Fewer late payments point to easy car loans in 2014

The American Bankers Association says delinquencies of 30-plus days on indirect auto loans, the kind originated at dealerships, were 1.64 percent in the third quarter of 2013, down from 2.08 percent a year earlier.
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Auto loan delinquencies should stay relatively low in 2014, a banking industry economist says. That's a good indication that lenders will keep credit widely available this year, including for customers with subprime credit.

Auto delinquencies are bound to start increasing but not right away and maybe not even in 2014, says Keith Leggett, senior economist at the American Bankers Association in Washington.

"We are getting close to an inflection point," Leggett told Automotive News last week. "Direct and indirect loans are near cyclical lows with regard to delinquency. We anticipate they will go up, but I'm not saying it will be next quarter or even the next two or three quarters."

Meanwhile, Manheim reported last week that used-vehicle prices are expected to remain strong in 2014 despite a slight decline in fourth quarter 2013 vs. the 2012 quarter.

Manheim chief economist Tom Webb said in a briefing that used-vehicle prices are holding up better than expected despite higher volumes. He said restraint in new-vehicle incentives and growth in certified pre-owned sales helped support used-vehicle values.

Strong used-vehicle prices help reduce auto loan delinquencies, analysts say, because in some cases customers who are behind on their payments can sell their car and pay off their loan instead of defaulting.

But a combination of factors will add up to higher delinquencies eventually, Leggett said. The mix of subprime borrowers is increasing, and lenders continue to relax approval standards, he said.

In addition, compared with prime-risk loans, it's still relatively early in the comeback for subprime loans -- especially deep subprime loans. Based on past experience, delinquencies are likely to increase as those loans age, Leggett said.

But on average, delinquencies declined in the third quarter of 2013, the latest quarter for which detailed statistics are available. The American Bankers Association said last week delinquencies of 30-plus days on indirect auto loans, the kind originated at dealerships, were 1.64 percent, down from 2.08 percent a year earlier.

For the time being, longer average loan terms help offset bigger amounts financed, Leggett said.

"What's occurring here is borrowers are saying, 'I can afford this amount of monthly payment' and they are structuring the deal to meet their needs," he said.

According to Experian Automotive, the average new-vehicle loan term in the third quarter was 65 months, up from 64 a year earlier. The average new-car payment was up $6 to $458. Meanwhile, the average amount financed was $26,719 for new vehicles, up about $750 from the third quarter of 2012. Low interest rates also helped, at 4.27 percent for the average new car, down from 4.53 percent a year ago, Experian said.

You can reach Jim Henry at autonews@crain.com.

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