Auto Loan Delinquency Plunges, Silver Lining For Car Companies

Car loan delinquencies dropped over 18% from the fourth quarter of 2009 to the first quarter of this year, according to credit agency TransUnion. The news is good for US car companies which are pushing their way back into the car financing business after the default disasters of the recession cause large losses.

Auto loan delinquencies are measure by those more than 60 days past due.“Information for this analysis is culled quarterly from approximately 27 million anonymous, randomly sampled, individual credit files, representing approximately 10 percent of credit-active U.S. consumers and providing a real-life perspective on how they are managing their credit health.”

A lack of access to credit has been blamed for the fact that domestic car sales have not rebounded more quickly. Banks have been reluctant to offer loans to buyers unless they have high credit scores. The US car companies did not have the balance sheets to re-enter the lending market while Japanese and European firms have been able to use their own financial units to draw customers.

The news is also another indication that the consumer leverage trouble that helped cause the 2008 economic collapse is ending. There is already evidence from credit rating agencies and card companies like Visa (NYSE: V), MasterCard (NYSE MA), and American Express (NYSE: AXP) that charge-offs of bad consumer loans are falling. The trend has also helped the return of shoppers to retail outlets.

Car loans have liens on the vehicles which they cover. Since auto values drop almost 30% in the first year after sales, the cars are not ideal collateral. That makes the improvement in delinquencies even more important.

Douglas A. McIntyre