Casual observers might panic when they see TransUnion’s expectations for 2016 to close with a 7.0 percent year-over-year increase in the 60-day delinquency rate along with that reading set to approach the highest level in eight years by the time 2017 finishes.

However, TransUnion’s Jason Laky is confident that finance companies and close watchers of the auto finance market will examine TransUnion’s 2017 consumer credit market forecast that was released on Wednesday and not only won’t panic, but will use the projections to reinforce portfolio examinations.

“Obviously when you start to see delinquencies go up a little bit, it’s good to be concerned,” Laky told SubPrime Auto Finance News during a phone conversation ahead of the forecast release. “It’s good for every lender to take a look at their portfolio and see if the delinquencies they’re experiencing are in line with expectations.

“Generally, we’ve said for the past few years that lenders are continuing to buy deeper and make more subprime loans,” continued the senior vice president and automotive and consumer lending business leader for TransUnion. “You would expect that as lenders make more subprime loans their portfolios and subsequently the entire industry’s portfolio would experience higher delinquencies.

“It’s a little harder for us to see this part of it but hopefully lenders are making up for it through higher interest rates or higher payments to overcome any delinquencies their getting,” Laky went on to say.

TransUnion indicated that the auto delinquency rate is projected to close 2017 at 1.40 percent, the highest level since 1.59 percent that analysts reported at the end of 2009. TransUnion expects the auto delinquency rate will reach 1.36 percent in Q4 of this year, a 7.0-percent year-over-year increase from 1.27 percent registered in Q4 2015.

“Greater access to auto loans for non-prime consumers suggests that lenders have made deliberate decisions to accept more risk from non-prime loans in their portfolio,” Laky said in a news release that accompanied the TransUnion forecast. “An increase in delinquency is the natural consequence of that strategy.

“If lenders are compensated for the additional risk in the portfolio, a modest increase in delinquency should not disrupt the auto finance market. We do not expect to see a surge in auto delinquency unless there is an economic shock,” he continued.

During our conversation, Laky mentioned that as of the third quarter, TransUnion’s data showed just a 12-basis-point rise in the rates for 60-day delinquencies into the 90-day rate when finance companies move into the charge-off and recovery processes. He explained why a sharp jump in that metric reinforces the general assessment of TransUnion’s forecast.

“One of the things I think lenders learned through the recession is how to better pick who they lend to from a subprime perspective. Lenders have gotten much better at using data and analytics both at origination and through servicing and collections,” Laky said.

“As a result, the most sophisticated lenders can make decisions at origination that flow through into possibly higher delinquencies but then not all the way through to higher charge-offs. They can assess those consumers that it may be they get a little bit late but then they’re likely to catch up,” he continued.

“The strength in the economy certainly helps prevent these delinquencies from rolling through all the way to charge-offs,” Laky went on to say. “When we have a good economy, many of these borrowers, including subprime borrowers, are employed and getting paid on a regular basis. Even though they may have trouble managing their debts on occasion, they still need their cars to get to work. Even if you do get behind a little bit, you do find ways to make things work out to get caught back up on your payments so you’re continuing to get to your jobs and the things you need to support whatever lifestyle you have.”

In Q3 of this year — the latest data TransUnion has available — there were 74.8 million active auto finance accounts. Non-prime customers — individuals with a VantageScore 3.0 of 660 and below — grew 7.5 percent to 25.1 million auto accounts in Q3, up from 23.3 million in Q3 of 2015.

“We’re hitting our stride in terms of employment and wage gains in the economy. We’re adding 100,000 to 200,000 jobs per month and wage gains are at 2 percent to 3 percent per year. Those things are really good. It’s really good for subprime auto lending,” Laky said.

“Even though (new-vehicle sales) might slow down, there’s still a good market for used and a lot of folks who are coming back into the market who are now employed after being in a period of unemployment or shifting jobs into something that’s right for them, they may tend toward used or maybe non-prime or subprime credit. I think there’s still room for growth in subprime,” he went on to say.

As the annual growth rate of new vehicle sales is expected to taper and interest rates are expected to rise, TransUnion expects vehicle sales to still grow, but at a lower rate than experienced in recent years. Analysts added that growth in average auto balance per consumer is expected to slow to levels last observed in 2011.

The average balance is projected to grow at a 2.4 percent rate between year-ends 2015 and 2016, compared to the 3.1 percent growth rate between Q4 2014 and Q4 2015 and 4.0 percent growth between Q4 2013 and Q4 2014. Average auto balances are expected to reach $18,435 in Q4 of this year and $18,840 in Q4 of next year.

“Average auto balance growth began to slow at the beginning of 2016, and we expect this more moderate growth to continue through 2017 if wage growth continues,” Laky said.