SubPrime Auto Finance News put Brian Landau on the spot a bit after TransUnion released its latest auto-finance data. The senior vice president and automotive business leader pondered the question about which of these milestones might happen first. Will the market surpass 100 million outstanding vehicle leases and installment contracts, or will the average auto debt per consumer surpass $20,000?

During a phone conversation this week, Landau divulged that the number of consumers already currently holding some form of auto financing is approaching 90 million, which is up from the 82.2 million that TransUnion officially reported as of the close of the first quarter. Landau explained that metric moving higher is “heavily reliant on just the growth of the population. The market is fairly saturated. Every household has at least one car today. I don’t expect that to grow any faster than the rate of population, to be honest.”

With those thoughts in mind, Landau suspects that the average amount of auto debt consumers are carrying could surpass $20,000; perhaps in the not too distant future, since TransUnion pinpointed the average figure at $18,845 as of the close of Q1.

“I will say that there are some drivers in place now to grow the average transaction price; the shift to SUVs from sedans and SUVs typically have a larger price tag,” Landau said. “In addition, people are looking at vehicles as an extension of the Internet-of-Things (IoT), connecting to their phones and other electronics. That’s going to add a higher and heftier price tag to the purchase.”

TransUnion reported that auto originations grew 1.7% in Q4 2018 and have grown year-over-year in each of the past four quarters, reversing the negative trend caused by the pullback in the market the second half of 2016 and full-year 2017. Landau pointed out that super prime and subprime borrowers led this growth, with Q4 2018 year-over-year increases of 5.2% and 4.4%, respectively.

“When we look at origination growth in those two segments (super prime and prime), they’ve been pretty consistent,” Landau said. “There has been positive growth for some time now, even during the pullback. My perspective is that as the lenders in the market were being cautious during the pullback period, there was a flight to safety to those segments of the market. Low delinquency and the need to grow the book profitably have driven a lot of the growth on that end of the spectrum. I’m not surprised. That’s been consistent with what we’ve seen over the last few quarters and for some period of time now.

“On the subprime segment, we’ve actually seen some large gains relative to what the origination growth was during the pullback,” he continued. “It seems like there is a little bit of a whip-saw effect going on in the subprime segment. I think that is due to the fact that lenders are feeling much more confident in this area of the credit spectrum, more than they did in 2016 and 2017. In fact, if we go back to Q2 (of last year), we start to see that positive gain exceeding 5% year-over-year relative to what it was just a year prior when it was 10% or more down year-over-year. That’s a large gain from the low end being down 10% to the upswing of positive 5% in the course of a four-quarter timeframe.”

Meanwhile, TransUnion determined serious borrower delinquency rates (60 days or more past due) continued to remain stable at 1.31% in the first quarter. Q1 2019 was the seventh consecutive quarter with a year-over-year delinquency variation of less than 10 basis points.

Landau closed by reiterating how stable the auto-finance market is as a maelstrom of media coverage is swirling and stemming from other parts of the credit world.

“There is a lot of clamor around other parts of financial services particularly around student lending, but auto is the third largest asset class before mortgage and student lending. And it is one of the most secure, having one of the lowest delinquency rates of all asset classes out there, second only to (home equity lines of credit). And it’s one of the fastest growing segments within financial services, second only to personal lending, which has been driven primarily by the fintech boom,” Landau said.

Q1 2019 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag. Source: TransUnion.