Lower inventories, higher prices and reduced demand, among other factors, are central to some of the changing dynamics in the auto finance market, resulting in a rise in auto loan delinquency rates. A new TransUnion (NYSE: TRU) study, “A Critical Eye on Auto Performance,” found that despite an increase in serious auto loan delinquencies, consumers possessing multiple credit products continue to value auto loans nearly as much as mortgages, and much more than their credit cards.
TransUnion’s study observed auto trades that were 60+ days past due, and included vintage performance for all auto loan and lease originations by annual and quarterly cohort. A key observation in the study: the “numerator” (or total number of delinquencies) is above pandemic-level lows, but it’s primarily driven by the backlog of likely delinquencies that were temporarily in accommodation or bolstered by pandemic-related government relief and other stimulus programs.
Another factor contributing to the rise in delinquency rates is that of the shrinking “denominator,” derived from total number of vehicles currently being financed. Causes for this reduction include falling originations in 2020 due to falling demand; a continued decline in originations in 2021 and 2022 due to limited vehicle supply; and an increase in repossessions and payoffs in 2021 and 2022. These factors have led to an imbalance between origination volumes and total account runoff resulting in lower total outstanding account volume.
Point-in-Time Auto Loan Delinquency Rates Q2 2018-2022
Q2 2018
Q2 2019
Q2 2020
Q2 2021
Q2 2022
30+ DPD*
3.20%
3.12%
2.79%
2.43%
3.34%
60+ DPD
1.05%
1.06%
1.31%
1.07%
1.43%
90+ DPD
0.39%
0.41%
0.80%
0.65%
0.79%
*DPD = Days Past Due; Source: TransUnion U.S. consumer credit database
In examining vintage performance as related to delinquency, the study showed that while the Q1-Q3 vintage cohort has generally performed similarly as that of the 2019 cohort, there was a slight deterioration of performance found when comparing Q4 2019 to Q4 2021.
Quarterly Vintage Delinquency of Auto Loans and Leases at 6 months on Book
Year/Quarter
2019
2021
Difference
Q1
1.49%
1.07%
-42 bps*
Q2
1.41%
1.26%
-15 bps
Q3
1.39%
1.43%
+4 bps
Q4
1.11%
1.32%
+ 21 bps
*bps = basis points; Source: Prama @ Vintage Analysis
Consumers continue to value their auto loans
The study also showed that consumers continue to prioritize auto payments just behind mortgages in their payment hierarchy, but well above credit cards, as consumers protected secured products with positive equity position. In addition, elevated vehicle values are providing consumers with positive loan-to-value positions, offering borrowers options in the event of financial stress. This is especially true for pre-2021 vintages, which has helped keep lender losses low.
“As the economic environment continues to evolve, lenders can prepare themselves for an array of possible scenarios so trends can be spotted and decisions made to best manage their portfolios. Enriched data and analytics can help lenders identify areas of existing and emerging risk and opportunity, as well as better understand customers’ behavior by providing a cross-wallet and longitudinal view of their performance,” concluded Merchant.
To learn more about the findings of the study and what can be done to mitigate auto delinquency risks, visit here. More information on how TransUnion CreditVision helps lenders better understand consumer credit behavior can be found here