Auto loan delinquencies have made a significant decline since peaking during the recession at 0.86 percent in the fourth quarter of 2008, according to TransUnion. Since that time, the rate has dropped to 0.81 percent in 2009 0.59 percent in 2010, and is now expected be at 0.51percent by the end of this year, reported F&I and Showroom magazine.

“Auto loans have performed quite well since the beginning of 2010 and we expect delinquencies to remain relatively low throughout 2012 as the gradual recovery in the economy will benefit both lenders and consumers,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit. “With auto loan originations increasing dramatically in the last few years, one cause for concern is that any dramatic economic pressures — like we experienced during the last recession — could elevate delinquency levels since missed payments often occur early on in the life of the loan.”

Turek also noted that auto loan originations have greatly increased since the end of the recession, jumping nearly 28 percent as of the second quarter of 2011. Quarterly originations are nearly 41 percent higher than the lowest levels observed during the recession in the fourth quarter of 2008, and have risen approximately 8.4 percent in the last year.

Twenty-one states are expected to see delinquencies drop by the end of 2012, while 29 states should experience increases, according to TransUnion. The largest yearly percentage auto delinquency declines are expected in Michigan (-14.54 percent), Rhode Island (-14.22 percent) and North Carolina (-14.54 percent). The largest percentage increases are expected in North Dakota (72.47 percent), Alaska (25.43 percent) and Iowa (21.06 percent). Despite the large percentage increase in North Dakota’s auto delinquency rate, the state is still expected to have the lowest level in the nation at 0.16 percent.

60-Day Auto Loan Delinquency Projections for 2012

2010-2012    Q4 2010   Q4 2011    Q4 2012             

Highest Auto Loan Delinquency States         Q4 2012

Lowest Auto Loan Delinquency States          Q4 2012

The report indicated that there were 854,800 auto finance company-originated loans in July 2011 vs. 581,300 for July 2009. Auto loans made to subprime borrowers now account for 38.5 percent of all auto loan originations for auto finance companies and 17.6 percent for banks and credit unions — numbers that are quickly approaching pre-recession levels, reported F&I and Showroom magazine.

By contrast, 820,200 loans were originated by banks and credit unions for the same period in July 2011 vs. 832,000 for July 2009, a decrease of less than 2 percent, according to Equifax.

Delinquency rates continue to improve for outstanding auto loans currently 60 or more days past due, which have fallen to 1.63 percent of loans. The improvement reflects a continuation of sustained credit retraction that the auto lending industry has experienced earlier than other lending segments, said Michael Koukounas, senior vice president of Special Client Services for Equifax.

“With unemployment rates remaining elevated for a prolonged period, auto lenders have proactively adopted more comprehensive data and verification tools for greater loan-level transparency in evaluating a wider band of consumers, which has helped enable the auto lending industry to recover more quickly than others,” he noted.

In July 2011, 1.7 million auto loans worth $32 billion collectively were originated, according to Equifax. From January to July 2011, 11.3 million new auto loans worth a collective $213.9billion (a 14.8 percent increase vs. the same six-month period last year) had been originated, a 13.2 percent increase over January-July 2010 totals.

The report also revealed that average monthly payment has remained relatively unchanged over the last year, signaling that the growth the industry is experiencing is tied to increases in number of loans rather than an increase in average loan amount, Koukounas added.

Representing the seventh largest auto finance segment through August 2011, CUDL credit unions have financed more than 321,000 loans year to date, a 13.4 increase, reported F&I and Showroom magazine.

The segment’s auto loan penetration rate did decline to 16.1 percent in the second quarter from 16.6 percent in the year-ago quarter. However, credit unions were able to increase their unit loan volume by 13.4 percent through August.

“Although the total number of loans was flat since the first quarter of this year, the number of credit union members continues to grow,” said Andrea Salgado, a CUDL market research analyst who led the Sept. 28 Webinar.

