Here’s a trick question: What does it mean if auto loan delinquencies are low and remain flat? Has auto lending reached equilibrium?
Probably not, said Peter Turek, automotive vice president in TransUnion’s financial services business unit.
Turek explained that delinquencies are expressed as a percentage of total loans outstanding. That means changing economic cycles exaggerate changes in delinquencies, he said.
In a downturn, more people are late with their payments, and fewer people take out loans. More late payments divided by fewer loans exaggerates the rise in delinquencies. In an upturn the opposite is true. Fewer late payments divided by more loans exaggerates the drop in delinquencies. That’s where the industry has been for the past two years.
In the fourth quarter of 2011, Turek said, delinquencies fell to only 0.46 percent, down from 0.59 percent a year earlier. That was the ninth straight quarter in which delinquencies dropped from the year-earlier comparison, he said.
For the rest of 2012, Turek expects delinquencies to level off.
Normally, the growth in new originations would put downward pressure on delinquencies, but statistically, delinquencies appear to have stopped falling, Turek said. In turn, that could imply the performance of new auto loans is in fact starting to deteriorate, he said.
At least delinquencies haven’t had a statistical uptick, despite a well-documented increase in subprime lending, Turek said. That suggests that so far, lenders have eased, but they’ve done it in a “responsible” way.