Perhaps it’s been an active start to the second half of the year at your dealership or finance company amid working with customers who are stretching themselves financially to meet underwriting requirements to take vehicle delivery.

But if things have been sluggish so far, findings from the newest TransUnion study might explain why.

When examining the current monthly debt burden of consumers who already have auto financing, the TransUnion study found that the average monthly debt for those consumers increased by nearly 20% over the past two years, with average monthly debt payments increasing steadily between Q1 2022 ($1,345) and Q1 2024 ($1,583).

TransUnion said this movement is nearly double the Consumer Price Index growth that occurred over the same period.

“Just as auto inventories began to recover from the worst of the pandemic era supply chain shortages, elevated inflation and higher interest rates that followed have put consumers in a tight financial bind,” said Jason Laky, executive vice president of financial services for TransUnion.

“As a result, many have been taking on additional and larger monthly payments each month to service higher debt levels. This has likely contributed to some consumers holding off on buying or leasing a new auto,” Laky continued in a news release.

The TransUnion study titled, “Originating Auto Loans With Confidence,” explored trends in auto originations, consumer savings, debt burdens and credit scores in the pandemic era, as well as in the years before and after.

The study also looked at consumer performance in the auto market, particularly at a time when overall consumer performance is beginning to see some measure of deterioration.

In addition, the study touched on potentially valuable credit models that may offer finance companies an opportunity to increase slumping originations in a risk-appropriate manner.

With the exception of a brief post-lockdown spike in 2021, TransUnion said auto finance companies have seen consistent year-over-year declines in auto originations in the quarters since the start of the pandemic period. Supply shortages fueled these declines in 2021 and 2022.

However, as inventories have normalized, TransUnion acknowledged affordability and increasingly squeezed consumer budgets have now become the driving factors in a continued sluggish auto origination market.

 Total Monthly Credit Debt Payments Among Auto Borrowers Have Been Steadily Increasing

Q1 2018 Q1 2019 Q1 2020 Q1 2021 Q1 2022 Q1 2023 Q1 2024
Auto $470 $478 $487 $493 $512 $545 $581
Mortgage $634 $643 $639 $612 $618 $686 $719
Bankcard $145 $161 $172 $151 $162 $205 $216
Personal Loan $42 $47 $53 $49 $53 $62 $67
Total $1,291 $1,329 $1,351 $1,305 $1.345 $1,498 $1,583

  Source: TransUnion Consumer Credit Database

And now delinquencies are starting to have an impact.

The study also indicated that delinquencies are on the rise among auto borrowers.

TransUnion reported auto delinquencies 60 or more days past due increased to 1.33% in Q1 2024, up from 1.19% one year prior.

Analysts also found that those consumers who saw the highest credit score migration increases in the 2022 period were at the greatest risk of falling 60 days or more poast at least once in the following 15 months.

TransUnion explained the term credit score migration is applied to consumers who had traditionally found themselves with a higher or lower credit score yet saw their score uncharacteristically increase or decrease over the course of the period mentioned above.

Among Q3 2022 originations, TransUnion determined those consumers who were high migrators, or saw significant score increases, in the period prior to their origination were significantly more likely to fall 60-day delinquency basket during that following 15-month period.

Among that group, TransUnion said 4.36% fell 60 days or more past due during that time, compared to 2.34% of low migrators and 2.11% of negative migrators.

Satyan Merchant is senior vice president of auto and mortgage line of business leader at TransUnion. Merchant said these metrics have been a driving factor in the tightening of underwriting standards among auto finance companies, and three consecutive year-over-year originations declines from Q4 2021 to Q4 2023.

“As we are continuing to see auto payments steadily increasing faster than incomes, this is placing pressure on consumers across the credit risk ranges when controlled for risk tier, but in particular, among consumers with below prime credit,” Merchant said in the news release. “This is something that bears continued monitoring by lenders, and those lenders should consider making further adjustments, potentially through the use of alternative and trended data, as necessary.”

With that in mind, TransUnion reminded finance companies about its offerings, including TruVision attributes and alternative data that can help finance companies rebuild underwriting and strategies.

“While in normal times it may suffice for auto lenders to continually monitor their underwriting risk models for stability and accuracy, in a more unsettled lending environment, such as that in which we find ourselves today, that may simply not be enough,” Merchant said.

“Lenders should consider additional measures to stimulate originations more confidently and maintain growth. These measures can include conducting retrospective and lost sales analyses, tracking and monitoring performance across sample populations, and overlaying blended scores to create dual score strategies,” he went on to say.