to the general view that the auto finance market is performing quite well,” he added. “Although the current delinquency percentage is lower than 2009 there are 82.7% more subprime loans originated now than in 2009.”
The average auto loan account balances for the entire population, while increasing for eight consecutive quarters, only rose 4% on a year-over-year basis from $12,755 in Q1 2012 to $13,260 in Q1 2013, according to TransUnion. The increase is 8% in the last two years.
TransUnion surveyed credit unions at the CUNA Governmental Affairs Conference held in Washington in February and found that most respondents saw auto loans as the biggest opportunity to grow their loan portfolios.