Subprime originations increased 8 percent in the quarter, the first increase for the credit segment since 2007. Additionally, market share for loans made to nonprime, subprime and deep subprime vehicle shoppers experienced a 12.7 percent year-over-year increase.

What’s driving this loosening, said Melinda Zabritski, director of automotive credit at Experian Automotive, are better payment patterns on the part of consumers.

For the first time since 2007, the 30-day delinquency rate fell below 3 percent, clocking in at 2.99 percent, with the total dollar balance of 30-day delinquent loans dropping by $4.5 billion.

The percentage of loans 60 days delinquent dropped 17.39 percent from the year-ago quarter, while the total dollar balance for 60-day delinquent loans fell by $1.9 billion. Additionally, repossession rates were down 5 percent, while the average charge-off amount fell by $2,252.

“We’re seeing very strong improvements in those dollars tied to 60-day delinquent loans,” Zabritski said.

A bulk of the loans originated in the third quarter — about 63 percent — were made to conusmers with prime credit, but that was down 4.1 percent from the year-ago quarter. Zabritski attributed the decrease to the market settling into more normal patterns, pointing out that prime originations accounted for slightly more than 50 percent of the loans originated before the recession took hold.

Another sign that credit is loosening are the upticks in the average amount financed, which increased for new and used by $2,530 and $977, respectively. The prime segment experienced the biggest increase in the average amount financed for new financing, jumping by $2,875 from the year-ago period. On the used side, however, subprime experienced the largest increase, jumping by $1,132.

Loan terms, which were restricted throughout all of 2009, are also loosening, albeit by one month for both new and used. Deep subprime claimed the longest term for new financing at 68.68 months. The credit segment also experienced the largest increase in term on the used side, climbing from 46.95 months to 50.39 months.

And although average credit scores were down 6 points for new and 1 point for used, Zabritski noted that scores are still 13 points higher than they were three years ago – a sign that the auto finance market still remains restrictive.

Banks led the way in market share in the third quarter, accounting for 35.97 percent of the market, followed by captives at 27.58 percent and credit unions at 19.49 percent. Zabritski pointed to the 8 percent year-over-year increase in share among captives as a sign that the market is coming back, but said the 30.51 percent increase in share among financing companies — which typically take on more risk — was an even better sign of things to come for the below-prime segment. Market share for finance companies in the third quarter stood at 8.6 percent.

Polling approximately 27 million randomly sampled individual credit files — representing 10 percent of credit-active U.S. consumers — the firm reported that average auto debt fell slightly from $12,568 to $12,501 on a quarter-over-quarter basis. On a year-over-year basis, auto debt fell by 0.75 percent during the period.

“The national trend we are now seeing points to a clear improvement in payment behavior,” said Peter Turek, automotive vice president in TransUnion’s financial services group. “As we noted last quarter, part of the reason for the turnaround in delinquency rates is the influx of new, lower risk loans.”

Turek added that the downward trend was further energized by first quarter improvements in economic factors such as consumer confidence and savings rates, which demonstrated consumer willingness to focus on debt obligations. On a state-level basis, 46 states experienced a drop in their quarter-to-quarter delinquency rates, while only 3 states showed an increase on a year-over-year basis.

Auto loan delinquency was highest in Louisiana and Alabama at 1.20 percent and 1.13 percent, respectively. The lowest auto loan delinquency rates were found in Alaska (0.33 percent), North Dakota (0.33 percent) and Montana (0.37 percent). The largest improvements in delinquency from the previous quarter were found in the District of Columbia (42.3 percent decrease from 1.18 percent) and Utah (37.8 percent decrease from 0.61 percent).

Additionally, auto loan delinquency rates rose for only four states since the fourth quarter of 2009: Alaska (13.8 percent increase), South Dakota (9.8 percent increase), Vermont (9.4 percent increase), and North Dakota (3.12 percent increase).