Citing data provided by Callahan & Associates, Salgado added that auto loans represented 29 percent of the average credit union loan portfolio, based on dollar volume.

Salgado also noted that auto dealers continue to be a major driver of new business for CUDL credit unions, with 67 percent of consumer financed at the dealership being new members. Thirty-three percent of loans originated at the dealerships were made to existing members.

“These values have stayed the same for the last several months,” said Salgado, who noted that indirect loans were down 5 percent. “A year ago this was at 67 percent for new and 34 percent for existing.”

Prime new-vehicle originations made on the CUDL platform represented 76.4 percent of auto loans originated, down two percentage points from a year ago. Prime used-vehicle originations dropped 2.9 percentage points to 67.3 percent. Average FICO score for CUDL credit unions stood at 729 vs. 733 a year ago. The industry’s average FICO score, according to J.D. Power and Associates, is 728.

Average amount finance for used vehicles among CUDL credit unions was $17,939, while the industry average through July stood at $17,385. Average amount financed for new was up from $25,680 a year ago to 27,880 through August, according to CUDL data.

As for loan performance, delinquencies and charge-offs for the segment continued to track below the 1 percent mark for auto loans outstanding. Credit unions also claimed the lowest 60-day delinquency rate among other lending segments, including banks, at 0.33 percent, with dollar volumes of at-risk loans dropping by $1 billion.

The Webinar also provided an update on the overall industry, with Salgado reporting that auto loan volumes have increased for all lenders except for Chase and Toyota. Ally, she noted, continues to lead the way, growing its loan volume by 51.9 percent year to date.

Salgado also noted a rise in new-vehicle sales vs. used-vehicle sales, the two segments crossing paths between June and August. In August, new-vehicle sales increased 7.5 percent from a year ago, while used-vehicle sales declined 3.3 percent. Through August, new-vehicle sales have climbed 11 percent from last year, while used increased 4 percent. Combined, vehicle sales grew by 6 percent during the first eight months of the year.

Sales right now are tracking at a 12.1 million-unit rate, an increase from the 11.4 seasonally adjusted annual rate recorded through August 2010. Currently, market analysts predict that the industry will end the year between 12.5 and 12.9 million units sold. Salgado said she believes the industry will end the year at the lower end of that range.

“We believe this is the lowest rate being offered by any bank or credit union in the nation today,” said Tony Gallardy, vice president of consumer and credit card lending.

Navy Federal reported strong auto lending growth in the past several months, driven by its 1.99 percent new auto rate for loans up to 60 months, according to the company. The credit union plans to maintain this rate, along with the new 1.79 percent APR rate for 36 months, reported F&I and Showroom magazine.

Navy Federal also announced that it will continue to offer a $100 bonus for members who choose to refinance their new-car loans from other financial institutions with Navy Federal.

“We are very excited to offer this unprecedented low rate to members at the start of the fall car-buying season,” Gallardy said. “With a lot of good deals in the market, this is a great time to get a new car or truck.”

The 2011 Shared National Credits (SNC) Review revealed that the total analyzed loans declined more than 28 percent to $321 billion in 2011, although the percentage of criticized assets remained high compared to pre-financial crisis levels. Loans rated as doubtful or loss — the two weakest categories—fell 50 percent to $24 billion in 2011, reported F&I and Showroom magazine.

The review cited operating performance among borrowers, debt restructurings, bankruptcy resolutions, and ongoing access to bond and equity markets as reasons for the improvement. Industries leading the improvement in credit quality were finance and insurance, real estate, construction, media and telecommunications.

Despite the improvements, the SNC noted that poorly underwritten loans originated in 2006 and 2007 continued to negatively affect the SNC portfolio, as nearly 60 percent of criticized assets were originated in these years. Refinancing risk remained elevated as nearly $2 trillion, or 78 percent of the SNC portfolio, matures by the end of 2014, according to the SNC. Of this maturing amount, $204 billion was criticized.

