WASHINGTON (1/12/15)--As subprime borrowers continue to secure auto loans at a higher clip, missed payments on overall auto loans, especially in the subprime market, have risen to their highest levels since the financial crisis, according to Moody's Analytics (The Wall Street Journal Jan. 8).
Now, car industry analysts worry that practices by lenders that have boosted auto sales over the past 12 months could end up proving costly.
"It's clear that credit quality is eroding now, and pretty quickly," Mark Zandi, chief economist for Moody's Analytics, told The Wall Street Journal.
According to the Journal, more than 2.6% of borrowers who received auto loans in the first quarter of 2014 missed a payment at least once by November. That's the highest rate of early loan trouble since 2008.
Further, the same rate among subprime borrowers has climbed to 8.4%--according to Equifax credit-reporting data--also the highest since 2008 when the rate reached 9%.
Overall auto-loan delinquencies have risen above their year-ago levels as well. In 3Q, 3.4% of borrowers had missed at least one car-loan payment, up from 3.2% annually.
Credit unions have not seen dramatic increases in 60-day delinquency rates for auto loans, according to national data from the Credit Union National Association and the National Credit Union Administration.
The 60-day delinquency rate for new-vehicle loans climbed only 2 basis points to .37% year-over-year in September, and for used-vehicle loans increased only 6 basis points annually.
Consumer groups, meanwhile, believe that car dealers and finance companies have been contributing to the overall upswing in late car payments by using aggressive tactics on low-income borrowers that lead to loans that exceed what they can truly afford.
Lenders, on the other hand, say the concerns are overstated.
"Auto loans continue to perform well, as they did during the recession," Bill Himpler, executive vice president of the American Financial Services Association, told The Wall Street Journal. "Concerns about a spike in delinquencies have not been substantiated by evidence."
But some of the industry's leaders in auto financing are also starting to see higher rates of nonperforming loans and net charge-offs.
Ally Financial, for example, holding the largest share of the market excluding auto dealers, saw a 7.9% increase in nonperforming loans in the third quarter year-over-year, and an 18% jump in net charge-offs, or those loans it expects not to be paid back.
A spokesperson for Ally told the Journal that the losses are "related to growth in the consumer portfolio as well as our strategy to diversify the business and book a more balanced mix of assets."
Further, she said "the increase in losses was expected and in line with our expectations. We continue to have a robust underwriting policy and price for risk appropriately."