Late car payments top '19 levels, but defaults still down

Editor's note: Equifax provided some of the data cited in this story. The headline on an earlier version of this story incorrectly attributed the data to another company.

Recent reports show more auto borrowers are having difficulty keeping up with loans, but default rates are still below pre-pandemic levels.

that 1.63 percent of auto loans hadn't seen a payment in at least 60 days, up 0.4 percentage point from a year earlier and from the pre-pandemic second quarter of 2019.

TransUnion Senior Vice President Satyan Merchant told Automotive News that "a lot of that increase can be attributed to changes in recent origination patterns."

Borrowers who took out auto loans in the second and third quarters of 2020 are keeping up with them better than pre-pandemic borrowers, according to TransUnion. But auto loans in the second and third quarters of 2021 are starting to show similar delinquency rates as debt from before COVID-19.

"There is slight worsening performance of recent vintages at a risk tier level when we isolate near-prime and above cohorts, and we suspect pandemic score migration may be playing a role," Merchant said in a statement.

He gave the example of a subprime customer whose credit improved in 2020 and was near prime for a 2021 car loan but who now behaves more like a subprime consumer.

Inflation and interest rates can increase delinquencies, but unemployment was likely the metric for the industry to watch, according to Merchant.

Ally's 60-day delinquency rates reached pre-pandemic levels, but CFO Jenn LaClair attributed this result to an Ally policy change rather than consumer behavior.

Credit Acceptance Corp., which has a subprime lending business, told investors it expected to collect 67.1 percent of what it had loaned out in the first half of 2022, down 0.5 percentage point from what it originally projected.

Subprime competitor Westlake Financial saw 3.7 percent of borrowers late on payments by 31 days or more in July, 0.1 percentage point higher than in July 2019, according to Stephens analyst Vincent Caintic. But Westlake's April, May and June 2022 rates were lower than in the pre-pandemic year, Caintic wrote in an Aug. 1 investor note.

Other data indicates borrowers are resolving past due loans.

Equifax found 2.14 percent of auto loans in the first six months of 2022 were more than 120 days behind on payments, according to Cox Automotive Chief Economist Jonathan Smoke, classifying them as in default. However, that was behind the 2.9 percent default rate Equifax reported for the pre-pandemic year of 2019, Smoke said.

Smoke said Cox expected 2022 would ultimately reach a 2.3 percent default rate — "among the lowest levels in the past 15 years."

Historically, about 80 percent of defaults end in repossessions, and the repossession rate also is likely to be lower in 2022 than in 2019, Smoke said. In 2021, 1.1 million vehicles were repossessed — down 32 percent from 2019 levels and down 17 percent from the 2012-21 average, according to Manheim data Smoke cited.

"Due to a very low default rate and a smaller share of defaults turning into repossessions," Smoke said, "the likely repossession rate in 2022 is currently, and will likely remain, very low by historical standards."