TransUnion: Soft vehicle inventory continues to drag originations

Reinforcing what Cox Automotive and other experts are seeing from a retail perspective, TransUnion’s Q3 2022 Quarterly Credit Industry Insights Report (CIIR) showed how much auto finance originations are slowing.

According to the report released on Tuesday, TransUnion said originations in the second quarter of this year (viewed one quarter in arrears) declined 14.9% year-over-year from Q2 2021, which analysts determined to be the peak of the pandemic auto recovery.

However, when compared to the pre-pandemic Q2 2019, TransUnion indicated originations for Q2 2022 dropped 4.1%.

TransUnion explained in a news release that new-vehicle inventory shortages continue to be a factor driving down originations, with super prime originations decreasing 18.5% YoY. As a result, analysts found that used vehicles made up the majority of vehicles financed at 60%, up from 55% in Q2 2021.

Despite some recent easing in vehicle price gains, TransUnion noticed that affordability remains a concern for consumers as average amounts financed are up year-over-year, with new-model originations increasing 12% to $40,906 and used contract rising 17% to $28,072.

Analysts reported average monthly payments for new vehicles increased 13.7% to $679, while used payments jumped 16.1% year-over-year to $517.

TransUnion tabulated that total auto balances stood at $1.49 trillion in Q3 2022, up from $1.46 trillion in Q2 2022.

Analysts went on to mention that delinquency rates have risen over the past year, but the performance of recent origination vintages remains in line with that of originations in prior years.

Account delinquency rates for contract 60 days or more past due rose 22 basis points quarter-over-quarter to 1.65% in Q3. That’s up from 1.43% in Q2.

According to the report, this increase is only slightly higher than the typical seasonal increase of 9 to 19 basis points from Q2 to Q3 dating back to 2010.

“Supply chain challenges, while easing moderately in recent months, continue to affect the auto industry. Furthermore, inflation and rising interest rates have impacted consumer affordability, particularly among lower priced vehicles, with the trend of rising monthly payments continuing for both new and used vehicles,” said Satyan Merchant, senior vice president and automotive business leader at TransUnion.

“While pre-2021 vintages generally remain in positive equity positions, newer vintages face higher originating LTVs on high-priced vehicles,” Merchant continued in the news release. “Delinquencies are up, particularly among subprime consumers, a trend which we expect to continue for the immediate near-term. However, the overall delinquency rate remains in relative alignment with historical norms.”

Q3 2022 Auto Loan Trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag. **Data from S&P Global MobilityAutoCreditInsight, viewed one quarter in arrears. Source: TransUnion

Personal loan summary

As of Q3 2022, TransUnion determined 22 million consumers had an unsecured personal loan, the highest number on record, highlighting the expanding acceptance and usage of this product type by consumers. 

Originations in Q2 2022 (also viewed one quarter in arrears) grew 36% year-over-year to reach 6 million, with all credit tiers experiencing growth of more than 30%.  Consequently, total personal loan balances in Q3 2022 continued to grow, reaching $210 billion — a 34% increase over last year. 

Analysts noticed that balances grew at a much higher rate for below prime risk tiers (up 58%) compared to prime and above risk tiers (up 24%). 

As subprime balances make up a larger and larger share of personal loan balances, TransUnion said that serious borrower delinquency (60 days or more past due) has continued to grow and now exceeds pre-pandemic levels.

Analysts indicated the borrower delinquency rate stood at 3.89% as of Q3 2022, a year-over-year increase of 54% and the highest level since 2014.

“Lenders’ expansion into below prime risk tiers has been a key driver of recent growth in unsecured personal loan originations. Additionally, originated loan amounts and average consumer balances have continued to increase, partially driven by higher prices,” said Liz Pagel, senior vice president of consumer lending at TransUnion.

“As expected, increased lending to higher risk tiers drove increased overall delinquency rates, with serious delinquencies now exceeding pre-pandemic levels,” Pagel continued in the news release. “As we look to the rest of 2022 and into next year, lenders will likely shift their originations focus towards prime and above credit risk tiers as they look to moderate risk in their portfolios while continuing to grow.”

Q3 2022 Unsecured Personal Loan Trends

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

Overall credit landscape

TransUnion’s Credit Industry Indicator (CII) was relatively stable between Q2 and Q3 2022, ticking up one point to 120, but dropped from the prior year level of 126 in Q3 2021, largely driven by the rising delinquencies across many product categories.

Analysts reiterated the CII is a quarterly measure of depersonalized and aggregated consumer credit health trends that summarizes movements in credit demand, credit supply, consumer credit behaviors and credit performance metrics over time into a single indicator.

Examples of data elements categorized into these four pillars include: new product openings, consumer credit scores, outstanding balances, payment behaviors, and more than 100 other variables.

“Consumers are being pressured on multiple fronts, first by this environment of high inflation, and secondarily by the higher interest rates that the Federal Reserve is implementing to tamp it down. However, as long as employment numbers remain strong, there should continue to be a steady flow of customers seeking access to new credit products, credit cards and personal loans in particular, and concurrently, an ample supply of lenders willing to offer credit to them,” said Michele Raneri, vice president of U.S. research and consulting at TransUnion.

“Delinquencies remain in line with historical levels for most credit products. However, levels have been rising over the past year, particularly among subprime consumer segments, and should be monitored in the coming months to look for similar increases in other credit risk tiers,” Raneri went on to say.

TransUnion is hosting a webinar to discuss the report in more detail. Registration can be completed via this website.