A spike in subprime auto originations in 2018 had auto analysts concerned about higher delinquencies down the road. But as auto lenders lean on alternative data and trend data, and maintain tight underwriting standards, those losses haven't materialized in 2019.
While U.S. auto loan debt is growing, serious delinquency rates remain within normal range, suggesting a pressured yet healthy retail market, according to TransUnion's Industry Insights Report. To maintain healthy auto loan portfolios, lenders should consider using all available data to ensure healthy loan-to-value ratios on deals.
Over the past nine quarters, auto payments 60 days past due remained within a 10-basis-point range. The rate, 1.4 percent, is up 4 basis points from the third quarter of 2018 but flat from the third quarter of 2017, according to the report.
Satyan Merchant, senior vice president and automotive business leader at TransUnion, says delinquency levels will remain low, despite rising vehicle transaction prices and mounting nationwide auto debt, so long as auto lenders remain disciplined.
"There's value in using ... alternative and trend data. At other risk tiers, in particular prime and near-prime risk tiers, [lenders] are not considering all available information when they're making credit decisions," Merchant says.
Auto loan debt is still climbing, but not at the clip of previous years. The reason? Fewer auto transactions at higher loan levels, TransUnion says. The rise in outstanding auto loans — they now total 83.4 million, TransUnion says — could also mean that customers aren't paying them back as quickly as they did in previous quarters. Auto loan growth slowed to 3.5 percent year over year in the third quarter, down from 5.2 percent in the third quarter of 2018. Average debt per borrower also grew, inching up 1.6 percent to $19,145.
Vehicle sales in the U.S. have slowed, but auto debt continues to climb. To keep customer credit healthy, and avoid an uptick in delinquencies, lenders should look at consumer credit trend data and alternative data to ensure they are pricing deals as accurately as possible.
