Q1 average amount financed at origination tops $30K
Along with deeper analysis into delinquencies, TransUnion’s director of research and analysis in Canada Jason Wang shared exclusive data with Auto Remarketing Canada that pinpointed the swift upward trajectory consumers are taking with regard to how much auto finance debt is now on their individual balance sheets.
Viewed one quarter in arrears to ensure all accounts are reported and included in the data, TransUnion determined the average amount being financed in the first quarter reached the highest level since the firm began tracking this metric. Wang told Auto Remarketing Canada the reading hit $30,105 in Q1.
Going back two years, Wang calculated the cumulative annual growth rate for the average amount at origination to be 5.9 percent. The growth path has been even steeper since the second quarter of last year when Wang pegged the average at $27,458.
“That’s quite a lot. This definitely supports our conclusion that consumers are putting more amounts on their loans,” Wang said.
Wang explained that more seasoned contracts in finance company portfolios are the reason the overall average amount still outstanding that TransUnion reported for Q2 wasn’t higher. Analysts put the Q2 average balance at $19,896, which represented a 3.2 percent increase year-over-year.
“In time, the new loans that come in will take a bigger presence,” Wang said about the prospects for that overall average balance to top $20,000 relatively soon.
Meanwhile, when looking at how Canadian consumers are staying current on their contracts, Wang described how delinquencies really are “two stories.” First, here’s the introduction.
Wang’s exclusive data indicated the overall 60-day delinquency rate in Canada came in at 1.37 percent in Q2, just 3 basis points higher than a year earlier and 6 basis points lower on a sequential comparison.
Where the tale of two stories regarding delinquency arrives is when Wang broke out the 60-day delinquency rates by major province. TransUnion’s latest data is as follows:
—Quebec: 0.91 percent
—Ontario: 1.00 percent
—British Columbia: 1.53 percent
—Alberta: 2.87 percent
—Saskatchewan: 2.97 percent
“It’s very hard to define what is normal, particularly when you look at the story in Canada. There isn’t a one, unified story. It’s two stories,” Wang said. “There’s what’s going on within the oil patch and what’s happening outside of the oil patch. We really can’t say what is normal.”
And Wang also pointed out that these two stories aren’t necessarily breaking ones that developed this past quarter. Going back to the beginning of 2014 when energy prices were more robust, Wang noted that TransUnion data had Alberta’s 60-day delinquency rate at 1.86 percent and Saskatchewan’s at 2.23 percent. At that point, the nearest rate was British Columbia’s, but it was still 43 basis points lower.
“When you look at when oil prices were high, the delinquencies were higher than the rest of the country already,” Wang said about the rates for Alberta and Saskatchewan. “What’s more important than the level is the trajectory. Unfortunately they’re not showing a healthy trajectory.
“In Q2 to Q1, it seems the upward slope has slowed down a little bit,” he continued. “I certainly hope that we’ll see the delinquency increases slow down and maybe come back a little bit. At this point, they are so much higher than the rest of the country that I think the industry just like us are a little concerned.”
To explain why the situations in Ontario and British Columbia are so much more stable, Wang cited information from Statistics Canada to back up his reasoning.
“The major headwind that the Canadian economy is facing today is the lower oil price, and it’s not a surprise,” Wang said. “If you look at the presence of the oil industry in the provincial GDP numbers, in 2015, the most recent annual data point, 28 percent of Alberta’s GDP is directly related to oil and gas extraction. In other words, more than a quarter of that province’s GDP comes out of oil. Of course there are a lot of indirectly related industries that support that, which is why with the lower oil prices we see challenges in Alberta.
“That is not the case for Ontario or British Columbia. There is almost no oil extraction activities in Ontario. And there’s 3 percent in British Columbia. And you could even argue that 3 percent is like nonexistent,” he continued.
So what is pushing Ontario and British Columbia?
“When it comes to what’s happening in Ontario, the biggest industry is service, and that counts for 77 percent,” Wang replied. “When you look at what’s going on in Toronto in particular, there’s a heavy presence of the brain industry — for example banking and consulting. These industries are energy neutral. It doesn’t really matter if the oil price is high or low. The oil price generally doesn’t not affect the service industry.
“When you go beyond Toronto, there’s manufacturing, which accounts for 13 percent of Ontario’s GDP. Manufacturing is an energy consumer, so what that means is the lower energy price actually becomes good news for the manufacturers because it means lower costs for them. Manufacturers also need to export their product and they’re benefitting from the lower Canadian dollar that resulted from the lower oil price. In a way, Ontario is really benefitting from the lower oil price,” he continued.
“When we go to British Columbia, about three-quarters of that province’s GDP is from the service industry. When we look outside of the service industry there’s 7 percent in manufacturing and 8 percent in construction. Again these are energy consumers,” Wang went on to say.
“Ontario and B.C. have very different business models,” he concluded.