Subprime auto loan originations near pre-pandemic levels, TransUnion says

Subprime auto loan originations have yet to recover to pre-pandemic levels, according to the latest TransUnion data, though an analyst said they're improving and nearing that point.

TransUnion on Wednesday said second-quarter subprime loan originations rose 32.8 percent from a year earlier but remained slightly down compared with the second quarter of 2019. The credit bureau cited "issues such as affordability and employment challenges" as the cause.

Loan originations in all other credit tiers were "meaningfully over" 2019 levels during the second quarter, Satyan Merchant, senior vice president of auto financial services, told Automotive News.

"So far in 2021, we have seen growth in the auto industry across both originations and balances and at the same time, serious delinquency rates have declined," Merchant said in a statement. "While origination growth rebounded to a healthy level this past quarter, external factors such as the uncertainty surrounding semiconductor chip shortages and supply chain issues will continue to have an impact on new-vehicle inventory and drive up vehicle prices. We anticipate this will impact vehicle sales through the remainder of the year and possibly into 2022 despite growing consumer demand."

Merchant said subprime borrowers saw one of the largest declines in originations during the second quarter of 2020, the first full quarter of the COVID-19 economic slump. Subprime loan growth ran behind other risk segments at the end of 2020 and into the first quarter of 2021. The second-quarter results indicate subprime had "finally kind of gotten back on its feet," he said.

TransUnion's most recent origination data runs a quarter behind other quarterly loan data to avoid the results being skewed by a reporting lag. Merchant said he couldn't yet forecast whether third-quarter subprime loan originations would beat 2019's totals.

He hypothesized its failure to reach this level would be "largely around ... vehicle availability" rather than a lack of appetite for subprime loans among lenders.

Merchant said conversations with subprime lenders reveal "they feel pretty comfortable in their portfolios," and he's seen media reporting of "healthy" subprime securitization. Recent subprime loans also have performed well, Merchant said.

"The credit, I believe, is available," he said.

Overall, borrowers took out 8.2 million auto loans during the second quarter, up 26 percent from a year earlier and up 12 percent from the second quarter of 2019, according to TransUnion. The average balance was $25,607, up 7.4 percent from a year earlier and up 22 percent from 2019.