CHICAGO — TransUnion’s annual auto loan forecast calls for auto loan debt to rise to $18,244 at the end of 2015. This would mark 19 consecutive quarters of increases since the first quarter of 2011, when auto loan debt per borrower stood at $14,954.
The TransUnion forecast calls for the national auto loan delinquency rate (the ratio of borrowers 60 or more days past due) to account for 1.20% of open auto loans by the end of this year, and increase slightly to 1.27% at the end of 2015.
“We expect the auto loan market to continue to perform exceptionally well in 2015, with more sales leading to continued increases in auto loan debt per borrower as the national portfolio gets younger on average,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit. “We anticipate the economy to continue to improve next year, with a better employment picture helping the auto industry. While the auto loan delinquency rate has slowly risen to a point where it will be above 2010 levels, we are still far off the peaks observed in 2008 and 2009 when delinquencies were more than 30 basis points higher.”
Since 2007, the auto loan delinquency rate has been as low as 0.86% in second quarter 2012 and as high as 1.59% in fourth quarter 2008. On average, the delinquency rate during the fourth quarter between 2007 and 2013 was 1.29%.
While delinquency levels for subprime borrowers have grown from 4.2% in third quarter 2012 to 4.5% in third quarter 2013 to 5.3% in third quarter 2014, the contribution of this segment to the overall delinquency rate has been muted because their share has remained between 14% and 15% during this timeframe. Subprime share of balances had peaked in 2009 at just over 22%.
Looking further back, TransUnion data show the number of subprime borrower accounts are 1.6 million fewer in third quarter 2014 versus third quarter 2007 (pre-recession). Meanwhile the number of auto loan accounts rose approximately 4 million in that same timeframe.
“The auto loan market has been especially strong for lenders, as much of the growth observed in the last few years has come from prime or better risk tiers,” said Turek. “There is room for growth in the subprime sector as evidenced by more competition. Prior to the recession the percent of subprime auto balances were nearly 5% higher than they are now.”
On a state level, auto loan delinquency rates are expected to rise in 38 states with the largest increases occurring in Rhode Island (+11%), Colorado (+11%), Utah (+9%) and Florida (+7%). The biggest percentage declines are expected in Alaska (-5%), Wyoming (-3%) and Maryland (-2%). Auto loan debt is expected to rise in every state and the District of Columbia, with largest increases occurring in Michigan (+8%), Missouri (+7%), Georgia (+6%) and Arizona (+6%).
TransUnion’s forecasts are based on various economic assumptions, such as gross state product, consumer sentiment, unemployment rates and real estate values. The forecasts would change if there were unanticipated shocks to the economy, such as if home prices unexpectedly fall. Better-than-expected improvements in the economy, such as precipitous drops in unemployment, could also impact these forecasts.