Next year will be mixed bag for automobile lenders, with both delinquency rates and loan balances expected to rise, according to a forecast released Monday by the credit bureau TransUnion.
The auto loan delinquency rate has been steadily rising since hitting a post-crisis low in mid-2012, and TransUnion expects the slow climb to continue next year. The credit bureau projects the rate of borrowers 60 or more days past due to rise to 1.19% by the end of 2014, from an estimated 1.10% at the end of this year. The delinquency rate bottomed out at 0.86% in the second quarter of 2012, and peaked at 1.59% in the fourth quarter of 2008.
While the rise in delinquency rate should be modest, total auto debt per borrower will increase significantly, to $17,966 at the end of 2014 from $16,942 at the end of 2013, according to TransUnion's forecast. The projected 6% increase would be greater than the year-to year rise in 2013 (5.5%), 2012 (4.8%) or 2011 (2.1%).
"Unless there is a real shock to the economy, we don't envision auto loan debt levels to drop for quite some time," said Peter Turek, the automotive vice president of TransUnion's financial services business unit, in a news release. "This is good news for dealers, lenders and consumers, as higher demand for autos will lead to more auto loans, creating incentives for consumers as auto dealers and auto lenders compete for their business."
Despite the projected uptick in delinquency rate, there are several reasons for banks to be optimistic about the health of the auto loan market, TransUnion said.
A continuing rise in auto leasing should help keep the delinquency rate low, because leases are generally issued to more creditworthy borrowers. Leasing has steadily increased for more than four years, reaching 1.3 million in the first half of 2013, compared with 500,000 in the same period of 2009, TransUnion said.
In addition, subprime borrowers account for a lower percentage of auto loans than in years past. In the third quarter of 2013, the most recent available data point, borrowers with a credit score of 700 or lower accounted for 29.8% of auto loans, down from 30% in the same period in 2012, and from a peak of 34.6% in the third quarter of 2008.
TransUnion's projections are based on various economic indicators and assumptions, including gross state product, consumer surveys, unemployment rates and real estate prices, it said.