Steadiness a theme in TransUnion Industry Insights report

Subprime, near-prime and prime year-over-year origination growth all saw year-over-year declines for the first time since a six-quarter pullback that lasted from the third quarter of 2016 to the fourth quarter of 2017, according to a new report from TransUnion.

But even with those declines, according to TransUnion’s Q3 2019 Industry Insights Report released on Wednesday, steadiness was a recurring theme.

“New Vehicle Sales Slow but Performance Remains Steady,” was the heading for the auto section of the TransUnion report.

The report addressed various sectors, but in addressing Q3 2019 auto loan trends, TransUnion noted that total year-over-year origination growth remained flat in Q2 2019 at approximately 7.3 million. Growth was limited to the prime plus (3.0%) and super prime (5.2%) risk tiers.

TransUnion senior vice president and automotive business leader Satyan Merchant addressed the trend in what he described as “a broader aperture.”

“Middle of 2016 to end of 2017 pullback, then we saw beginning in late 2017 lenders dipping their toes back in and, you know, the lower risk tiers,” Merchant said. It has been that way for a while now, he said.

Merchant added, “We're talking over a year. And now again, we’re seeing a bit of a pullback,” he said.

Steadiness was a theme in the area of serious auto loan delinquency, a rate which moved up only slightly to 1.40%. TransUnion said this is the ninth straight quarter year-over-year with a delinquency variation of less than 10 basis points. The company noted, however, that total balance growth slowed in Q3 2019 to 3.5% year-over-year, compared to the 5.2% yearly increase in Q3 2018.

Merchant said the pullback in subprime growth could be a reflection on lenders who he said are balancing their portfolios after “opening up the spigot” for subprime and near-prime lending since the end of 2017.

“Some of it can be also just based on consumer demand within the quarter, if there was any kind of minor shift there,” he said.

TransUnion will keep an eye on trends for next quarter and beyond, Merchant said, to see if the subprime pullback is some type of sustained pattern.

“While there's a pullback, I don't think … everyone’s closing up shop on subprime or near-prime lending. I wouldn't say that,” Merchant said, emphasizing what he said earlier about lenders balancing their portfolios.

He added, “Some of it might be the demand side; some of it might be supply side, but we'll have to kind of wait and see to see if any really strong trends are forming.”

TransUnion also provided an “instant analysis” of the report, noting that “affordability pressures” such as rising new-vehicle prices, plateauing terms and looming tariffs weigh on the auto industry. TransUnion mentioned forecasts predicting a likely drop in 2019 new-vehicle sales to below 17 million for the first time since 2014.

The company added that used-vehicle sales could fall flat for the first time since 2014.

“Yet steady delinquencies and flat year-over-year originations in the face of falling vehicle sales still point to the current underlying health of the auto loan market,” TransUnion stated in the report.

Q3 2019 auto loan trends

*Note: Originations are viewed one quarter in arrears to account for reporting lag. Source: TransUnion