TransUnion: Worst in Auto-Loan Delinquencies May be Over
CHICAGO — Throughout the nation, the 60-day auto delinquency rate climbed by almost 9 percent year-over-year in the fourth quarter, according to TransUnion.com.
Discussing these results with SubPrime Auto Finance News, Pete Turek indicated that delinquencies will rise 41 percent through 2009, but that the market has already seen much of this increase occur.
"Since the beginning of the recession (fourth quarter 2007) and through 2009, TransUnion projects 60-day auto loan delinquencies to rise 41 percent," said the automotive vice president in TransUnion's financial services group.
"However, the United States has already experienced 61 percent of this increase through 2008, thus the majority of these increased auto loan delinquencies have already occurred," Turek told SubPrime Auto Finance News on Monday.
Basically, the national 60-day auto delinquency rate edged upward between the third and fourth quarter of 2008 from 0.80 percent to 0.86 percent. Year-over-year the delinquency rate increased 8.86 percent in the fourth quarter.
Moreover, the company discovered that auto loan delinquencies were highest in Mississippi at 1.62 percent, followed by California at 1.46 percent.
On the other hand, the lowest auto loan delinquency rates were found in Alaska (0.19 percent), North Dakota (0.34 percent) and Montana (0.41 percent).
As for the largest improvements over the previous quarter, TransUnion found these in Alaska (60 percent decrease from 0.47 percent) and Montana (11 percent decrease from 0.46 percent). These large decreases were primarily due to the fact that delinquency in those states was so low to begin with, the company noted.
"Unemployment is one of many factors that drives auto loan delinquency up, though there are several other drivers, such as the overall economy, weak labor market and disposable income that continue to impact auto-loan delinquencies," Turek noted.
Meanwhile, average auto debt nationally continued to drop slightly in the fourth quarter from $12,861 to $12,713. Year-over-year auto debt also fell (0.2 percent).
The state with the largest auto debt burden was in Nevada at $15,225, followed by the Texas at $14,848. The lowest average auto debt was in Nebraska at $10,685.
The steepest increases in average auto debt as a percentage occurred in Vermont (2.2 percent growth), South Dakota (1.5 percent) and Delaware (0.62 percent), while the District of Columbia experienced the sharpest drop in average auto debt (-5.0 percent) followed by Iowa (-3.8 percent).
Shedding a bit of light on this trend, Turek told SubPrime Auto Finance News this week that, "Consumers are being more cautious with big-ticket purchases such as automobiles, and because of this they are holding on to their current vehicles longer — leading to lower average overall auto debt. Additionally, there are fewer new-car purchases, thus there are fewer large balance loans.
"As far as consumers taking on more debt, we see that such a spike is not occurring for two reasons: first is that the aggressive measures financial institutions have taken to mitigate risk have taken hold," he continued.
"Secondly, consumers who have lost a great deal of liquidity with the closing of home equity lines of credit and reduced card credit limits have become more conscientious in protecting those credit instruments still available to them and are making every effort to pay their bills on time," Turek said.
Fourteen states experienced a drop in year-over-year delinquency rates, compared to the 8.86 percent increase seen nationally. Moreover, 11 states experienced a decrease in the 60-day auto delinquency from third quarter of 2008.
"How does the rise in auto delinquency compare to the 2001 recession?" asked Turek, "Although that recession was short by most standards (beginning in March of 2001 and ending in November of the same year), the auto delinquency ratio increased by almost 10 percent.
"In contrast, in our current recession which began in December of 2007, we see that the auto delinquency rate has already increased by 25 percent — more than double what occurred in the last recession, with an endgame that is still uncertain," he explained.
Looking ahead, Turek noted, "Although our national forecast for the fourth quarter of 2008 only missed the true 60-day auto delinquency rate by about 2 percent, the worsening economic environment prompted a revision to our long-term forecasts.
"Our current forecasting models indicate that the national 60-day auto delinquency rate will rise from a value of 0.86 percent in the fourth quarter of 2008 to over 1 percent by the end of this year," he pointed out. "The overall economy, weak labor market and lower disposable income levels continue to negatively impact the consumer."
As for state projections, Mississippi is still anticipated to experience the highest delinquency rate by fourth quarter 2009 (2.1 percent), while Alaska should prove to have the lowest level of delinquency (0.27 percent).
Information for this analysis is culled quarterly from approximately 27 million anonymous, individual credit files, providing a real-life perspective on how U.S. consumers are managing their credit health.