A double-digit rise year-over-year in what TransUnion classifies as serious delinquencies above a level not seen in five years might prompt pessimistic auto finance observers and executives to reduce originations immediately and turn up the intensity in collections in hopes of keeping as many installment contracts current as possible.

When SubPrime Auto Finance News spoke with TransUnion’s Jason Laky on Wednesday morning soon after the credit bureau released its Q1 2016 Industry Insights Report, the senior vice president and automotive and consumer lending business leader for TransUnion did not look at the data with alarm. Rather, Laky focused on what he sees as the two primary drivers of increasing delinquencies — one of which he said is more pronounced than the other.

First, here are the numbers TransUnion shared.

Serious delinquency on auto loans (60 or more days past due) hit 1.12 percent in Q1 2016, the first time it has topped 1 percent in the first quarter since 2011. The delinquency level moved up by 13.1 percent year-over-year as the reading stood at 0.99 percent in Q1 2015.

Despite the yearly increase, Laky and TransUnion pointed out the delinquency rate remains below the level observed in Q1 2010, when it reached 1.21 percent.

“As we mentioned in the last quarter, there’s increase in delinquencies that’s occurring in the more energy-dependent states that we believe is the result of the oil-price decline and the impact that’s had on energy related services and industries,” Laky said about metrics in places such as North Dakota, Oklahoma and Texas.

“Folks who are involved and related to that are experiencing an economic shock, and delinquencies are up for lenders that are servicing customers in those areas,” he continued.

Development within energy states are “a small part of the story,” according to Laky, who elaborated further about how more paper attached to non-prime and subprime customers is going to generate a natural lift in delinquency.

“We’ve been tracking for years on how lenders are expanding their credit to non-prime and subprime consumers as the economy has gotten better and the lenders have gotten healthier and lending again to subprime consumers,” Laky said. “When you do that, you should naturally expect that the overall delinquency level for all consumers is going to go up, reflecting the change in mixture to add more subprime consumers.

“That’s why when you look back coming out of the recession, delinquency was higher than it is now,” he continued. “It went to a very low level because lenders pulled away from subprime lending. As their portfolios healed to reflect that, delinquencies were down below 1 percent. Each quarter as we’ve seen more lending into non-prime and subprime consumers, delinquencies are increasing slowly and past the 1 percent threshold again.”

In Q1 2016, TransUnion reported that 76.37 million consumers had an auto loan, an increase of 5 million from the first quarter of 2015. The number of consumers with an auto loan grew 7.1 percent from 71.29 million in Q1 2015.

“What we can say is for a consumer, their auto loan and car is a necessity in their lives,” Laky said. “Very few consumers live within walking distance or with easy public transit to everything they want to do, and not just for work but also their lives outside of work. As a result, most every adult consumer needs a car.

“For these more than 75 million consumers who have an auto loan, we haven’t seen change in that payment level very much in the past several years. So the idea of a particular payment for a particular consumer, it’s a necessity and part of their budget. We see it with the low delinquency levels in auto loans relative to other financing products. Again, it’s a core component of the consumer’s lifestyle. As a result, the loan payment is an important part of their wallet.”

Viewed one quarter in arrears to ensure all accounts are reported and included in the data, TransUnion also mentioned in its latest report that auto loan originations grew 5.4 percent year-over-year to 6.51 million in Q4 2015, up from 6.17 million in Q4 2014. The average new account balance (reported one quarter in arrears) reached $20,469 in Q4 2015, its highest level since the recession. The average new account balance increased 2.9 percent from $19,890 at year-end 2014.

“Conditions are very favorable right now for lending, being that the cost of funds still remains low,” Laky said. “There’s a strong consumer demand for loans and demand from consumers who are in good financial shape because we’re seeing continued employment growth and we’re seeing wage growth begin to catch up.

“That combination with consumer confidence makes for a consumer that wants to borrow. With economic conditions favoring lenders lending, as a result many are interested in growing their portfolio right now,” he added.