CHICAGO — TransUnion analysts credited shrewd decisions by dealers and lenders for pushing their 2012 auto loan delinquency projections higher than readings expected as this year closes.

TransUnion indicated this week that the ratio of borrowers 60 or more days past due will remain the same between the end of 2011 and 2012.

Analysts said 60-day auto loan delinquencies are expected to decrease in the first two quarters of next year before rising back to 0.51 percent at the end of the year, finishing at the same percentage as year-end of 2011.

TransUnion highlighted loan delinquencies have decreased markedly since peaking during the recession at 0.86 percent in the fourth quarter of 2008.

Since that time, 60-day auto loan delinquencies have dropped on a year-over-year basis to 0.81 percent in the fourth quarter of 2009, 0.59 percent in the fourth quarter of last year and now to the expected 0.51 percent level for the end of 2011 and 2012. 

During an interview with SubPrime Auto Finance News, Peter Turek, automotive vice president in TransUnion's financial services business unit, explained the critical role dealers and lenders played in helping those delinquency rates dip.

"It really goes back to the fact that all of the lenders during the recession and coming out of it, the loans they've been putting on the books really have been to consumers where the loan fits," Turek emphasized.

"The dealers and the lenders have really put consumers in something that really matches them in terms of the vehicle and the term," he continued.

"That's what really this is all reflecting, how the dealers and lenders have improved during this period," Turek went on to say. "I think we've seen an improving economy. I think the loans that are on the books were made during a time period when there were stricter guidelines in underwriting and better tools. I think dealers really did a better job of putting people in the right car for the right term. … What we're reporting is just a reflection of what's been happening in the market for the past two years."

Better Delinquency Rates Means More Volume

TransUnion also highlighted loan originations have greatly increased since the end of the recession in the second quarter of 2009.

According to its latest data available, TransUnion discovered originations are up nearly 28 percent as of the second quarter of this year.

Analysts added 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. 

And with a greater volume of originations, TransUnion pointed out the average auto loan debt per borrow is higher than any point since the first quarter of 2005. Analysts pegged the average at $12,902 at the third quarter of this year. The next highest point was the second quarter of 2008 when it was $12,869.

Turek reiterated the rise of those metrics reflect the market.

"As we've seen more auto loans being financed, you're going to see that debt go up," Turek told SubPrime Auto Finance News. "What we've seen through the crisis is people did not take on new debt so they stayed in their loan payments and their vehicle longer. Now what we're seeing especially through the fourth quarter of 2010 and the first, second and third quarter of '11 is that it's going up; it's a reflection of the increased originations.

"At the crux of everything, it starts at the sale of the vehicle. We've seen auto sales increase over the past two years and so has the related auto financing," he stressed.

Turek also suspects the auto loan performance cycle might be ahead of other industry segments, and an upbeat delinquency forecast should be a boost.

"When I think about what's really interesting about this forecast is that it gives lenders more confidence that loan performance is more in line with predictability and stability," Turek surmised.

"In auto, when you can get predictability and stability in loan performance, that gives everyone confidence to look at the market and really think about new and different ways of growing the business and take advantage of the growth forecast for auto sales," he explained. "I think that's a really good story."

Geographical Look at Delinquency

Elsewhere in TransUnion's delinquency forecast, analysts think 21 states are expected to see delinquencies drop by the end of 2012, while 29 states should experience increases.

Analysts contend the largest yearly percentage auto delinquency declines are expected in Michigan (down 14.54 percent), Rhode Island (down 14.22 percnet) and North Carolina (down 14.54 percent).

They added the largest percentage increases are expected in North Dakota (up 72.47 percent), Alaska (up 25.43 percent) and Iowa (up 21.06 percent).

Despite the large percentage increase in North Dakota's auto delinquency rate, TransUnion stressed the state is still expected to have the lowest level in the nation at 0.16 percent. Trailing close behind are Minnesota (0.24 percent), and Michigan and Montana (both at 0.28 percent).

On the other end of the spectrum, TransUnion estimated that delinquency rates in 2012 for Mississippi and Louisiana should lead the country at 0.87 percent, followed by Tennessee at 0.80 percent.

"During the mortgage crisis and liquidity crisis, you had in some states some pretty volatile shifts. Some states delinquency really spiked. Other states, it didn't. A lot of it was very geographically focused," Turek recapped.

He went on to explain the states that might be ticking higher in 2012, those increases are nominal.

"On a percentage basis, it looks like some are going up 15 percent. But when you look at the actual numbers by state, you're talking about only 5 to 14 basis points," Turek calculated. "I think it's important to know how states are performing relative to the national average, but I think as you look at each state historically from the beginning of the recession, you're going to see a similar story."

To illustrate his point, Turek mentioned that California's delinquency rate peaked at the end of 2008 at 1.46 percent. But TransUnion estimated the state's rate should drop to 0.55 percent by the close of next year.

"Consumers are paying their loans well," Turek indicated.

How TransUnion Arrived at Its Forecast

Analysts reiterated TransUnion's forecast is based on various economic assumptions, such as unemployment rates, consumer sentiment, disposable income and interest rates.

The forecast changes as the economy deviates from a conservative economic forecast or if there are unanticipated shocks to the economy affecting recovery.

"I think we have a lot of confidence that again barring any shocks to system; our forecast for 2012 is pretty solid," Turek stressed to SubPrime Auto Finance News.

"Barring no sudden shocks to the economy, we expect that auto finance will be able to take advantage of this gradual recovery going on into 2012," he concluded.