Delinquencies, defaults up slightly

Delinquencies on auto loans and charge-offs for bad loans are still quite low. But a trio of the biggest banks in auto lending showed a slight uptick in either delinquencies, charge-offs or both when they released quarterly earnings this month.

Some analysts had predicted delinquencies were bound to bottom out soon as auto lenders made more subprime loans and competition forced the lenders to loosen standards. It could be too soon to tell whether delinquencies and defaults are broadly increasing.

Still, any upticks in delinquencies and charge-offs were considerably smaller than the rise in automotive lending at the three banks: Wells Fargo, Chase and Capital One.

From a dealership point of view, slightly higher delinquencies and defaults are probably good news. Looser standards mean that it's easier to get customers financed. In the long run, though, higher delinquencies could encourage lenders to tighten the screws on auto loans again.

That time is still a long way off, said Amy Crews Cutts, chief economist for credit bureau Equifax in Atlanta.

"I do not expect higher defaults over the next two years at least" other than traditional seasonal increases, she said in an e-mail this month. She pointed out that growth in subprime auto loans has mostly been at the top end of subprime, a level at which customers are less apt to default.

In addition, she expects employment gains to accelerate. "As they do, car purchases and loan originations will increase as well," she said.

Some of the biggest banks in auto lending are making up for a slight increase in delinquencies or defaults with much bigger volumes in auto lending, based on early third-quarter financial results.

Wells Fargo said its auto-loan originations were $6.3 billion for the quarter, up 20 percent from a year earlier. Delinquencies of 30 days or more on indirect auto loans were 1.4 percent of the total, up from 1.3 percent a year earlier, the bank said. Charge-offs were 0.5 percent, down from 0.7 percent.

According to Experian Automotive, Wells Fargo was the second-biggest U.S. auto lender in the second quarter after Ally Financial. Wells Fargo was No. 1 in used-vehicle financing.

Chase's auto lending unit, Chase Auto Finance, reported its auto-loan originations were about $6.3 billion in the third quarter, up about 7 percent from a year earlier. Delinquencies of 30 days or more rose to 1.1 percent of the total from 1.0 percent a year earlier. Charge-offs rose 106 percent to 0.7 percent. Chase was the No. 4 lender overall in the second quarter, Experian Automotive said.

Capital One, the No. 5 U.S. auto lender in the second quarter, according to Experian, said its auto-loan originations were $3.9 billion, up 15 percent from a year ago. Delinquencies of 30 days or more fell 3 percent in the quarter, to 6.1 percent from 6.3 percent a year ago. Charge-offs rose to 1.8 percent, from 1.7 percent a year ago.