Auto loan delinquency rate surpasses recession-era highs

Auto loan delinquency exceeded recession-era highs in the first quarter of this year, a TransUnion/S&P Global Mobility AutoCreditInsights report released on Tuesday found.

Loans more than 60 days past due reached 1.69 percent in the first three months of 2023. That tops recession-era highs of about 1.46 percent in 2009 and 2010, and the 1.43 percent recorded in the first quarter of 2022.

The spike is mostly contained within the subprime tier, with independent lenders focused on subprime loans for used-vehicle purchases most feeling the squeeze, according to the report.

Inflation and high interest rates may be partly to blame for the increase, the report said.

"The interest rate rise is squeezing the monthly budget for the average American consumer," Jill Louden, product management associate director for S&P Global Mobility, said in a statement. "Consumers set aside money monthly for housing, vehicles, and insurance, but may not pay other obligations with the same frequency, such as medical bills and credit cards. People need their vehicles to get to work to make money and pay their obligations."

The pandemic saw many lenders retreat from the subprime tier, which made up just 12.3 percent of account volume in the first quarter of 2021 and 12.9 percent in the first quarter of 2022, before recovering to 14.2 percent for the first three months of this year. Subprime volumes hovered around 15 percent before the pandemic.

The report indicates that the high delinquency rate has encouraged captive finance companies, banks, credit unions and independent lenders to tighten underwriting standards. Combined with high interest rates and lower used-car inventories, this has led to a decrease in loan originations. There were 15.3 percent fewer originations in the fourth quarter of 2022 than in the same quarter of 2019, according to the report.

But it's not all bad news when it comes to auto loans.

Vintage performance, which measures how an account performs over a certain period after the loan is originated, shows relative strength in the new-vehicle segment. Recent vintage performance levels are at pre-pandemic lows, performing better than pre-pandemic portfolios at the same age, according to the report.

"We continue to pay close attention to delinquencies, while seeing positive signs among vintage data," said Satyan Merchant, senior vice president and automotive business leader at TransUnion.

On the used-vehicle side, the first half of 2022 saw vintage delinquency rates for five to 10 months from origination elevated above prior years. In the second half of the year, rates fell back toward pre-pandemic levels, the report found.