Despite nonbank entities owning the smallest share of loan commitments, they owned the largest share of classified credits at 58 percent.

The most recent trend data indicates that sustained new credit growth is underway within a number of markets, with year-over-year increases in the number of auto (23 percent increase), bankcard (14 percent increase), consumer finance (5 percent increase), and home equity (9 percent increase) loans. According the report issued monthly by Equifax, consumers continue to more consistently pay credit bills on time while simultaneously paying down existing debt, resulting in an increase in the average credit risk score nationally, reported F&I and Showroom.

Although credit available today represents about half of pre-recession levels in 2006, it is steadily increasing, with 2010 levels exceeding 2009 and that trend is expected to continue for this year. (2011 month-to-date new credit is $51 billion versus 2010 year-to-date new credit of $45 billion, an increase of more than 13 percent.)

Notable findings of the most recent report include:

• Auto – Average loan amounts generated through captive finance companies up 88 percent over 2009 levels.
• First Mortgages – Prime originations (Equifax risk scores of 700 or more) now represent more than 75 percent of all first mortgage originations.
• Consumer Loans – Installment loans now represent 33.9 percent of total consumer loans, representing a 5-year high.
• Bankcards – More than 14 percent increase in number of new bankcards issued over 2010 levels.
• Retail Card – Notable increase in retail card originations for non-prime (Equifax risk scores less than 660) consumers.
• Home Equity – Trend data indicates a considerable shift toward prime borrowers (lowest risk scores).
• Student Loans – As average student loan amount has declined in response to regulatory changes, data indicates students seeking supplemental credit to finance education.

“Across multiple loan products, we are clearly seeing indicators of sustained credit growth – most notably within automobile finance and bankcard originations,” said Michael Koukounas, senior vice president of special client services for Equifax. “Consumer behavior is now fueling much of this improved loan performance as borrowers are more aggressively paying off their outstanding debts, which is positively impacting their credit risk scores and making them more attractive to lenders. If this trend continues, I would expect to see a further loosening of available credit.”

Federal Reserve data shows banks began easing consumer-lending standards in July, and the Fed’s loan facility program rejuvenated the market for securitized auto debt, said Ellen Hughes-Cromwick, Ford’s chief economist. Data from CNW Research shows improved sales for buyers with weaker credit scores.

“Credit has begun to ease for automotive in general,” Hughes-Cromwick said today in a telephone interview. “We should see consumer credit begin to evidence some recovery, but it is a slow go. I don’t think anybody is baking in some sizable cyclical uplift in the next 12 to 18 months.”

Auto retailers including Group 1 Automotive Inc. and CarMax Inc. have said credit is less of a setback now after tighter lending helped slow U.S. auto sales to 10.4 million deliveries last year, the lowest since 1982. Sales in September rose to a seasonally adjusted annual rate of 11.8 million, the fastest pace since August 2009, according to Autodata Corp.

That’s still less than the 16.8 million annual average from 2000 to 2007, as Americans defer big-ticket purchases amid weak consumer confidence and high joblessness. Payrolls fell by 95,000 workers last month, more than forecast in a Bloomberg survey of economists, as the unemployment rate held at 9.6 percent, according to Labor Department figures released today.

“Credit is certainly available to meet the consumer’s needs,” Peter DeLongchamps, a vice president at Houston-based Group 1 Automotive, said in a telephone interview. “For current sales levels to increase, we need additional showroom traffic.”

The share of new-vehicle sales to buyers with subprime credit rose to 9.9 percent in September, the highest since February 2008, according to consulting firm CNW Research.

Subprime buyers represented 6.8 percent of the new-vehicle market through the first nine months of the year, according to CNW. That’s up from 5.7 percent last year, while short of the 14 percent share in 2006, the data shows.

CNW, based in Bandon, Oregon, defines subprime borrowers as having a FICO score below 619. Fair Isaac Corp.’s FICO scores use variables including the number of credit inquiries and missed payments.

