From a “torrid” auto sales pace to delinquency improvement in the Oil Patch, to perhaps Canada being in better position than its neighbor to handle the clash over trade with the United States, Matt Fabian shared plenty of positive developments stemming from TransUnion Canada’s latest Industry Insights Report.

Fabian, director of research and analysis for TransUnion Canada, began a conversation with Auto Remarketing Canada by highlighting that first-quarter auto loan volumes increased by 3.7 percent year-over-year, driven by an 8.5 percent increase in new auto loan originations.

Meanwhile, delinquency rates in the auto sector — contracts at least 60 days past due — fell by 12 basis points in Q1 to 1.7 percent.

“From our perspective, as the U.S. auto market has softened over the last several quarters we’ve been waiting for that to happen in Canada but it hasn’t,” Fabian said. “The first quarter of 2018 again we saw a record January and February, so there is still a torrid pace in terms of vehicle sales, which has fueled a lot of growth in auto loan volumes. We’ve seen a very active auto space.

"The risk protocols from the different auto lenders and the governance they’ve had have been pretty effective. Despite in the backdrop of a growing economy, growing auto sales and increased consumer debt, we still see fairly good risk behavior,” he continued.

TransUnion reported the average balance carried on their auto loans in Q1 stood at $20,786, a 3.5-percent rise year-over-year.

Oil patch improvement

Spurred by improved economic conditions and the continued recovery in oil prices, TransUnion found that oil producing regions such as Alberta and Saskatchewan are beginning to experience improvement in their respective consumer credit markets.

Fabian explained that improving credit performance in these provinces is arriving nearly four years after the start of rapid oil price declines at the end of 2014. Lower oil prices negatively impacted the local economies heavily tied to the energy industry.

In the summer of 2015, TransUnion published a report that projected credit product delinquencies in these regions to deteriorate at a faster rate than the rest of the country as a result.

Delinquencies did, in fact, rise in both Alberta and Saskatchewan. However, Fabian pointed out that Q1 may have been a turning point since TransUnion spotted the first significant annual decline since 2015.

TransUnion found that serious consumer delinquency rates (90 or more days past due) dropped by 15 basis points in Alberta and 39 basis points in Saskatchewan.

Signs of Recovery: Delinquency Rates Declining in Oil Provinces

Consumer 90+ Day Delinquency Rates Canada Alberta Saskatchewan
 Q1 2018   5.43%  6.50%  6.54%
 Q1 2017  5.71%  6.65%  6.93%
 Q1 2016  5.70%  6.39%  6.53%
 Q1 2015  5.79%  6.15%  6.26%

Source: TransUnion Canada

“We may be seeing the beginning of the consumer rebound in the oil producing regions out west.  Economic conditions have been improving for a few quarters, as employment improves across the country,” Fabian said. “This is particularly good news for consumers in Alberta and Saskatchewan, as they were most negatively impacted by the oil crash from a few years ago.”

TransUnion recapped that oil prices reached $100 (USD) in Q1 2014, according to the U.S. Energy Information Administration, before declining to $48 in Q1 2015 and even further to $35 in Q1 2016. However, oil prices are back on an upswing and reached $63 as of Q1 of this year.

At the same time, Fabian mentioned unemployment levels in both Alberta and Saskatchewan have improved over the last few years. Alberta’s unemployment rate continued a strong downward trend to 6.3 percent in Q1 from 7.9 percent in Q1 of last year while Saskatchewan dipped slightly during that same timeframe — from 6.0 percent to 5.8 percent, according to data from Statistics Canada.

TransUnion also found that consumers in these regions also are limiting their debt exposure.

Analysts found that average non-mortgage debt balance per consumer in Alberta and Saskatchewan grew below the national average in Q1 from the previous year, at 1.9 percent and 2.5 percent respectively. The national average rose 4.5 percent in that same timeframe to $29,181.

“In times of crisis, we often see debt balances on products such as credit cards rise at greater rates, as consumers use credit increasingly to make ends meet. It is therefore a positive sign to see to see the use of credit in the oil provinces actually grow more slowly than the country overall rate,” Fabian said.

“When we compare the oil-producing provinces versus the non-oil-producing provinces, there is still a bit of a gap, but the encouraging thing is the trend,” he continued.

“It’s something we’ve been waiting for as the economy has rebounded,” Fabian went on to say. “It’s going to be a long tail for risk. You usually don’t see a recovery in delinquency happen until several months after. As the economy is coming around, we’re starting to see good signs.”

General credit trends

TransUnion also indicated the first quarter of 2018 was highlighted by continued solid performance by Canadians in most parts of the country.

The number of consumers with access to credit increased by 1.2 percent on an annual basis to close Q1 2018 at 28.6 million. The 90-plus days past due average consumer delinquency rate also dropped on an annual basis by 28 basis points to 5.4 percent in the same timeframe.

Accounts entering collections status also declined by 21 percent to 0.7 million between Q1 2018 and Q1 2017.

The overall risk tier mix of Canadian consumers in TransUnion’s national consumer credit database improved in Q1 2018, with 68 percent of consumers considered prime or better — a 2.2-percent increase over last year. The super prime (lowest risk) segment grew the most with an increase of 76 basis points, while the proportion of subprime (highest risk) consumers in Canada declined by 36 basis points from last year.

“We continue to see strong consumer credit performance over the past year, with apparently limited impact due to the rising interest rate environment. This dynamic is something we will continue to monitor,” Fabian said.

Talking trade

Much has been publicized about the trade discussions involving Prime Minister Justin Trudeau and President Donald Trump, who are both laying out the positions of Canada and the U.S., respectively.

Without delving into the politics of these trade exchanges thus far, Auto Remarketing Canada asked Fabian about the potential implications on dealerships and auto finance companies, depending the severity of tariffs implemented.

“From the auto sector, it could affect productivity and output, depending on what tariffs are put on and how the negotiations go,” Fabian said. From a manufacturing and output perspective, it’s going to effect to impact manufacturers, which could in turn lead to things like layoffs or reduced production. There could be pockets of Canada in the auto producing regions, like Ontario, affected from a broader macroeconomic scale and unemployment.

“It also could lead to higher auto prices based on the tariffs that could affect demand from a dealer and sales perspective. That might be the thing that triggers the slowdown in vehicle sales,” he continued.

“But honestly the biggest hit is going to be on the U.S. There is going to be a serious shortage going into the United States as a result,” Fabian went on to say. “The United States doesn’t necessarily have more capacity to build more vehicles. The prices of vehicles in the U.S. could go up quite radically.

“It's going to affect both sides, but from a Canadian perspective you’re going to see those pockets that have a reliance on manufacturing,” he added. “We might see more stress in those areas. I don’t know if it will manifest itself any more than that, but there is that potential headwind.”