Looking at auto debt by states, the District of Columbia held the largest average auto debt burden at $14,911, followed by Wyoming at $14,579. The lowest average auto debt was in Nebraska at $10,781. The regions with the steepest quarterly increases in average auto debt as a percentage were North Dakota (+2.37 percent), the District of Columbia (+2.10 percent) and Wyoming (+1.76 percent). Alaska experienced the sharpest drop in average auto debt (-3.90 percent), followed by Tennessee (-3.20 percent).

On a year-over-year basis, national bank auto originations increased by 5.4 percent, with North Dakota exhibiting the greatest rise with an increase of approximately 32 percent from first quarter 2009. On a regional basis, only eight states showed a drop in year-over-year originations.

“TransUnion expects next quarter’s national 60-day auto delinquency rate to continue to move downward due in part to seasonal factors, but also because of general improvement in certain aspects of the economy,” said Turek. “Given a more positive outlook in per capita disposable income and projected new-vehicle sales, our forecasting models point to a national 60-day auto delinquency rate in the range of 0.68 percent by [the end of the year, factoring in the strong seasonal uptick in delinquency typical in the fourth quarter.”

The report is part of an ongoing series of quarterly consumer lending sector analyses focusing on credit card, auto loan and mortgage data available on TransUnion’s Web site. Information for this analysis is culled quarterly from approximately 27 million anonymous, randomly sampled, individual credit files, representing approximately 10 percent of credit-active U.S. consumers and providing a real-life perspective on how they are managing their credit health.

Quarterly Statistics

Auto loan delinquency was highest in Mississippi and Alabama at 1.45 percent and 1.39 percent, respectively. The lowest auto loan delinquency rates were found in Alaska (0.29 percent), North Dakota (0.32 percent) and South Dakota (0.41 percent). The largest improvements in delinquency from the previous quarter were found in Alaska (35.6 percent decrease from 0.45 percent) and Idaho (28 percent decrease from 0.67 percent).

Average auto debt nationally increased slightly between the third and fourth quarters of 2009 from $12,542 to $12,568. The year-over-year auto debt fell by 1.1 percent. The state with the largest auto debt burden was Nevada at $14,376, followed by Texas at $14,372. The lowest average auto debt was in Nebraska at $10,738. The states with the steepest annual increases in average auto debt as a percentage were Michigan (+3.47 percent), Tennessee (+1.6 percent) and Montana (+1.56 percent). New Mexico experienced the sharpest drop in average auto debt (-3.0 percent) followed by Nevada (-2.3 percent).

Analysis

“Going against traditional seasonal patterns, the flattening of auto delinquency rates in the fourth quarter may be an optimistic sign for payment behavior over the remainder of this year,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit. “Since 2000, auto delinquency rates have increased in the fourth quarter except for one occasion back in 2003. In fact, at the start of the recession (fourth quarter of 2007), the auto delinquency rate increased nearly 15 percent from the prior quarter. Part of the reason why we may be seeing a gradual turnaround in delinquency rates is the impact of new lower risk loans over the past several quarters including new loans from the popular government program, Cash for Clunkers.”

On a state-level basis, 18 states experienced a drop in their quarter-to-quarter delinquency rates while 35 showed a drop on a year-over-year basis.

Forecast

TransUnion’s national 60-day auto delinquency rate forecast has been revised downward over the course of the current year. TransUnion projects auto delinquencies to be in the range of 0.75 and 0.80 percent by year’s end.

“Given a more positive outlook for gross domestic product and other economic indicators except for employment, our current forecasting models point to a national 60-day auto delinquency rate of 0.65 percent by midyear, a decrease of 19.7 percent compared to fourth quarter 2009,” said Turek. “However, the seasonality and forecast of car sales will influence delinquency throughout the rest of this year and into 2011.”

Elevated loss frequency will also pressure U.S. auto loan ABS performance in the coming year. Another likely driver will be unemployment, which Fitch projects will hit a peak of 10.5 percent by mid-2010.

