The auto loan delinquency rate climbed 8 basis points last quarter to 0.81%, but loan performance appears to have stabilized since lenders implemented stricter underwriting criteria in 2008.
The 60-day delinquency data was compiled by credit bureau TransUnion from a random sampling of 27 million individual credit files.
TransUnion expects fourth-quarter delinquencies to increase to nearly 0.9%, compared with 0.86% at yearend 2008. The uptick, though, is likely attributable to seasonal trends, said Peter Turek, automotive vice president in TransUnion’s financial services group.
What does this all mean? In my mind, we’re in for lower delinquencies in 2010. The continued improvement in late-payment trends and higher credit quality loans put on the books with “Cash for Clunkers” will start to dominate portfolio performance, offsetting worse-performing loans of 2006 and 2007 that are running off.
Here’s a comparison of 60-day delinquency rates for 2008 and 2009, per TransUnion data:
And here’s a look at the data with TransUnion’s estimate for 4Q09:
For additional findings from TransUnion’s survey, click here.
Delinquency with our accounts receivable is killing us. Epayments would help.
Good risk management involves a forecast of targeted delinquency and losses.
Historical numbers help fine tune the forecast. The forecast includes the institutions budget for growth (if any) in autos and decisions on how to get there. For example, will growth come from pricing, lenience in items financed which impact reliance on collateral values, underwriting standards, etc? I can get low loan losses with prudent underwriting but it may cost me some points on the buy rates to get volume.
I suspect that delinquency and losses are being helped by the higher used car values. Is the reliance on used car values being projected into future loss targets? What happens if the price of oil goes to $4/gallon? Is the growth mix going to include a lot of low mpg vehicles or high mpg vehicles. GMC is on TV every day with an ad for their 403 horsepower truck. How many of those are going to be financed on generous terms for 6 years?