Ford Motor Credit Co., the finance arm of the Dearborn, Michigan-based automaker, sold $500 million of bonds backed by dealer payments last month and had a similar offering worth $1.13 billion in March with help from the Fed’s Term Asset- Backed Securities Loan Facility.

Loans to consumers with credit scores considered less than prime accounted for 18.2 percent of auto loans in the second quarter, compared with 17.6 percent in the year-earlier period, according to Experian Automotive.

The increase, while modest, is an early sign that finance companies are warming to consumers whose credit scores are below the 700 range, said Melinda Zabritski, Experian’s director of automotive credit.

“While lenders have not loosened their criteria to the levels we saw three years ago, we do see an upward movement in loans to those middle-risk tiers,” Zabritski said.

A crackdown on lending to riskier borrowers amid the U.S. financial crisis cut off access to car loans for many customers in 2009, contributing to the auto industry’s worst year since the 1980s.

General Motors Co. last month said it would purchase subprime auto lender AmeriCredit Corp. in a $3.5 billion deal designed to free up loans for consumers with less-than-prime credit scores. The automaker, which unlike most its rivals lacks a so-called captive finance arm, said an inability to reach those buyers was hurting sales.

The biggest decline was seen in the revolving credit category, which mainly consists of credit card debt. From April to May, the category fell at an annual rate of 10.5 percent. Since March, the category has dropped by $15.7 billion.

Borrowing in the nonrevolving credit category, composed mostly of auto loans, fell for the second month in a row in May, this time at an annual rate of 1.4 percent, or $1.8 billion. Since March, nonrevolving credit has fallen by $18.3 billion.

Interest rates on new-vehicle loans remained stable at 4.13 percent in May, but are still below the first quarter average of 4.31 percent.

Loan terms mirrored the first quarter average, increasing slightly from 62.6 months in April to 62.9 months in May.

The loan-to-value ratio on new-car loans reached 87 percent in May, a slight decrease from the 88 percent recorded in April and below the first quarter average of 89 percent.

Amount financed increased to $27,886 in May, up $89 from the $27,797 recorded in April. The increase snaps the four-month decline in this segment, but is still below the first-quarter average of $28,444.

The carmaker has had trouble providing loans to more consumers, particularly those with weaker credit history, and views this as a barrier to winning back U.S. market share.

The company is looking to become more attractive on Wall Street ahead of an initial public stock offering expected later this year. GM—majority-owned by the U.S. government—plans to update stock analysts Tuesday on its finances and outlook.

GM sold control of its GMAC LLC finance arm three year ago, making it one of the few major vehicle sellers in the U.S. market without an in-house lender.

GM executives believe that entering into deals with other lenders such as major banks won’t provide the same boost GM would receive with its own finance company, but see it as a step toward eliminating the disadvantage, these people said.

GM expects to continue its relationship with GMAC, now known as Ally Financial Inc., but the auto maker will look to other lenders to fill gaps where it feels GMAC hasn’t been as willing to make loans, such as in subprime lending and leasing, these people said.

“By not financing [subprime] consumers, they are locking out about 40% of the U.S. population,” said Melinda Zabritski, director of automotive credit for Experian Automotive.

The approach diminishes the possibility that GM will start its own finance company or try to regain control of GMAC’s auto-lending business, two options the Detroit company studied in recent months. Ally wasn’t interested in such a deal, the people familiar with the matter said.

GM dealers have complained that they are forced to turn away some customers because of an inability to tap financing.

A GM spokeswoman declined to discuss specifics but said the company is “using a multiprong approach to provide competitive financing for our dealers and customers.”

Driving up sales is a key mandate from GM Chairman and Chief Executive Edward E. Whitacre Jr. The company’s sales this year were up 15 percent through May compared to a year ago despite shedding four of eight brands, but rival Ford Motor Co., which owns Ford Motor Credit Co., increased its sales at twice that rate.