“Rising unemployment coupled with low consumer credit and wage growth levels will prolong the pressure on auto ABS loss frequency,” said Senior Director Hylton Heard. As a result, Fitch expects increases in net loss rates (although below the high of 2.23 percent witnessed in January of this year). This is due to the expectation of greater stability in vehicle values in 2010.

Risk on the loss severity side remains muted due to reduced supply in the used-car market, among other factors. The Manheim Used Vehicle Value Index, which tracks the health of the wholesale vehicle market, was unchanged in November despite seasonal weakness due to new models being introduced during this period. Vehicle values remain nearly 20 percent higher than their December 2008 lows.

According to Fitch’s auto indices, ANL levels increased by 2.4 percent to 1.61 percent in November 2009 on U.S. prime auto loan ABS while 60+ day delinquencies declined by 10.7 percent from October’s level to 0.67 percent. Fitch attributes the improvement in delinquency performance, which is unusual during this seasonally weak period, to additions to the index. In November approximately $4 billion of new, less seasoned securitizations with low delinquency levels were added to the index reducing the effect of more seasoned transactions with higher delinquencies.

Rating performance has remained stable despite the declining asset performance in 2009. Fitch has upgraded 32 classes of notes through Nov. 30 of this year, compared to 36 through the same period in 2008. Fitch’s rating outlook for the auto loan asset class is stable for 2010.

Fitch’s indexes track the performance of over 100 transactions totaling $52.6 billion worth of prime and subprime auto ABS. Prime loans compose 81 percent, and subprime loans the remaining 19 percent.

The 60-day delinquency rate rose from 0.73 percent in the second quarter to 0.81 percent in the third. The year-over-year delinquency rate also increased by 1.25 percent, according to TransUnion’s report, which analyzed approximately 27 million anonymous, randomly sampled, individual credit files, or 10 percent of credit-active U.S. consumers.

On a state-by-state basis, auto loan delinquency was highest in Mississippi and California at 1.53 percent and 1.33, respectively. The lowest auto loan delinquency rates were found in the District of Columbia (0.26 percent), North Dakota (0.35 percent) and South Dakota (0.37 percent).

The largest improvements in delinquency from the previous quarter were found in South Dakota (38.33 percent decrease from 0.60 percent) and the District of Columbia (38.10 percent decrease from 0.42 percent).

“The rise in the third quarter 60-day auto delinquency rate is more indicative of a cyclical pattern since the current automotive lending environment has remained consistent in its approach over the last 12 months,” said Peter Turek, automotive vice president in TransUnion’s financial services group. “On a state-level basis, seven states experienced a drop in their quarter-to-quarter delinquency rates while 22 showed a drop on a year-over-year basis. The drop in delinquency is an indicator that some states could emerge from the recession sooner than others.”

Average auto debt nationwide continued to decrease slightly in the third quarter 2009, dropping from $12,560 to $12,542. Likewise, the year-over-year auto debt fell by 2.5 percent. The state with the largest auto debt burden was Nevada at $14,721 per auto borrower, followed by Texas at $14,425.

The lowest average auto debt was in Nebraska at $10,770. The steepest annual increases in average auto debt as a percentage occurred in Michigan (+3 percent), Alaska (+2.17 percent) and Vermont (+2.03 percent), while the District of Columbia experienced the sharpest drop in average auto debt (-3.78 percent) followed by Wyoming (-3.15 percent).

Looking forward, Turek said he expects the 60-day delinquency rate to reach almost 0.9 percent by year-end, which is a 7.5 percent increase over the prior year.

“Although the effects of the government’s various stimulus programs seem popular and the auto industry has reported an increase in sales during the quarter, the weak labor market should continue to negatively impact the consumer into 2010,” said Turek. “As the new loans from the “clunkers” program show up on credit files, there is a good possibility average auto debt will increase. Since lenders had tightened their lending criteria prior to the “clunkers” program it also is expected the new loans will experience lower delinquencies.”