TransUnion predicts subprime rebound after reviewing Q1 data

TransUnion is pretty bullish about the future prospects for the subprime segment of auto financing.

While discussing the metrics contained in the Q1 2021 TransUnion Industry Insights report, senior vice president and automotive business leader Satyan Merchant explained how that data coupled with a handful of other trends could lead to a lift in originations within subprime.

First, let’s get into the information TransUnion shared on Wednesday.

Analysts indicated the broader auto-finance market continued to recover during the first quarter, with average outstanding balance per contract topping $20,000 for the first time since TransUnion began tracking the metric.

TransUnion noted that originations — viewed one quarter in arrears to account for reporting lag — continued to increase in Q4 2020, though at a slower rate than Q3. Analysts acknowledged the slowdown is primarily due to fewer contracts originated in subprime.

However, TransUnion said in a news release that early counts in Q1 point to some recovery happening for this subset of the population.

Analysts also determined serious delinquency rates for contracts 60 days or more past due increased in Q1, moving to 1.51% from 1.37% year-over-year. They explained the slight rise in aggregate delinquency rates is, in part, driven by lower subprime originations.

Vintage analysis is showing that auto portfolios across all risk tiers remain healthy, according to TransUnion.

“The auto finance market continues its recovery after encountering the depths of the pandemic last year,” Merchant said in the news release. “The strength of originations, balances and loan performance point to a market where lenders have continued to make credit available to borrowers; while government stimulus, falling unemployment and tax refund season have all helped strengthen household balance sheets.

“All of these factors point to rebound in subprime originations in Q1 2021 and beyond,” he continued. “While overall delinquency rates continue to rise, they appear to be at manageable levels.

“At the onset of the pandemic, there was a fear that we might see a major spike in auto delinquency rates, especially as most consumers were locked down in their homes,” Merchant went on to say. “That fear never materialized and we anticipate more auto loan growth and continued good performance in the near future.”

TransUnion plans to get deeper into its report during a free webinar on May 26. Registration for the session can be completed on this website.

Q1 2021 Auto Loan Trends

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