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 delinquency rate dropped from 0.58 percent in the year-ago quarter to 0.47 percent in the third quarter, but it did rise from 0.44 percent in the second quarter. The credit reporting agency said it expected the slight quarterly increase, but it did note that the rate continues to show a moderate deceleration on a year-over-year basis since the third quarter of 2010, reported F&I and Showroom magazine.

“Third quarter rates have consistently been greater than second quarter rates since 2000 — primarily due to seasonal influences,” said Peter Turek, automotive vice president in TransUnion’s financial services business unit. “The number of new auto loans coming on the books has continued trending upward since the end of the recession. A primary driver of this is relaxed lending policies of creditors. However, on a year-over-year basis, delinquencies have now dropped for eight consecutive quarters, even in the face of increased lending to the subprime market.”

Between the second and third quarters of 2011, 15 states experienced decreases in their auto delinquency rates. On a more granular level, 54 percent of metropolitan statistical areas (MSA) realized increases in their delinquency rates last quarter. During the second quarter of 2011, 40 percent of MSAs experienced a rise in auto delinquency rates compared to only 36 percent in the first quarter of this year.

“The good news is that national auto delinquency rates are still at historic lows and should remain so this year as the demand forecast for new and used vehicles indicates continued growth,” added Turek. ” Barring any substantial changes in the macroeconomic environment, we see auto delinquency rates early next year remaining near current record lows. However, there is some upward pressure building on delinquency rates as long periods of high unemployment and low consumer sentiment take their toll on consumers.”

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.”

Only one state – California – is expected to see a decline in 60-day delinquencies by the end of 2010. The state’s auto delinquency levels should decrease 3.55 percent from approximately 1.40 percent to 1.35 percent.

“Our forecast indicates we will see auto loan delinquencies drop in the first and second quarters of 2010 due to many factors such as ‘Cash for Clunkers’ and tightening lending standards,” said Peter Turek, automotive vice president in TransUnion’s financial services group.

“Delinquencies will rise in the second half of 2010 as economic pressures, along with traditional spending patterns of summer vacations, back to school and the holidays, will continue to strain consumers. While the rate of increase should be relatively mild, it is a cautionary number to those expecting an abrupt turnaround in the auto finance industry.”

The expected increase will be the fifth straight year the nation’s 60-day auto loan delinquency rate will have either remained the same or increased from the previous year. Between 2004 and 2005 the nation’s delinquency rate dropped 4.35 percent from 0.69 percent to 0.66 percent. In addition, the first half decrease in delinquency rates followed by a second half in the year increase also is consistent with the cyclical pattern of previous years, with a new baseline being set with each yearly increase.

Areas in the country expected to experience the highest year-over-year auto delinquency increases include the Midwest and Southeast. Indiana (27.23 percent), Michigan (26.74), Kentucky (22.31) and Georgia (18.71) are among the states expected to see the greatest spikes in auto delinquency.

In addition to California, other parts of the country that have been hit hard by the mortgage crisis look to be slowly improving their credit picture on the auto side as many auto loans reach maturity. Both Florida (4.55 percent increase expected) and Nevada (4.05 percent increase) are among the top 10 states expected to see the least amount of increase in auto loan delinquencies.

At the conclusion of 2010, Mississippi (1.76 percent), Georgia (1.46 percent) and Alabama (1.40 percent) are expected to have the highest auto loan delinquency rates. The District of Columbia (0.34 percent), North Dakota (0.39 percent) and South Dakota (0.45) should have the lowest delinquency rates during that same time period. Current auto loan delinquency data for each state and the nation can be found at www.transunion.com/trenddata.

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.”