Auto Loan Delinquencies Continued to Climb in the Last Quarter
The 60-day auto delinquency rate continued to climb through the third quarter of 2017. Driven primarily by “relaxed” underwriting standards from years past and increasing subprime originations, TransUnion’s senior vice president and automotive business head, Brian Landau, said two-month payment lapses rose 7 basis points to 1.4 percent.
At the same time, the average balance of outstanding auto loans increased by around 5.9 percent, resulting in the lowest year-over-year growth rate since the third quarter of 2012. The group’s Industry Insights Report cited this quarter’s serious auto loan delinquency rate as the highest observed since Q3 2009 — you know, when nobody had any money to pay their bills.
New business was also down. Subprime, near-prime and prime loan originations were down almost 6 percent for the third quarter. However, TransUnion explained to Automotive News that the blow was offset slightly by a 3.2 percent increase in prime-plus and super-prime originations.
“Despite fewer originations, there is evidence that more people will be opening auto loans in the near term,” Landau said. “In September, U.S. light-vehicle sales increased for the first time this year on an annual basis. Also, there will likely be several thousand new vehicles purchased as a result of the hurricanes in Florida and Texas.”
Be that as it may, it doesn’t account for the growing number of subprime loans or how many of those are now categorized as “ deep subprime.” It also doesn’t solve the problem of people defaulting on car payments. Increased sales is great for the industry, but doesn’t guarantee individuals will be able to afford those purchases down the line.
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
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Seven basis points (a basis point is 0.01%) is a rounding error; a blip. Hardly headline material. With subprime loans regularly clocking interest at 8+% interest, I don't think anybody's losing sleep over 1.4% delinquencies.
Bubble bubble, toil and trouble. I remember it like yesterday, but it was so so long ago everybody forgot what happens to the economy after "subprime". And way back then....oops! It was less than 10 years ago! Just before it TANKED, people were saying there's no problem at all. We are fine! ;) Seriously, I kid you not!
theres going to be a "correction". always is. i tend to buy stock in "distressed" companies (real, or imagined thanks to the press)and hold until they recover. VW, kobe steel, kroger. not sure a correction will even hurt them much. when it happens, thens the time to double-down on your 401k. i dont think car loans to roaches is going to trigger it. its going to be techy or bitcoiney or an unknown unknown like enron.
Now isn't the time to panic, but this is an indicator. When the average car loan term exceeds the average length of ownership, eventually the negative equity snowball will avalanche and kill us all!