CHICAGO — TransUnion projected the ratio of auto loan borrowers
60 or more days past due will remain near record-low levels throughout next
year as the amount of vehicle debt per consumer will continue its uptrend in
2013.

Analysts predicted the average amount of auto financing will
jump the expected fourth-quarter amount of $13,689 to $14,133 at the end of
2013, a trend they believe is a sign that auto financing will continue to grow
as new- and used-car sales increase.

The firm acknowledged the national auto loan delinquency
rate is expected to rise slightly from 0.36 percent at the end of this year to
0.37 percent in Q4 of next year. However, the level has dropped more than 50
percent since reaching its peak in Q4 of 2008 at 0.86 percent.

"It's interesting that since the end of the recession, we've
seen delinquency go down but we've seen the percentage of loans to nonprime
borrowers go up, yet we really haven't seen that impact on the delinquency
rate," Peter Turek, automotive vice president in TransUnion's financial
services business unit told SubPrime Auto Finance News this week. "That's a
good thing for nonprime borrowers and the consumers that are taking out those
loans.

"The national auto loan delinquency rate should stay
relatively low throughout 2013 as the economy continues to improve," Turek
continued.  "Macroeconomic factors such
as the improving unemployment rate, median household income and housing prices
are some of the primary drivers that lead us to a favorable forecast." 

TransUnion indicated that 17 states are expected to see
delinquencies drop or remain the same during 2013.  However, 21 of the states are forecasted to
experience auto loan delinquency increases of only 1 or 2 basis points.

The largest yearly percentage auto delinquency declines are
expected in Georgia (down 13.04 percent), California (down 7.50 percent) and
Alaska (down 5.56 percent). The largest percentage increases are expected in
Hawaii (up 17.24 percent), Virginia (up 11.54 percent) and Nevada (11.11
percent).

The projection for the Golden State is what caught Turek's
attention most.

"You look at California; it's a state one of the larger auto
states. There's a lot of sales and lending that goes on in California based on
its population," Turek said. "Their delinquency rate is forecasted at 0.37
percent, which is where we're predicting 2013 to end.

"If you go back at look at our data for California back to
2005, California has never been near the national average for 60-day
delinquency. California has always been slightly higher. Next year, I think is
going be the first time in nine years it might go below the national average,"
Turek went on to say.

As Turek mentioned previously, the low auto loan delinquency
environment has persisted even as more nonprime, higher-risk consumers carry
auto loan balances. 

In Q3 of last year, TransUnion's Industry Insights database
found approximately 19.97 million borrowers with a VantageScore credit score
lower than 700 (on a scale of 501–990) carried auto loan balances.  This number increased to 20.66 million in the
third quarter of this year.

"It's a real sign that the automobile market is on solid
footing that even with more nonprime consumers carrying auto loan balances,
we've continued to maintain a low national auto loan delinquency rate," Turek said.

"We believe this is happening partly because consumers are
now valuing their auto loans even more than their credit card and mortgage
loans; also lenders and dealers are putting even more emphasis on placing
buyers in vehicles and loans that best fit their financial situation," he
continued.

The total number of consumers carrying auto loan balances
also has increased in the last year, rising from 59.27 million in Q3 of 2011 to
61.68 million in Q3 of 2012. With this rise, auto loan debt per borrower jumped
from $12,902 to $13,571 in those same periods.

If TransUnion's 2013 forecast holds true, auto loan debt
will have increased 11 straight quarters since Q1 2011. In the 11 quarters
prior to Q1 2011, auto loan debt experienced only three quarterly
increases.  

"There are lot of measurements and factors that indicate
directionally where the market is going," Turek said. "I don't think there's
any single metric that you can point to and say that's good, or not so good. I
think the combination of the delinquency rate and the consumers' willingness to
take on debt points to two factors, capacity or willingness to pay and the confidence
or willingness to take on new debt.

TransUnion's forecast is based on various economic
assumptions, such as unemployment rates, consumer sentiment, disposable income
and interest rates. The forecast changes as the economy deviates from a
conservative economic forecast or if there are unanticipated shocks to the
economy affecting recovery.

Beyond those indicators, Turek pointed toward another
element that's aiding auto lending.

"The Federal Reserve has signaled they're going to keep rates
low for another two years," Turek said. "Those factors have created an
environment where more competition has returned to the market. Any time you
have low delinquency, low interest rates and competition, it really turns out
well for a lot of the stakeholders in the auto segment, namely lenders, dealers
and consumers."

Turek wrapped up his comments to SubPrime Auto Finance News
by reflecting back on not only 2012 but the time before and after the most recent
recession.

"When you look at the data, certainly the industry seems like
it has learned its lesson," Turek said. "Even though some terms are increasing,
they're not approaching pre-recession levels. Even though debt is increasing,
you're not seeing anything crazy. We're in a different part of the cycle right
now, but it seems like dealers and lenders are continuing to work together to
not put consumers in an unfavorable position where they a piece of collateral
that's not reliable or a loan that they can't afford.

"I think it reflects the positive growth for auto sales and
the related auto financing," he concluded.


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