Auto Delinquency Soars in Q1

S&P Global Mobility has reported that auto loan delinquency exceeded recession-era highs in the first quarter of this year.

The first three months of 2023 saw a 1.69% increase in auto loans over 60 days past due. The current percentage surpasses recession-era highs in 2009 and 2010 of 1.46% and is 26 basis points greater than the 1.43% recorded in Q1 of 2021.

According to S&P Global Mobility, the spike is concentrated in the subprime tier, and among independent lenders that specialize in subprime loans for used-vehicle purchases.

S&P Global Mobility attributes the increase to inflation and high interest rates.

"The interest rate rise is squeezing the monthly budget for the average American consumer," Jill Louden, product management associate director for S&P Global Mobility, said in a statement to Automotive News. "Consumers set aside money monthly for housing, vehicles, and insurance, but may not pay other obligations with the same frequency, such as medical bills and credit cards. People need their vehicles to get to work to make money and pay their obligations."

During the pandemic, the subprime tier accounted for 12.3% of account volume in the first quarter of 2021 and 12.9% in the first quarter of 2022. It recovered to 14.2% in the first quarter of 2023. Prior to the pandemic, subprime volumes hovered at around 15%.

The high delinquency rate has pushed captive finance companies, banks, credit unions, and independent lenders to tighten underwriting standards, according to TransUnion/S&P Global Mobility AutoCreditInsights. Tightened credit, in combination with high interest rates and lower used-car inventories, has led to decreased loan originations. S&P Global Mobility reports a 15.3% reduction in originations in Q4 2022 compared to Q4 2019.

Vintage performance (or performance over a set period of time) is relatively strong in the new-vehicle segment. Recent vintages are performing better than pre-pandemic portfolios at the same age, according to S&P Global Mobility.

However, on the used-vehicle side, vintage delinquency rates for five to 10 months from origination were elevated above previous years in the first half of 2022. S&P Global Mobility reported vintage delinquency rates returned to pre-pandemic levels in the latter half of the year.