Delinquencies on the Mend

Delinquencies are still on the rise for auto financiers, but their pace is slowing.

That was the message from Melinda Zabritski, director of automotive credit for Experian Automotive, in a conference call yesterday detailing fourth-quarter and full-year 2009 auto finance trends.

In a nutshell, the total dollar value of at-risk auto loans dropped 10% to $26.6 billion in the fourth quarter of 2009, from $29.6 billion in the prior-year quarter.

The 30-day delinquency rate rose 3 basis points — 1% — year-over-year, to 3.34%. The 60-day delinquency rate climbed 3 basis points — 3.5% — to 0.96%.

Here’s an interesting note, though: The 30-day rate increased for banks, captives, and credit unions. For finance companies, though, it fell 4.2% (though it clocked in at 6.55%, more than double the levels of banks and credit unions, and almost twice that of the captives). The 60-day rate, meanwhile, was up for all four lender segments, but grew slowest among finance companies (at a 4% pace). By comparison, 60-day delinquencies grew 6.5% for credit unions, 7.6% for banks, and 9.7% for captives.

One more thing: The improvement in credit performance for finance companies comes at a time when their outstanding balance of auto loans has plunged 24%, according to Experian data. In other words, these lenders are managing delinquencies while their portfolios are shrinking (eliminating the argument that growth is masking poor performance).

So what is it that finance companies are doing differently? Does the improvement stem from an increase in the quality of borrowers for whom these lenders are underwriting loans? Have they made dramatic shifts in collection practice?